(June 15, 2007) The California Chamber of Commerce is encouraging businesses to let legislators know about the need for tax incentives to encourage investments in and expansions of California-based operations and jobs.

SB 359 (Runner; R-Lancaster) would significantly improve California’s tax climate by providing sales and tax relief for the airline industry; increasing the research and development (R&D) credit for all industries; and reducing the tax burden on multistate and multinational companies that locate and expand jobs and operations within the state.

The non-partisan Tax Foundation’s 2007 business tax climate study ranks California 45 out of 50. California must work to ensure its tax structure encourages investment, job retention and expansion here and that California is a strong competitor with other states that offer aggressive tax incentives and inviting tax structures.

SB 359 contains three pro-investment and job-growth stimulation proposals:

• Provides sales and use tax relief for the airline industry by creating a tax exemption that caps, through 2017, the sales and use tax on jet fuel purchased in California for domestic use.
• Increases the R&D credit from 15 percent to 20 percent and makes other improvements in conformity with federal law, encouraging investment and growth in R&D jobs, including the aerospace, biotechnology, computer and other high-technology industries. The credit has not been increased since the 2000-01 state budget and should be updated to more appropriately reflect inflation and increases in costs.
• Reduces the penalty effect of the current formula the state uses for determining the portion of taxes a multistate or multinational company owes California. Under this formula, the more operations and jobs the company has within California relative to its sales, the higher its tax burden.

The CalChamber supports changes to the apportionment formula that encourage retention and growth in investment, jobs and operations within the state’s borders. Any such changes, however, should not result in a penalty or increase in tax liability for other industries or companies. SB 359 upholds and advances these sound public policy principles.

Action Needed
Although SB 359 has missed the deadline to be acted upon this year, it is expected to be heard in the Senate Revenue and Taxation Committee in the near future. In addition, the business community should promote and encourage consideration of the tax incentive proposals contained in SB 359 as well as other important pending industry-supported measures containing similar and other tax incentive proposals as part of the state budget discussions.

Staff Contact: Kyla Christoffersen