LAO suggests delaying tax break, trimming it

May 26, 2010

By Daniel Weintraub

A corporate tax break the Legislature adopted as part of last year’s budget package should be scaled back and its implementation delayed, the nonpartisan Legislative Analyst recommends in a new report.

The tax code change will give companies the option of being taxed based on their California sales alone or on a combination of their sales, their property holdings and their payroll, which is the current policy. Lawmakers adopted the change because they said taxing corporations based on their property and payroll discouraged firms from investing in factories and employees in California.

The Legislative Analyst agrees, but sees no merit in giving companies the option of choosing among different tax treatments for their profits. Allowing firms to pick and choose costs the state treasury more money without providing any economic benefit, the analyst says.

Rge tax change is scheduled to be phased in beginning in starting with the 2011 tax year, at a cost of nearly $1 billion a year when it takes full effect. The analyst suggests delaying the effective date for two years.

The Senate Democrats’ tax package released earlier this week includes a similar proposal.

See the full report here.

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