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Proposition 39: Corporate Tax Law

Oct 19, 2012

Next in our series on California's November ballot measures, we take a look at Proposition 39. It would change a critical piece of corporate tax law and provide more money to the state – but higher taxes for some businesses.

It was called “the most boring proposition on the 2012 ballot” by a San Diego blogger. The writer has a point. It revolves around a corporate tax formula known as the “single sales factor.” But when you consider that corporate taxes accounted for nearly 10 billion dollars in California last year, Prop 39 doesn’t sound so boring anymore:

“In closing this loophole for out-of-state corporations, we get back to something which is fairer.”

Hedge fund manager Tom Steyer is leading the charge for prop. 39. Here’s what he calls unfair: Right now multi-state businesses can choose how to figure their California tax liability. They can use a formula based on their sales, payroll and property in the state, or a formula based solely on their sales in the state – known as the single sales factor. Steyer says this hurts job creation:

“We want to take away the incentive for companies to fire Californians and move their facilities out of state while selling into the largest market in the United States.”

Under Prop 39, all companies would have to use the single sales factor. The state’s non-partisan legislative analyst says that would bring in about a billion dollars a year for the general fund and for energy efficiency projects.

But Dorothy Rothrock with the California Manufacturers and Technology Association says that billion dollars would come with consequences. She says multi-state companies might cut jobs or raise prices if Prop 39 passes:

“Companies that would be hurt by single sales factor in California include many manufacturers who have payroll and property here, but they just have so much sales in the state because we’re so huge, that taxing them on the basis of their sales makes their taxes go sky high.”

A mostly democratic group of lawmakers pushed legislation this year that was similar to prop. 39, but the measure failed.