8.06.2010

Proposition 24’s Opponents Receive a $1 Million Contribution

On July 29, the opponents of Proposition 24, the November ballot measure that would repeal a trio of tax breaks for businesses enacted as part of the February 2009 budget, received a $1 million contribution from biotech giant Genentech.

While other companies benefiting from the changes in state tax law Proposition 24 would repeal have each contributed $100,000 to the “no” side – Amgen, Cisco Systems, Abbot Laboratories, Hewlett-Packard, General Electric, Viacom and Time Warner – Genentech has kicked in 10 times that amount.

Presumably encouraged by the companies that oppose Proposition 24, GOP lawmakers, in return for their votes to pass last year’s budget, insisted on changes in tax law they said would benefit California’s economy.

Chief among them is a change in how California taxes are computed for companies doing business in more than one state.

California currently uses a formula comparable to that of 33 of the 46 states that have a corporate income tax. Taxes that multi-state businesses pay are based on a combination of the sales, property and payroll located in each individual state.

Different states weigh the three factors differently. California has a “double-weighted” sales factor, which means sales account for 50 percent of the company’s taxable California income while property and payroll represent 25 percent each.

Under the new law change, which would start in the 2011 tax year if voters reject Proposition 24, companies will be given the choice of either basing their taxes solely on sales or the current mix of the three criteria.

Companies could flip back and forth annually from one method to the other, whichever proved most favorable to their bottom-line.

The Legislative Analyst estimates the state will lose $900 million in corporate tax revenue when the change is fully implemented.

On April 6, Genentech cut the ribbon on what the company describes as a 250-employee, “state-of-the-art biologic fill/finish facility and warehousing and distribution center” – in Hillsboro, Oregon.

The 13,000-employee company purchased the 75-acre parcel in 2006. It also has three California locations: a South San Francisco headquarters, a 100-acre manufacturing site in Vacaville and another 60-acre site in Oceanside, near San Diego.

Under the current California tax structure, Genentech’s expansion in Oregon prevents its already substantial in-state property and payroll from becoming a bigger part of the equation and boosting the taxes it owes.

But under the sales tax only calculation enacted last February, Genentech’s three California sites– and the payroll for 12,750 California employees — are no longer factors, significantly lowering the company’s tax payments.

Certainly lowering their annual payments enough to warrant a $1 million campaign contribution.

And by allowing an annual choice between using whichever calculation is most beneficial, the company can have an off year in sales and revert to the sales, property and payroll option.

The Legislative Analyst recommends making the single sales factor mandatory, in part because it reduces the corporate tax revenue loss to the state and because the ability to choose which formula is most beneficial “arbitrarily favors firms with disproportionately high or low California sales relative to property and payroll.”

The “yes” campaign for Proposition 24 campaign has so far been bankrolled by the California Teachers Association whose members see the tax breaks as robbing public schools of money they desperately need.

California’s constitution guarantees public schools at least 40 cents of every $1 flowing into the state general fund.

A reduction in corporate tax collections of $900 million, the estimated impact of full implementation of the elective single sales factor change, means a loss of $360 million in potential support for public schools.

However, while Proposition 24’s opponents have logged $340,000 in contributions – not counting Genentech – since April 1, proponents show none. The last contribution listed is $500,00 from the teachers association on March 30.

-30-

Filed under: Politics



No Comments »

No comments yet.

RSS feed for comments on this post.

Leave a comment