(August 15, 2012) A California Chamber of Commerce-opposed bill that stigmatizes employers by requiring the Franchise Tax Board (FTB) to disclose the taxes paid to the state by publicly traded corporations when requested by members of the public is awaiting action by the full Senate.
AB 2439 (Eng; D-Monterey Park) requires the FTB to identify and disclose on its website confidential taxpayer information of the 1,500 largest publicly traded corporate taxpayers subject to tax in California. The stated purpose of this disclosure is to assist in the “analysis and scrutiny” of California’s recent switch in corporate income tax apportionment methods to elective single-sales factor.
The single-sales factor formula looks solely at the proportion of a business’ sales made in California when calculating tax liability. Adoption of the elective single-sales factor in 2011 preserved existing tax rates for many California businesses, while spurring job growth for those who had been penalized under the old formula, which in some cases punished employers with higher taxes when they invested more in the state because it required a four-factor apportionment formula based on in-state sales (double weighted), in-state property, and in-state payroll.
Information Will be Misleading
AB 2439 requires the FTB to disclose the tax liability of a specific taxpayer.
As a single data point, this information is meaningless to any objective evaluation of single-sales factor. Many factors weigh into a taxpayer’s final tax liability, including current or accumulated losses, credits, acquisitions, disputes, subsequent court decisions, audits, amended returns, etc. For many large multi-state taxpayers, final liability for a specific year may not be resolved for years after the return is filed. As a result, no meaningful evaluation of single-sales factor is possible based on the disclosure of individual corporate tax liabilities.
Disclosure of Individual Taxpayer Information Does Not Serve Public Policy Analysis
The efficacy of the single-sales factor or any other state tax policy has nothing to do with the tax return information of any individual taxpayer.
Disclosing individual taxpayer information serves only as a tool to facilitate misleading and uninformed public harassment of individual taxpayers. If the Legislature desires an objective analysis on the benefits or costs of single-sales factor apportionment, or any other state tax policy, experts in the FTB and the Legislative Analyst’s Office have access to a broad array of data, and can evaluate the entire spectrum of taxpayers to determine whether a tax policy is good or bad for the state as a whole. There is no need to disclose individual taxpayer information to facilitate such a fair and objective analysis of any state tax policy.
Other States Do NOT Permit Disclosure of Confidential Taxpayer Information
Proponents of AB 2439 have inaccurately claimed that other states already provide similar disclosure of confidential taxpayer information.
- Arkansas and West Virginia permit disclosure only of the names of taxpayers who receive certain credits, rebates or discounts and the amount of those claimed credits. There is no disclosure of overall tax liability.
- Massachusetts, while disclosing taxable income, tax paid and other information regarding tax liability, expunges all identifying taxpayer information.
- Wisconsin, while allowing individual residents to obtain information regarding the amount of tax paid or payable by any other taxpayer, requires the requester to agree not to divulge, publish or disseminate any information obtained.
In 2000, the U.S. Congress Joint Committee on Taxation completed an exhaustive review of taxpayer confidentiality. The committee concluded:
Taxpayers have a justifiable expectation of privacy in the extensive information they furnish under penalty of fine or imprisonment….Our tax system is based on voluntary compliance. Many observers believe that the degree of voluntary compliance is directly affected by the degree of confidentiality given the information that is provided to the IRS.
If returns and return information were publicly available, it would invite a variety of intrusions into a taxpayer’s privacy. Business competitors could use the information to gain economic advantage….A lack of confidentiality could also facilitate the use of return information for political gain.
The CalChamber encourages lawmakers to pursue a fair and objective evaluation of California’s state tax policies. The information necessary to conduct such analysis already exists within state agencies and such analysis does not require the breach of taxpayer confidentiality. Should an actual need arise for the Legislature to examine individual returns, a committee of either house of the Legislature already has the authority do so.
In doing so, however, the Legislature itself saw fit to protect the confidentiality of this information by making any public dissemination of taxpayer-specific data a misdemeanor.
AB 2439 serves no real purpose in furthering an objective analysis of single-sales factor. It does, however, raise the concern addressed by the Joint Committee on Taxation that this information will not be used for a fair and objective analysis of single-sales factor but rather misleading the public for political gain.
AB 2439 awaits action by the entire Senate. Please urge your senator to oppose AB 2439.
Staff Contact: Jeremy Merz