(August 24, 2009) Major business organizations, including the California Chamber of Commerce, have expressed strong concern and opposition to several items included as part of the latest “tax package” being considered by a special state tax commission.

Governor Arnold Schwarzenegger created the Commission on the 21st Century Economy last fall and asked it to examine how the volatility of state revenues related to California’s tax structure.

Business and other observers have raised concern that the commission is straying from that assignment. The menu of proposed tax changes the commission will consider at a meeting in September includes proposals geared toward increasing revenues rather than addressing volatility and a new approach to taxation that lacks details which can be analyzed:

• A “split roll” property tax for non-residential property. This proposal by Commissioner Fred Keeley, current Santa Cruz County treasurer and former Assembly member (D-Boulder Creek), increases property taxes by removing Proposition 13 protections from non-residential properties, which would amount to a tax increase of up to $7.5 billion on employers, based on figures from the state Board of Equalization.

• An energy tax that raises the price of gasoline and California-produced crude oil. This Keeley proposal seeks to change individuals’ behavior to promote environmental goals by levying a “pollution tax.” If the proposal had been in effect over the last year, it would have cost California motorists billions of dollars more in additional gasoline taxes and millions more in new taxes on domestically produced crude oil.

• A new “business net receipts” tax and related changes to the existing tax structure, proposed by commission Chairman Gerald Parsky, a Los Angeles businessman appointed by the Governor.

Typically, a business net receipts tax is a type of value-added tax in which companies are taxed on total receipts minus all purchases from other firms. The intent behind this new tax is to bring a large category of services businesses into the tax base. No specific proposal has been released for comments, however.

The CalChamber and others are pointing out that it is impossible to evaluate the impact of a business net receipts tax on the California economy and jobs until the commission has provided a clear, specific written proposal; provided an analysis of the policy, operational and transitional implications of the new tax; and given an opportunity for California businesses and economic experts to respond to the proposal and analysis. On Friday, the Commission circulated an updated "Preliminary Overview" to a limited audience that provided some long-awaited elaboration on some aspects of the net receipts tax proposal. However, many important details have yet to be fleshed out, including the tax rate, and no macroeconomic or business analyses have yet been prepared or released.

Last month, the Governor extended to September 20 the deadline for the commission to present its findings and said he intends to call a special session of the Legislature afterwards to consider the commission’s recommendations.

Economic Recovery Key

The CalChamber and business community have consistently stated that the solution to California’s revenue problems will come only from robust economic growth and job creation.

The proposed “split roll” property tax and energy tax would be extremely detrimental to the state’s economy. Proceeding with dramatic changes to the tax structure associated with adding a business net receipts tax to the mix is risky and inappropriate without first fully determining their impact on California jobs and the economy.

Action Needed

The CalChamber is urging members to join the effort to urge the commission to reject the “split roll” and energy taxes and to further study the business net receipts tax before making recommendations to the Governor and Legislature.

To join the effort or for more information, contact kyla.christoffersen@calchamber.com.

Staff Contact: Kyla Christoffersen