Prop. 39 Would End Choice of Taxation Method For Out-of-State Companies

By Erik Anderson, KPBS

San Franciscan Tom Steyer spending millions of his own money to support Prop. 39. (Photo: Erik Anderson)

San Franciscan Tom Steyer spending millions of his own money to support Prop. 39. (Photo: Erik Anderson)

San Francisco hedge fund manager Tom Steyer has already fought and won a battle at the California ballot box. In 2010, he helped defeat Proposition 23. That measure would have rolled back California’s landmark global warming law. Now he’s putting $20 million of his own money into passing Proposition 39.

“It’s about tax fairness,” Steyer says. “We are closing a loophole, but all we are asking out-of-state companies to do is to pay taxes on their income exactly the way that we do. And what that will do is bring into the state of California over a billion dollars every single year, and all from companies from out of state.”

The Legislative Analyst’s Office has estimated that’s the amount of revenue the tax-change will generate. The LAO also said that “while only a small portion of corporations are multistate, [they] pay the vast majority of the state’s corporate income taxes.”

The history of Prop 39 is rooted in a change in the tax code that the California Legislature made in 2009. That’s when lawmakers gave companies a choice of how to pay their corporate taxes, says San Diego State University business professor Steve Gill.

“For years and years and years, we had a long tradition of using a three-factor apportionment formula,” Gill says, “which meant we look at three different factors that are economic drivers of income: sales, property and payroll.”

But three years ago lawmakers changed the rules to allow companies to base their corporate tax on sales only. And that’s the route most California-based companies took because they ended up paying less. But for some multi-state companies, it was the old formula that saved them money, because they don’t have a lot of property or payroll here.

“Clearly they are disadvantanged by a single-sales factor, and would prefer to keep the old three-factor formula.”

So Prop 39 eliminates the choice of which method companies can use, mandating they pay based only on sales.

That got the attention of four major corporations: GM, Chrysler, Kimberly-Clark and International Paper were quick to speak out against the initiative when it qualified for the ballot. So the Prop. 39 campaign singled them out in ads stating that they were “fighting to keep a billion-dollar corporate tax loophole that gives tax breaks to companies for shipping jobs out of state.”

But the firms lacked the stomach for an expensive ballot box fight in California, and they dropped their opposition. Steyer pulled the ads after the companies contacted him.

“Some huge major American corporations have sent us letters — who we thought might be in opposition and who we were prepared to try and debate — sent us letters saying, you know what — it is tax fairness. We recognize what you’re doing is correct. We have no intention of opposing you.”

Steyer says that is allowing him to run a positive campaign about fixing two long-running California problems: tax revenue and jobs. He says the measure will generate a billion dollars more for the cash-starved state, and that it earmarks half that money for the creation of green jobs over five years.

But both of those potential solutions make Richard Rider shudder. He’s the Chair of San Diego Tax Fighters. Rider says Proposition 39 is a tax hike, plain and simple, and he thinks voters will see that.

“The last eight tax increases that have been on the ballot — statewide tax increases, each of which could’ve passed with a simple majority vote …  have failed. Six of the tax increases failed by double digits.”

Rider says a tax hike won’t dig the state out of its fiscal hole. He argues California needs fiscal discipline, not more money. And he’s not ready to let politicians steer a half-billion dollars a year into green-energy projects.

“It’s not like there’s a bunch of wise, pipe-smoking geniuses up there making those distributions,” Rider says. “It is going to be people who respond to pressures in Sacramento. It is going to be people who respond to political contributions.”

But critics like Rider don’t have the deep pockets to publicly oppose Prop. 39. There will be no slick ad campaign to influence voters. Rider says he’ll have to rely on voters seeing the measure for what he says it really is.

Listen to Erik Anderson’s report:

Learn more about Proposition 39 at KQED’s California Proposition Guide:

  • earlrichards

    The Texas oil corporations have already gouged enough from from Californians, through excessive profits and high gasoline prices. It’s time these corporations gave something back.Vote yes on prop 39 and have the $1 billion spent on California.

  • cma

    I am a big environmentalist and by no means a Republican, but I
    have become increasingly skeptical of legislation intended to protect
    our planet. It always seems to be less about the environment and more
    about making money (ironically in ways that harm the planet).

    The fact that Wall Street has invested so much into this
    Proposition should raise a lot of eyebrows. If you have been paying
    attention to California Cap and Trade (which
    Steyer played a big role in passing), you know it is nothing more then a
    giant shell corporation for politicians to give money away to
    corporations and themselves. Steyer and his company are also big into
    real estate…of course. Seems real estate interests are behind everything
    in this election and this Proposition is no exception.

  • cma

    This proposition sets up a 500 million dollar slush fund and a new
    bureaucracy to allocate the money. It’s as simple as that. The money
    will undoubtedly be given away to the special interests that already run
    the state…developers. That’s why the Legislature passed all kinds of
    legislation allocating global warming money to housing development — a
    very strange contradiction but not surprising.

  • cma

    I came across a big name and a giant donation to the “Green Energy” bill: Thomas F. Steyer and a $21,900,000.00 donation!

    Thomas
    Steyer is a Hedge-Fund Manager that runs Farallon Capital Management,
    L.L.C. The firm was founded by Steyer and is headquartered in San
    Francisco, California. He worked under Robert Rubin, at Goldman Sachs
    and in Morgan Stanley’s corporate mergers and acquisitions department.
    (Sound familiar? Robert Rubin? as in the architect behind the financial
    crisis and the banking fraud).

    we have all seen what Obama’s
    “Clean Energy” jobs are doing to California. Ocotillo’s pristine desert
    along with other previously-protected Federal lands have been opened
    up for development to energy companies in the name of green energy.
    There is A LOT of money to be made under this moniker.

  • Wn

    So does this mean California is trying to regulate interstate commerce much like Arizona tried to regulate immigration? Don’t see how a court will uphold this one.