Ballot measure targets corporate tax loopholes

As California’s financial woes deepen, a coalition of tax reform and labor groups has filed a proposed ballot initiative for 2010 that would eliminate an estimated $2.5 billion worth of corporate tax breaks that the governor and state lawmakers approved since last September.

The California Tax Reform Association, the American Federation of State, County and Municipal Employees California (AFSCME) and the California Federation of Teachers filed the proposed measure with the state attorney general’s office to obtain the official title and summary. The action is the first step required putting the proposal before voters next year. Approval from the state’s election officer also is needed before the tax groups can begin gathering signatures on petitions.

“In May, California voters rejected other parts of the February budget agreement. We believe that voters should be given a choice to decide if they want to keep $2.5 billion in corporate tax loopholes that were passed in secret by the Legislature as part of their failed budget deals,” said Lenny Goldberg, executive director of the California Tax Reform Association.

“These permanent loopholes were passed in secret, with no discussion or public testimony, and require no review for effectiveness or economic benefit. The tax breaks contain no requirement that they create a single job in California despite costing billions of dollars in taxpayer money every year,” he added.

His group has long sought changes in the tax code to limit corporate loopholes, and also favors imposition of an oil severance tax and a “split roll” for property taxes, in which residential and commercial property are taxed at different levels.
Critics contend that California already is overtaxed and that eliminating tax breaks for businesses would further cripple the state’s sputtering economy.

The proposed initiative would repeal the “elective single sales factor” provisions approved this year, and eliminate the “loss carry forward” and “credit-sharing” provisions also approved last year.

According to the coalition, the repeal of the three tax breaks would provide $2.5 billion annually toward closing California’s long term structural budget deficit. These corporate tax breaks are scheduled to take effect in 2010 and 2011, “which gives California voters the opportunity to reject them before they can cause an even worse budget mess than the state is already in,” the coalition said.

The so-called “single-sales factor” gives large corporations the choice of how much income they want to report to California. The shift to elective single sales factor apportionment will cost the state an estimated $260 million in 2010-11, increasing to $1 billion per year in 2014-15. Some forecasts suggest that when fully implemented, this tax break will cost the state $1.5 billion per year in lost revenues, the coalition contends.

The California Budget Project, which tracks the impact of the budget on low- and moderate-income people, reported that nine corporations will receive a tax break which averages $33.1 million each in 2013-14 due to the adoption of elective single sales factor apportionment. Some 80 percent of the benefits will go to the 0.1 percent of California corporations with over $1 billion in gross income.

The “loss carry-backs” allow companies with losses to get refunds for taxes paid two years previously. California has until now permitted losses to roll forward against future earnings, but now, the state will have to give back tax money that was already collected and spent. “This tax break is estimated to cost the state $30 million in 2010-11, with the cost rising to $505 million in 2011-12 and similar amounts thereafter,” the group said.

Under “credit-sharing,” companies with more tax credits than they can use are allowed to share these credits with affiliate companies. An estimated 87 percent of the benefits of this tax break will go to corporations with income over $1 billion. This provision is estimated to cost the state $80 million in lost revenues in 2009-10, $270 million in 2010-11, increasing to an estimated $385 million in 2015-16.

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