California Proposition 39, Income Tax Increase for Multistate Businesses (2012)

A “multi-state” business is one that operates both in California and in other states or countries. The majority of California’s corporate income taxes come from multi-state businesses. Current law gives these businesses a choice about which way they calculate how much tax they owe to the state. They can pay taxes based on the percentage of their total sales that are in California. But some choose a formula that also looks at employees and property out of the state, because then their taxes come out lower.

Supporters of Proposition 39 assert that it will close a tax “loophole” that currently rewards out-of-state companies for taking jobs out of California and, for tax purposes, treats out-of-state companies the way California-based companies are treated.

Opponents argue that Proposition 39 is a tax increase.

What Prop 39 would do if it passes:

  • Require multi-state businesses to pay state income taxes based on the percentage of their total sales in California.
  • For the first five years, half of the increased money coming into the state would be dedicated to projects that create energy efficiency and clean energy jobs.

Effect on the state budget:

  • Increase state income from taxes by about $1 billion per year.
  • A large part of this money would be spent on schools.
  • For the first five years, the state would spend about $550 million per year on energy efficiency and alternative energy projects.

People for Prop 39 say (

  • Prop 39 ensures that large corporations pay their fair share at a time when there have been drastic California budget cuts.
  • Prop 39 will fund energy efficiency projects, create jobs, and help fund schools.

People against Prop 39 say (

  • This $1 billion tax increase will make businesses have to cut thousands of jobs in California.
  • Energy efficiency projects are already well funded.
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