Bloomberg News

California Democrats Push to End Tax Break to Fund Tuition Help

February 13, 2012

Feb. 8 (Bloomberg) -- California should calculate business taxes solely on in-state sales as a way to generate as much as $1 billion a year and use the money to subsidize college tuition for middle-class students, legislative Democrats say.

The plan by Assembly Speaker John Perez of Los Angeles would no longer allow companies to choose a formula that provides favorable tax treatment for businesses with property and payroll outside the state. Instead, multi-state businesses would calculate their California income tax based on the percentage of their sales in the state.

California’s constitution requires bills that increase taxes to win the approval of two-thirds of the Legislature. A similar proposal last year by Governor Jerry Brown failed to get enough Republican votes to assemble the so-called supermajority. Brown’s plan earmarked the revenue for tax relief to small businesses, manufacturers and individuals.

Perez said almost 200,000 students would be eligible for the subsidy, reducing college costs by as much as $33,000 over four years for some. University of California fees have increased 145 percent since 2004 as the state has reduced support for the system amid budget deficits.

Under current law, some California companies can choose between a formula that bases 50 percent of their taxes on California sales, while the remaining half is split between in- state property and total sales, according to a Finance Department fact sheet. Those businesses can opt instead to base their payments solely on sales.

--Editors: Pete Young, Mark Schoifet

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net;

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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