(August 10, 2010) The California Chamber of Commerce has identified a new “job killer” bill that would create economic instability and unpredictability, and chill investment and growth that would otherwise aid California’s economic recovery.
AB 1511 (De León; D-Los Angeles) increases taxes for California employers and delays the state’s economic recovery by repealing the Net Operating Loss (NOL) carry back deduction, making the single sales factor apportionment formula mandatory and extending the suspension of the NOL carry forward deduction and unitary credit sharing.
These four employer-community supported proposals were adopted as a stimulus package to help offset the hit California employers took under the 2009 budget deal, which raised taxes by more than $12 billion to show the state’s continued commitment to keeping businesses in the state, despite the necessary short-term tax increases.
Eliminating these incentives will hinder the state’s economic recovery by discouraging investment and growth.
NOL
Both types of NOL deductions help resolve an inequity in the state’s tax structure that arises because businesses experience losses and profits according to timeframes or cycles over time that differ from the government tax filing deadlines. Without these deductions, two businesses can have the same profits and losses, but different tax liabilities over a series of years.
The NOL carry back, in particular is a lifeline to businesses struggling to deal with the current downturn. Without it, these businesses might not be able to last long enough to take advantage of the carry forward deduction.
Single Sales Factor
Last year, the Legislature properly recognized that there is merit in both the current apportionment formula and in the single sales factor apportionment formulas when it established an elective single sales factor formula. Allowing businesses to choose the best formula to operate, employ and sell in the state provides an economic incentive to invest in the state, despite many other disincentives that currently exist in California.
AB 1511 does not recognize that many California employers would experience a tax increase under the single sales factor formula, discouraging them from investing in the state’s recovery.
Extending Suspensions
Continuing to suspend the other changes established in last year’s budget solution will undermine current-year budget negotiations. Employers make business plans over the long-term, which means that unexpected and/or uncertain changes to state tax policies can easily undermine employer confidence and encourage businesses to invest elsewhere.
November Ballot
In addition, a proposal to repeal all four of these recently enacted tax benefits will appear on the November 2 ballot in the CalChamber-opposed Proposition 24— Repeal Corporate Tax Loopholes Act. The CalChamber Board of Directors voted to oppose this proposal because it repeals recently enacted tax benefits, the elective single sales factor, NOL carry back and tax credit sharing. It would additionally repeal the recently enacted expansion of the NOL carryover from 10 to 20 years.
Action Needed
AB 1511 is scheduled to be heard in the Senate Revenue and Taxation Committee on August 11. The CalChamber is urging members of the business community to contact committee members and their Senate representative and urge them to oppose AB 1511.
Staff Contact: Mira Guertin