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Bill to close corporate tax loophole moves forward

Posted: August 13, 2012 7:00 p.m.
Updated: August 13, 2012 7:00 p.m.

Assembly Speaker John Perez, D-Los Angeles, right, confers with Assemblyman Roger Hernandez.

 

SACRAMENTO, Calif. (AP) — The Assembly on Monday approved a bill that would help middle class Californians cope with soaring college costs by closing a corporate tax loophole and using the expected windfall to reduce tuition.

AB1500 would eliminate a $1 billion tax break for out-of-state corporations. The Legislature approved it in 2009 as a way to get a handful of Republican lawmakers to vote for the state budget.

The bill is the second component of Assembly Speaker John Perez's "Middle Class Scholarship Act." The Assembly previously approved the other part, which would reduce tuition by more than half for families whose annual household income exceeds the cap for getting a free ride at California's public universities ($70,000 a year for the California State University system and $80,000 for University of California system) but is less than $150,000.

Republicans objected to what they framed as an attempt by Democrats to undo a previous budget deal.

"This wasn't a loophole, it was a product of careful, extensive negotiations and promises," said Assemblyman Don Wagner, R-Irvine. "Promises made by one side of the aisle to secure the votes that they needed from the other side of the aisle. Promises that have now been completely undone."

Perez, D-Los Angeles, argued that there was no use in preserving a status quo where "you are getting kicked in the head by other states."

"This will help California businesses remain competitive while ensuring that California's middle-class families have the same opportunities to succeed as our generation had," he said.

The 2009 tax loophole deal allowed companies operating in multiple states to choose the cheaper of two formulas for calculating their tax liability in California. They can use an option that considers sales, property and payroll.

Perez's bill would force corporations to use only the single sales factor, a change the nonpartisan Legislative Analyst's Office has endorsed.

At least 11 other states, including Texas and New York, require that corporations calculate their tax obligations this way, according to the Federation of Tax Administrators.

Last year, Gov. Jerry Brown, a Democrat, passed a single-sales requirement through the Assembly, but his measure failed to get GOP support in the Senate.

AB1500 bill passed 54-25. Assemblyman Brian Nestande was the lone Republican supporter, while Assemblyman Nathan Fletcher, an independent, also voted yes. The bill now moves to the Senate.

The bill still faces several obstacles.

Several out-of-state corporations are lobbying against it, and Republican lawmakers are promising to block Democrats from reaching the two-thirds majority vote they need in the Senate.

An initiative on the November ballot provides another wrinkle. Proposition 39 would close the loophole and dedicate a portion of the additional revenue to clean-energy projects. Proponents of the ballot initiative have promised to stop campaigning if Perez's package is signed into law, but if voters approved the measure anyway, it could lead to a court battle.

The act is expected to benefit about 200,000 college students and could take effect as soon as this fall if it passes the Legislature and is signed by the governor

Tuition for the University of California and California State University systems is three times what it was a decade ago.

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