Should recent tax law changes that allow some businesses to pay lower state income tax be repealed?
Income tax law changes were made during 2008 and 2009 as part of budget agreements by the Legislature and Governor. These changes allow some businesses to pay lower taxes, as follows:
- Multistate Businesses. Beginning in 2011, multistate businesses can choose between two options to determine the level of income that California can tax: 1) a "single-sales" factor that considers only sales in California, or 2) a "three-factor" formula based on sales, property and payroll in California.
- Business Losses. Beginning in 2010, businesses with losses can get refunds of taxes paid on profits in the previous two years and can use losses to offset income in the future 20 years following a loss.
- Tax Credit Sharing. Beginning in 2010, corporations can share tax credits with affiliated corporations.
Proposition 24 would repeal tax law changes passed in 2008 and 2009, returning tax policies to the way they were prior to those changes:
- Taxes on multistate businesses would be based on the business' sales, property and payroll in California (the “three-factor” formula noted above).
- Business losses could not be used to get refunds of taxes previously paid, and losses could be used to offset income into the future 10 years following the loss, instead of 20 years.
- Tax credits given to a corporation could reduce only that corporation’s taxes.
General Fund revenues would increase by an estimated $1.3 billion in business taxes each year. More than one-half of these increased taxes would be paid by multistate businesses as a result of the elimination of the "single-sales" factor option of tax calculation. Under the formulas of Proposition 98 (passed by the voters in 1988), a significant part of these revenue increases would go to schools and community colleges. The remaining revenues would be available to the Legislature and the Governor for any purpose.
- Prop 24 will end $1.3 billion per year in special corporate tax loopholes that don't require the creation or protection of California jobs.
- Prop 24 will keep the Legislature from making even deeper cuts in funding for public schools, health care and public safety.
- Prop 24 will ensure tax fairness and end tax breaks that unfairly benefit less than 2% of California businesses.
- Prop 24 will tax new job creation and penalize businesses when they try to expand in California. It will cost California 144,000 Jobs.
- Prop 24 doesn't guarantee that a single dollar will go into classrooms, public safety or other vital programs.
- Prop 24 will hurt small businesses by removing the tax incentives that will help them survive in this down economy.