Ding, dong, tax bill is dead!

Sept. 1, 2012

Katy Grimes:

The California Senate killed Assembly Speaker John Pérez’s AB 1500, which would have taxed out-of-state businesses. Ding dong, one more tax measure is dead… for now.

Perez worked like a mad man on Friday to try and nab enough Republican support for his “middle class scholarship” bill. But it wasn’t about the scholarship–it was just one more attempt to tax businesses for another type of California welfare program.

When Perez saw that he didn’t have the votes at the eleventh hour, he gave in.

Single Sales Factor

AB 1500 was a $1 billion tax increase on out-of-state businesses that create jobs, pay taxes on their property, sales and payroll receipts, and have thousands of employees in California.

As California Employers Against Higher Taxes correctly pointed out, “Proposition 24 sought to make this change in 2010, and California voters overwhelmingly rejected it by two million votes.”

Perez said that a tax loophole is costing California $1 billion per year. But it was not really a loophole: Until the 2011 tax year, corporations had been calculating income taxes using property, payroll and sales for more than 40 years. AB 1500 would have removed the traditional tax calculation, and taxed companies solely on income.

According to the California Manufacturers and Technology Association, far too many businesses that employ thousands of Californians would pay more taxes under a mandatory Single Sales Factor, regardless of where they are headquartered.

According to The Tax Foundation, California compares poorly to other states in terms of how its tax climate effects the ability to attract and retain jobs. Only 13 states currently mandate SSF as the sole calculation method. In order to compete nationally, California must do a better job of giving companies a reason to come here, invest here and create jobs.

Under current law, SSF is available for any company for whom it makes sense, and others may elect the traditional formula and pay taxes based on their sales, payroll and property.

Wheeling dealing

“The altered proposal would have exempted tobacco giant Altria from the tax hike, as well as other big corporations. It would have restored the state’s Healthy Families healthcare program for low income children, which was eliminated in the budget Gov. Jerry Brown signed earlier this summer,” the Los Angeles Times reported.

Perez tried his best to wheel and deal, but Republican lawmakers resisted.

California’s free-fall

As California remains mired in one of the worst economic free falls in state history, it clearly was not the time to overturn the bipartisan legislative agreement designed to create jobs, stability and predictability.

Even with concessions and exemptions, Perez was unable to negotiate his way into support for the tax increase–because every legislator in the state has out-of-state businesses residing in his or her district. Jobs and businesses matter more than ever.

The Tax Foundation explains that California’s individual income tax has the second highest rate and one of the most highly progressive structures in the nation. “In 2010, California’s state-level individual income tax collections were $1,229 per person, which ranked 5th highest nationally. Since most small businesses are S Corporations, partnerships, or sole proprietorships, they pay their business taxes at the rates for individuals. That makes California’s taxes on small businesses some of the most burdensome in the nation.”

California’s high tax rates, high land costs, high labor and energy costs, and staggering regulations are disincentive enough for out-of-state companies to invest in the state.

Legislators should be providing more incentives to create jobs, instead of continuing to kill off businesses. This defeat was one small step for mankind.