The corporate tax loophole in California, which was created in the dead of the night in a backroom Sacramento deal with no debate or disclosure in 2009, is specifically designedso that out-of-state companies can dodge taxes, putting them at a competitive advantageover California companies. The loophole, which gives companies an option of calculating their income based on a mixture of payroll, property, and sales, gives multi-state corporations an incentive to keep jobs and investment in other states so that they canreduce their taxes in California. Basically, the fewer Californians out-of-state-companiesemploy, the less they pay in taxes.To fix the loophole, which is costing California $1 billion in revenue and tens of thousands of jobs, many in California want to require out-of-state companies to pay taxes based on one factor -- their sales in California -- instead of giving them a choice betweensales, property, and payroll. The “Mandatory Single Sales Factor” would prohibit multi-state companies from reaping profits on their sales in California while dodging their fair share of California state taxes – and it would force out-of-state companies to pay thesame as in state corporations. By reducing the incentive to locate new jobs out of state,the Legislative Analyst’s Office predicts that the mandatory single sales factor will add$1 billion in revenues and create tens of thousands of 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 mandatorysingle sales factor approach – without a loophole – to provide an incentive to companiesto invest in their states. Only California and one other state – Missouri – have this glaringloophole that allows big corporations to pick and choose the way they pay their taxes.In California, four companies have taken the lead to lobby successfully to keep thecorporate tax loophole alive: Chrysler, General Motors, Kimberly-Clark and InternationalPaper. These companies, which sell tens of millions of dollars in products to the state,are dodging millions in taxes and putting California companies at a competitivedisadvantage.Ironically, many of these same companies lobbied heavily to close the tax loophole inother states where they have the bulk of their business operations.What this report reveals is that the words used and positions taken by the Tax Dodgers inother states support the argument for implementing a Single Sales Factor in California.Here are the key findings detailed in the following pages:
In 2003, Kimberly-Clark supported changing Wisconsin corporate tax law to asingle sales factor method, and was even a member of The Single Sales Factor Coalition, a group of Wisconsin corporations that lobbied for the passage of the bill.