Lawmakers Hold First Floor Sessions of the Year, Propose $2.4 Billion Tax Increase on Businesses

California State Capitol 1

A group of lawmakers proposed a $2.4 billion-a-year tax increase on businesses January 12, just one day after the state Assembly and Senate held their first floor sessions of the year.

The tax legislation, AB 71, was introduced in skeletal form in December, and was amended this week to include specific tax increases to raise revenue for programs intended to reduce homelessness. As amended, the bill:

  • Increases the corporate tax rate on businesses with more than $5 million in taxable income (from 8.84 percent to 9.6 percent, and from 10.84 percent to 11.6 percent for financial institutions) unless the minimum franchise tax is greater beginning on or after January 1, 2022.
  • Requires a taxpayer that makes a water’s-edge election to take into account 50 percent of the global low-taxed income and 40 percent of the repatriation income of its affiliated corporations. The bill allows a taxpayer, for calendar year 2022, the opportunity to revoke a water’s-edge election. The bill also prohibits a taxpayer that experiences a tax increase under these provisions from utilizing business tax credits to offset more than $5 million of the new liability.
  • Includes a taxpayer’s global low-taxed income in gross income for purposes of the personal income tax law, in modified conformity to federal law, beginning on or after January 1, 2022.

Assembly Members Luz Rivas, Richard Bloom, David Chiu and Buffy Wicks are pursuing the legislation.

“We are here today because our state is facing an unprecedented homelessness crisis that is on the verge of becoming a full-blown catastrophe due to the economic impacts of COVID-19,” Rivas said. “This legislation creates, for the first time ever, an ongoing state funding source for long-term solutions to homelessness.”

CalTax is leading a large coalition in opposition to the unnecessary tax increase.

“Californians and their employers are struggling to survive the pandemic, and the last thing they need is a multibillion-dollar tax increase that will lead to more job losses and higher costs for consumers,” CalTax President Robert Gutierrez said. “The Legislature should focus on helping people get back to work, and the best way government can help right now is by solving the problems that plague the unemployment insurance system, not passing tax hikes that add obstacles to economic recovery.”

Responding to proponents’ claims that the tax increases in AB 71 would not impact business decisions to leave California, Gutierrez said: “That couldn’t be further from the truth. While Oracle, Hewlett-Packard Enterprise, and Tesla made headlines with their decisions to leave, the untold story is how many other businesses also moved departments and functions out of this state because of California’s high cost of doing business, which AB 71 would only make worse.”

CalTax noted that the governor’s $227.2 billion budget proposal for 2021-22 includes record high reserves of $22 billion – with $15.6 billion in the Rainy Day Fund – due to an estimated $15 billion windfall in tax revenue. This indicates that programs to reduce homelessness could be funded without a tax increase, CalTax said.