It's time to fix a bad tax policy, created three years ago by the California Legislature, once and for all. Voters can take that opportunity in November by voting yes on Proposition 39.
Under the terms of Prop. 39, all businesses in California would be taxed the same way, using the single sales factor structure that bases taxes on a company's total sales within the state. Current policy allows companies to choose between the single sales factor and the so-called three-factor method for calculating taxes. That option bases taxes on total sales, property and employees in the state. By choosing the three-factor method, multistate companies with no employees or facilities in state pay much less in taxes than companies that locate and employ people here. Not even Texas, known for its low taxes and great business climate, offers this kind of break.
It's pretty easy to see why. This tax treatment doesn't just stick companies located in California with higher tax bills, it also incentivizes out-of-state companies that might have hired or built facilities here to stay away -- and that hurts all of us.
Who could have supported such a disadvantageous scheme? Our legislators. The arrangement was a concession made to Republicans during a late-night budget fight in 2009. There have been three attempts since then to correct this disastrous change, but the Legislature has failed to pass it each time.
Prop. 39 wouldn't just level the playing field among companies, it would bring an additional $1 billion into state coffers each year.
Gov. Jerry Brown twice tried to make the change and use the money first for the state budget and then for business tax breaks. And Assembly leader John Perez tried unsuccessfully to change the law last legislative session and use the money to defray tuition costs for students at state colleges and universities.
We're not thrilled with everything in Prop. 39. For the first five years, about half the $1 billion savings must go toward energy efficiency projects in public buildings or job training in that field. And the measure creates a new nine-member commission to oversee this money. This sort of ballot-box budgeting has pitfalls. And California already has a revenue stream for energy projects, paid for by utility ratepayers and overseen by the California Energy Commission and the Public Utilities Commission. Why create a new source of energy funding? And why is a new oversight group necessary? The CEC and CPUC seem perfectly capable of managing the new monies. However, the good news is that after five years the diversion for energy efficiency and clean energy expires and all the funds go directly to the state's general fund.
Republicans claim this ballot measure is tantamount to a massive tax increase that will drive more jobs and businesses out of a state already ranked near the bottom in terms of business friendliness. But the Legislative Analyst's Office said in a comprehensive 2010 study of the two tax structures that a tax switch of this type would actually make California more competitive. So we can deduce that the single sales factor implemented under Prop. 39 would make this state more competitive and contribute to job growth.
The Prop. 39 fight shows just how extreme the GOP has become. Republicans are so anti-tax they won't fix a loophole that hurts California businesses. Help make California more competitive and vote yes on Proposition 39.