Calif. bill to close tax loophole moves forward
August 16, 2012
By HANNAH DREIER Associated Press
Middle class Californians will get relief from soaring college costs if a bill passed by the Assembly August 13 becomes law.
AB1500 would eliminate a $1 billion tax break for out-of-state corporations and use the expected windfall to reduce tuition.
It is the second component of Assembly Speaker John Perez’s “Middle Class Scholarship Act.” The Assembly previously approved the other part, which would reduce tuition by more than half for families whose annual household income exceeds the cap for getting a free ride at California’s public universities ($70,000 a year for the California State University system and $80,000 for University of California system) but is less than $150,000.
The Legislature approved the tax loophole in 2009 as a way to get a handful of Republican lawmakers to vote for the state budget.
On Monday, Republican Assembly members objected to what they described as an attempt by Democrats to undo the previous budget deal.
“This wasn’t a loophole, it was a product of careful, extensive negotiations and promises,” said Assemblyman Don Wagner, R-Irvine. “Promises made by one side of the aisle to secure the votes that they needed from the other side of the aisle. Promises that have now been completely undone.”
But Perez, D-Los Angeles, said there was no use preserving a two year-old status quo where “you are getting kicked in the head by other states.”
“This will help California businesses remain competitive while ensuring that California’s middle-class families have the same opportunities to succeed as our generation had,” he said.
The 2009 tax loophole deal allowed companies operating in multiple states to choose the cheaper of two formulas for calculating their tax liability in California. They can use an option that considers sales, property and payroll, or a formula that considers only sales.
Perez’s bill would force corporations to use only the sales factor. At least 11 other states, including Texas and New York, require that corporations calculate their tax obligations this way.
Last year, Gov. Jerry Brown, a Democrat, passed a single-sales requirement through the Assembly, but his measure failed to get GOP support in the Senate. Republicans say the change could drive job creating corporations out of California.
AB1500 passed the Assembly 54-25, barley meeting the two-thirds threshold. Assemblyman Brian Nestande, of Palm Desert, was the lone Republican supporter.
“I’m putting forth my vote to say we need to come together and work on some of these issues to bring businesses back to California,” he said.
Assemblyman Nathan Fletcher, an independent, also voted yes.
“It’s not the job of tax policy to help companies pay less; it’s the job of tax policy to create an incentive for economic growth in our state,” he said.
One Democrat, Tony Mendoza of Artesia, initially abstained from voting, but ultimately gave the measure a “curtsey vote.”
The bill still faces several obstacles.
Republican lawmakers are promising to block Democrats from reaching the two-thirds majority vote they need in the Senate, and four out-of-state corporations have vowed to continue lobbying against the act.
“The Legislature today sent a very clear sign that it's picking winners and losers rather than doing everything it could to encourage more job growth in California,” said Peter DeMarco, a spokesman for the corporations, which include General Motors Corp. and Procter & Gamble Co.
An initiative on the November ballot provides another wrinkle. Proposition 39 would close the loophole and dedicate a portion of the additional revenue to clean-energy projects. Proponents have promised to stop campaigning if Perez’s package is signed into law, but if voters approved the measure anyway, it could lead to a court battle.
The act is expected to benefit about 200,000 college students and could take effect as soon as this fall if it passes the Senate and is signed by the governor.
Tuition for the University of California and California State University systems is three times what it was a decade ago.