LAO Issues Report Exposing Job Killer Tax Loophole

Friday, January 14, 2011

Senator Kevin de León Announces Plan to Kill the Loophole

(Sacramento, CA) Senator Kevin de León (D-Los Angeles) today released a report by the Legislative Analyst Office (LAO) showing that a new tax law taking effect this year rewards corporations for locating jobs out of California and even provides a tax break to California employers who ship jobs out-of-state.

According to the LAO report, a simple tweak to the tax code would not only save taxpayers $1 billion, it would create an estimated 40,000 jobs here in California. Given these disturbing findings, Senator De León today is introducing legislation immediately eliminating that tax break by making what's known as the single sales factor (SSF) mandatory for corporate taxation.

"We can't afford to reward Texas tycoons and stick California taxpayers with the billion dollar tab," stated De León. "This legislation will also eliminate the incentive for California companies to ship jobs out of state while creating 40,000 jobs here in California."

In 2009, a so-called tax reform bill was part of the late-night budget deal with former Governor Schwarzenegger that passed with no public hearings, no public comment and no oversight. Unlike the vast majority of other states that utilize such a corporate tax calculation, California failed to require all eligible companies to use the SSF as mandatory for multi-national corporations and instead made its use elective, thereby providing corporations a tax windfall whether they create jobs in California or not.

This new job killer tax loophole takes effect this year, rewarding companies for creating out-of-state jobs while punishing California companies seeking to create California jobs by putting them at a competitive disadvantage – all paid for by California taxpayers.

"This legislation will incentivize out-of state companies to move jobs here, make California businesses more competitive and save the taxpayer's a billion dollars every year—just what we need to be focusing on to turn our state around," continued De León.

This legislative proposal seeks to establish a more consistent standard in the calculation of corporate taxes owed to the state that does not give unnecessary tax breaks for multi-state corporations anchored outside of California. Of the 23 states that utilize single sales factor, only one, Missouri permits an annual election like California. Most others (like Texas, New York, Oregon, and Washington) require all corporations to use the same tax calculation formula proposed in this legislation.

This measure will be Senator De León's first bill in the 2011-12 Legislative Session.