New "Job Killer" Bill Creates Economic Instability, Chills State’s Recovery

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These four employer-community supported proposals were adopted as a stimulus package to help offset the hit California employers took under the 2009 budget deal, which raised taxes by more than $12 billion to show the state’s continued commitment to keeping businesses in the state, despite the necessary short-term tax increases. Eliminating these incentives will hinder the state’s economic recovery by discouraging investment and growth.

NOL

Both types of NOL deductions help resolve an inequity in the state’s tax structure that arises because businesses experience losses and profits according to timeframes or cycles over time that differ from the government tax filing deadlines. Without these deductions, two businesses can have the same profits and losses, but different tax liabilities over a series of years.

The NOL carry back, in particular, is a lifeline to businesses struggling to deal with the current downturn. Without it, these businesses might not be able to last long enough to take advantage of the carry forward deduction.

Single Sales Factor

Last year, the legislature properly recognized there is merit in both the current apportionment formula and the single sales factor apportionment formulas when it established an elective single sales factor formula. Allowing businesses to choose the best formula to operate, employ and sell in the state provides an economic incentive to invest in the state, despite many other disincentives.

AB 1511 does not recognize many California employers would experience a tax increase under the single sales factor formula, discouraging them from investing in the state’s recovery.

Extending Suspensions

Continuing to suspend the other changes established in last year’s budget solution will undermine current-year budget negotiations. Employers make business plans over the long-term, which means unexpected and/or uncertain changes to state tax policies can easily undermine employer confidence and encourage businesses to invest elsewhere.

November Ballot

In addition, a proposal to repeal all four of these recently enacted tax benefits will appear on the Nov. 2 ballot in the CalChamber-opposed Proposition 24 — Repeal Corporate Tax Loopholes Act. The CalChamber Board of Directors voted to oppose this proposal because it repeals recently enacted tax benefits, the elective single sales factor, NOL carry back and tax credit sharing. It would additionally repeal the recently enacted expansion of the NOL carryover from 10 to 20 years.

Action Needed

AB 1511 was scheduled to be heard in the Senate Revenue and Taxation Committee on Aug. 11. The CalChamber urges members of the business community to contact committee members and their Senate representative and urge them to oppose AB 1511.