Tax Day: California’s Reminder to Close the Tax Loophole for Out-of-State Businesses

Not too many of us look forward to the middle of April. A time of year almost all of us dread. Tax Day.Whether we break even, get a little back, or have to write a check to pay our state taxes, the average Californian understands, in their gut, that the state’s tax structure is broken.It turns out that our instincts are correct. Our state tax system is not clear, it’s not rational, and it does not support the services we want to provide our citizenry. What’s more, it is riddled with exceptions that favor special interests over average Californians’. There are thousands of examples of how this is true, but consider just one: our state’s tax structure actually favors out-of-state companies and puts California businesses and California-based employees at a disadvantage.Let me explain. There’s a loophole in California tax law that allows corporations to make a choice: they can pay taxes based on the amount of business they do in our state, or pay taxes based on the number of buildings and employees they have here.For California, it is a terrible option. It means that companies that employ few people here but have plenty of sales do well by our tax system, and companies with significant operations and large workforces in California are disadvantaged. The Ciscos, Disneys, and Apples pay more while the Philip Morrises, General Motors, and Bristol-Myers Squibbs pay little in comparison.The result is that companies have an incentive to move their headquarters and manufacturing facilities to other states. Fewer jobs are created in California and the ones we already have are jeopardized.

Don’t take my word for it. Listen to the nonpartisan state Legislative Analyst’s Office, which says closing this tax loophole for out-of-state businesses will increase economic activity and produce jobs — on top of helping bring in more revenue to fix the state’s chronic budget problems.

That’s why a broad coalition of business, health, and environmental advocates are gathering signatures to put an initiative on the ballot that will close this tax loophole. Our ballot measure will help solve the state’s budget problem and also create tens of thousands of quality, clean energy jobs throughout the state. We’ll require that all corporations pay taxes based on the amount of sales they do in our state, and by doing so put California companies on a level playing field. It will also bring in $1.1 billion dollars to fund state services like public safety and higher education.

Our initiative will take half that money — $550 million for the next five years — and put it into a fund to create jobs. We’ll put Californians to work improving the energy efficiency of schools and public buildings, retrofitting colleges and universities, participating in public-private partnerships, and learning in workforce development programs for veterans and disadvantaged young people. These will be jobs for Californians, in California, beginning in just eight months.

It’s a simple fix to our tax code, and polling shows that nearly 70 percent of our state’s voters support the idea of closing this unfair loophole. However, we don’t need polling. We hear it every day as they gather signatures throughout the state to put this measure on the ballot. Californians want a fair tax system. They want a balanced, transparent tax code. And if they had it, they would be more than willing to pay their fair share.

We probably will never get to place where Californians are elated for Tax Day, but an initiative to correct the sales factor and treat California-based businesses fairly will go a long way toward helping families understand where their tax dollars are going. If we pass this ballot measure, those dollars will go toward job creation and better schools in California – and that’s something Californians’ can get behind.