Currently in California, there is a corporate tax loophole that allows out-of-statecorporations to avoid paying millions of dollars of taxes, while making millions of dollarsin profits from Californians and employing very few Californians. The same companiesthat are fighting to preserve this loophole are earning millions of dollars from sales toCalifornia state agencies.This corporate tax loophole is specifically designed so that the fewer Californians theseout-of-state-companies employ, the less they pay in taxes. The Legislative Analyst’sOffice estimates that the loophole allows corporations to dodge roughly $1 billion inCalifornia taxes, forcing California businesses and taxpayers to pick up the tab at a timewhen California’s state and local government agencies and schools have been forced tomake massive budget cuts due to dwindling revenues.
The loophole, which gives companies an option of calculating their income based on amixture of payroll, property, and sales, gives multi-state corporations an incentive to keep jobs and investment in other states so that they can reduce their taxes in California. Inother words, California state law rewards companies for creating jobs
of California and puts job-creating California companies at a competitive disadvantage.
The tax loophole was created in the dead of the night in a backroom Sacramento dealwith no debate or disclosure in 2009. To this day, no one has taken responsibility for inserting the massive loophole into state law. However, there are several communityleaders and lawmakers who are interested in eliminating the tax loophole by requiringout-of-state companies to pay taxes based on one factor -- their sales in California --instead of giving them a choice between sales, property, and payroll. The MandatorySingle Sales Factor would prohibit multi-state companies from reaping profits on their sales in California while dodging their fair share of California state taxes. By reducingthe incentive to locate new jobs out of state, the Legislative Analyst’s Office predicts thatthe mandatory single sales factor will create 40,000 jobs in California.The states of Colorado, Georgia, Illinois, Indiana, Iowa, Maine, Michigan, Nebraska, New York, Oregon, South Carolina, Texas and Wisconsin have all adopted a
single sales factor approach – without a loophole – to provide an incentive to companiesto invest in state. Only California and one other state – Missouri – have this glaringloophole.As time has passed and multiple attempts to close the loophole have been defeated or stalled, four companies – the Tax Dodgers -- have emerged as the only ones to publiclystand in the way of closing the loophole. These four Tax Dodgers are Chrysler, GeneralMotors, International Paper, and Kimberly-Clark. They have launched an aggressivecampaign to kill any effort to close the loophole so that they can continue to avoid payingtheir fair share in taxes while earning profits from California consumers.