Assembly passes bill changing Calif. corporate tax formula - Brian W. Jones

Assembly passes bill changing Calif. corporate tax formula

SACRAMENTO — The Assembly on Monday passed a bill that would change the formula corporations use to calculate California income taxes, a switch that would generate an estimated $1 billion a year in new revenue for funding scholarships that would reduce college costs by two-thirds or more for middle-class students at state universities.

One Republican and the Legislature's only independent joined with all the Democrats to provide the needed two-thirds majority, 54-24.

The bill passed Monday deals with the change in the tax formula. The second part of the plan, which establishes the middle-class scholarships, was passed by the Assembly in May with 55 votes, including those of the two Republicans who represent parts of Ventura County, Jeff Gorell of Camarillo and Cameron Smyth of Santa Clarita.

Gorell voted no on the tax provision, while Smyth abstained.

Assemblyman Brian Nestande of Palm Desert was the only Republican who voted for the tax change.

The vote was a victory for Assembly Speaker John Pérez, D-Los Angeles, who has made the middle-class scholarship proposal the centerpiece of this year's legislative agenda.

"By closing this loophole, we use the money to roll back a decade's worth of fee hikes at the UC and CSU for middle class families," he said in a statement released after the vote.

The proposal calls for automatically awarding the scholarships to any student at a UC or CSU campus whose family makes less than $150,000 in annual income. Students from lower-income families, with incomes up to about $70,000, already receive Cal Grants to offset tuition costs.

The scholarships would benefit an estimated 150,000 CSU students and 44,000 UC students. In addition, the bill would provide $150 million a year to community colleges to reduce attendance costs.

The middle class is "the population that gets squeezed" by soaring college fees, Pérez said.

The bill, which now moves to the Senate, would eliminate an option for multistate and multinational corporations in calculating how much state tax they owe. They now can determine how much of their profits are subject to California taxes by using only the percentage of sales that take place here or use a three-part formula that also factors in how much of their property and payroll are in the state.

The bill would require corporations to use only the sales factor, an approach supported by many large, California-based companies, which say using the other option provides an unfair advantage to competitors based out of state.

Supporters say the switch will help the state's economy because it will remove a disincentive for out-of-state companies to open operations in California. If they use the three-part formula, their California taxes would go up if they opened facilities or hired workers here.

"We have a tax code here that doesn't incentivize you to create jobs here," said Nathan Fletcher, the San Diego assemblyman who left the Republican Party this spring to become an independent. "When they debated this on the floor of the Texas Legislature, they didn't say, 'Let's think about what helps California companies.' "

California is one of two states that offer the optional formula. A majority of states use the single-tax factor that AB 1500 proposes.

The change in the formula is supported by a number of California corporations, many in the technology and biotechnology industries, including Thousand Oaks-based Amgen.

Critics say the switch would amount to a $1 billion tax increase for corporations and hurt large companies that have headquarters in other states but also large operations in California. Among the most active opponents is International Paper Co., which has two facilities in Oxnard and one in Camarillo.

Assemblyman Brian Jones, R-La Mesa, said proponents seek to take from "greedy corporations" to give to the "needy middle class."

"What honorable Robin Hoods are today on the floor of the Assembly," he said.

The measure is expected to face tougher opposition in the Senate, where most observers think a two-thirds majority vote is unlikely.

In addition, Assemblyman Tony Mendoza, D-Artesia, cast a yes vote Monday only as a courtesy, saying he would like to see the Senate change the way the money is allocated.

If the proposal becomes law, the proponents of Proposition 39 on the November ballot, which seeks to change the tax formula, say they will stop campaigning for their measure. If the bill fails, they will continue to urge voters to adopt the change. Under their proposition, the revenue would be used not for college scholarships but largely for energy retrofits of public buildings that are designed to create clean-energy jobs.

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