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Election 2012: State Proposition Guide

Produced by KQED News and The California Report

Proposition 39

Increases Taxes on Multistate Business, Funds Clean Energy

Sandy Huffaker/Getty

At a Glance

  • Proposition 39 would require "multistate businesses" to calculate their California income tax based on what percentage of their sales are in the state.
  • Currently, multistate businesses can choose instead to pay taxes based on three factors, including the number of employees they have in the state. This can lower taxes for businesses who have fewer employees here.
  • It dedicates up to $550 million annually for five years to fund alternative energy projects.
  • Budget Impact: The Legislative Analyst's Office estimates California would gain about $1 billion in additional tax revenues. For the first five years, about half of that would go to alternative energy projects.

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  • This Proposition
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A corporation "does business" in California based on how much property or how many employees it has here, or how much it earns here.

A company that has one quarter of its sales, property, or payroll in California is "doing business" here. So is a company that earns more than $500,000 here, has property worth more $50,000 or spends more than $50,000 on payroll in the state.

Right now multistate businesses can choose the formula for determining how they pay income taxes. And while only a small portion of businesses in California work across multiple states, they pay the majority of the state's corporate income tax. In fiscal year 2010-11, the corporate income tax raised $9.6 billion, the third-largest general fund revenue source.

What Proposition 39 Changes

Multistate businesses would have to pay their income tax based on what percentage of their sales are in California. A company that sells one-quarter of its product here would pay income tax on one-quarter of total profit. Companies would no longer have a tax incentive to keep their California staff small.

The Legislative Analyst's Office estimates the change would bring in an extra $1 billion annually.

Where Does the Money Go?

Prop. 39 establishes a new state fund: the Clean Energy Job Creation Fund. For five years, half of the new money raised (up to $550 million) would go into that fund, to be spent on:

  • Energy efficient retrofits and alternative energy projects in public facilities, such as solar panels on a school roof;
  • Financial and technical assistance for the retrofits;
  • Job training in clean energy and energy efficiency for veterans and disadvantaged youth.

The rest of the money would go into the state's general fund.

Arguments For and Against:

Supporters say...

the measure closes a tax loophole costing California $1 billion annually. That money could then support clean energy and education.

Prop. 39 is almost entirely financed by hedge fund manager Thomas F. Steyer, who is also the co-chair of Californians for Clean Energy & Jobs, the other major funder. Supporters include the Latin Business Association and the Los Angeles Business Council.

Opponents say...

the measure attacks businesses that provide jobs. They also argue that the measure spends up to $22 million on a new clean energy bureaucracy that has little accountability.

As of late September there were no committees registered with the California Secretary of State opposing Prop. 39. In the official state voter guide, the following organizations oppose it: California Manufacturers & Technology Association, National Tax Limitation Committee, California Asian Pacific Chamber of Commerce and Friends for Saving California Jobs.