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Date:   Tue, 11 Nov 2008
From:   Bill

Mr. Gray:

I had a significant AMT tax bill from some 1999 stock options. I am aware of the federal tax refund law that went into effect in 2007. I think it is a refund of 20% per year for a six year period.

I have written to my California State Senator, Congressman and the Governor about having California adopt the refundable minimum tax for California, but I get the runaround with no answers. They still have my money.

Do you have any information about state tax laws adopting the refundable minimum tax credit?

Bill

Answer

Date:   10 Dec 2008

Hello Bill,

Only a few states have an alternative minimum tax that includes the ISO adjustment.

California hasn’t conformed to the federal law adopting a refundable minimum tax credit, and I don’t expect it to. The reason, plain and simple is the budget. California can’t continuously generate deficits at the same level that the federal government can.

Usually it’s easier to recover the minimum tax credit for California under the "traditional rules" than on your federal income tax return because California taxes long-term capital gains at 9.3% while the AMT rate is 7%, so if you sell the stock for at least the fair market value on the date of exercise, you’ll recover the California minimum tax credit.

The difference between the 9.3% regular tax and 7% AMT tax will also enable most people to recover some of their California minimum tax credit each year.

It may be some other strategies will help you recover your California minimum tax credit. Call me at 408-918-3161 if you want to discuss this in more detail.

I have some good news for you. The federal refundable minimum tax credit has been increased to 50% for 2008! See the article, "Refundable minimum tax credit available for 2008."

Good luck!

Mike Gray

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IRS Circular 230 Disclosure: As required by U.S. Treasury Regulations, you are hereby advised that any written tax advice contained in this answer was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the U.S. Internal Revenue Code.