California News

California Proposition 39: Closing out-of-state corporation tax loophole

Tuesday, October 23, 2012

Proposition 39 is one of several measures Californians will be asked to vote on this Election Day. It would eliminate a loophole that businesses can use now to pay less in taxes. The state tax board says it could bring in about a billion dollars if it passes.

"Prop. 39, to be straightforward, is a billion-dollar tax increase," said Jon Fleischman, founder and publisher of FlashReport.org.

"Prop. 39 would eliminate a tax loophole which is granted to companies located out of California that do business in California," said David Adelman, chair of the Valley Industry and Commerce Association (VICA).

Examples given by supporters of Prop. 39 include out-of-state corporations like Wal-Mart and Chrysler. Prop. 39 would end a tax loophole.

Current California law allows most multi-state businesses to pick one of two income-tax formulas. One is based on sales, property and employees. The other is simply based on in-state sales.

Companies can pick the method that requires them to pay the least amount in taxes. That usually favors the out-of-state company. The California Franchise Tax Board says eliminating the loophole would raise about $1 billion per year for California.

"If corporations want to take advantage of the marketplace that we have here, they should be forced to play on the same playing field, on a level playing field, with the corporations that are located here," said Adelman, who supports Proposition 39.

Prop. 39 is supposed to do just that: Force every company doing business in California to base their taxes on the percentage of the income that is generated in the state.

Fleischman, an influential conservative who writes the FlashReport, vehemently opposes Prop. 39.

"The cost of doing business for any business is always passed on to the consumer," said Fleischman. "So if you add to the price of how much it costs to produce that cup of coffee from Starbucks, or how much it costs to open up a local Wal-Mart store, then that price get passed on to the consumer. We have to pay it."

Some legislative leaders see the current tax laws as a benefit to out-of-state companies. But the Legislature hasn't had the votes to fix it.

Prop. 39 has been leading in the polls. Critics say that's because it's so complicated. People don't know what it does. Proponents say it does just what they say it does. It levels the playing field for corporations.

The general election is on November 6, 2012. Your vote can help decide many important issues for California. Over the next few weeks, Eyewitness News will focus on the propositions on the November ballot.

(Copyright ©2014 KABC-TV/DT. All Rights Reserved.)

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