Some of California’s largest and most important corporations are bracing for a larger than normal tax bill due on May 31, 2009. On that day, California companies will pay approximately $1.5 billion more in state taxes than they normally would have. I know what you are thinking, with revenues down and layoffs up for most companies, why are they paying more in taxes, further eroding their ability to keep jobs and sustain their businesses? Because a little-known bill was passed as part of the 2008-2009 budget that says they have to.
SB 1X 28 was a bill that was hastily enacted last year as part of the 2008-2009 state budget. This bill imposes a 20 percent strict liability penalty on large businesses that underpay their taxes for any reason whatsoever and will force businesses to pay a half billion dollars more in estimated taxes they do not owe in order to avoid the penalty. In simple terms, California’s most successful companies are being required to loan the state money at the tip of a spear instead of using that money to invest in jobs or bringing new products to the marketplace. SB 1X 28 was passed before it was in print and without public input or any vetting by a legislative committee. The bill was inaccurately described to lawmakers and the media as a bill to double existing penalties for tax scofflaws.
Should companies that fraudulently underpay their taxes have to pay a penalty? Absolutely and there are no fewer than four laws already on the books that impose a penalty of up to 40% on companies that knowingly or negligently underpay their taxes. However, this bill was a budget gimmick inserted anonymously at the eleventh hour and does not respond to any identified problem in tax law. In fact, no other state in the country has a similar law because of its negative consequences.
We are the co-chairs of the Coalition to Protect California Jobs and the Economy, a group dedicated to the repeal of this wrong-headed policy. We are proud to count former Assemblymember Tom Calderon and Joel Fox as members of our board of directors as well. We are working to shine a light on this gimmick and make sure our legislative members and the governor no longer have any doubts about the devastating impacts of this law.
While the governor, legislative leaders, the president and other states scramble to come up with ways to stimulate the private sector economy and create jobs, California has, once again, shown its penchant for going against the grain. It has enacted an “anti-stimulus” that would yank about $1.5 billion out of the California economy at the very time we can least afford it. Especially striking is the fact that the State of California currently has nearly $13 billion in uncollected taxes and demanding a loan from companies already paying their fair share while ignoring these funds makes no sense. Our coalition has offered a number of solutions to collect these funds that have been shown to work elsewhere.
We need to repeal SB 1X 28 and we need to do it now. It sets a dangerous precedent that could lead to leveling the same provisions on small businesses and individuals. Already-struggling California taxpayers can’t afford to be the state’s private bank.