California Proposition 39, Out-of-State Business Tax Liability Calculations and Energy Funding Initiative (2012)

California Proposition 39
Election date November 6, 2012
Topic Taxes
Status a Approved
Type State statute	Origin Citizens

2012 propositions
June 5
Proposition 28
Proposition 29
November 6
Proposition 30
Proposition 31
Proposition 32
Proposition 33
Proposition 34
Proposition 35
Proposition 36
Proposition 37
Proposition 38
Proposition 39
Proposition 40
Donations • Vendors
Endorsements • Full text
Ballot titles • Fiscal impact
Local measures

California Proposition 39 was on the ballot as an initiated state statute in California on November 6, 2012. It was approved.

A "yes" vote supported requiring out-of-state businesses to calculate income taxes based on percentage of sales in California, repealing state law that allowed out-of-state businesses to choose tax liability formulas, and dedicating half of the resulting revenue ($500-$550 million annually) for five years from the expected increase in revenue under the initiative to fund the Clean Energy Job Creation Fund, which was designed to "support projects intended to improve energy efficiency and expand the use of alternative energy."

A "no" vote opposed requiring out-of-state businesses to calculate income taxes based on percentage of sales in California, repealing state law that allowed out-of-state businesses to choose tax liability formulas, and dedicating half of the resulting revenue ($500-$550 million) annually for five years fund the Clean Energy Job Creation Fund.

Election results

California Proposition 39
Result		Votes	Percentage
Yes		7,384,417	61.10%
No		4,701,563	38.90%

Results are officially certified.

Source

Measure design

Proposition 39 required out-of-state businesses to calculate their California income tax liability based on the percentage of their sales in California. The measure repealed an existing law that allowed out-of-state businesses to choose a tax liability either using the three-factor method, which is calculated based on the location of the company’s sales, property, and employees; or the single sales factor method, which is based on the location of the company's sales. The measure was designed to dedicate $500 to $550 million annually for five years from the expected increase in revenue under the initiative to fund the Clean Energy Job Creation Fund, which was designed under the initiative to "support projects intended to improve energy efficiency and expand the use of alternative energy.".

Prior to the approval of Proposition 39, businesses located outside of California that did business within the state had the ability to reduce their California income taxes by not locating facilities or employees within the state.

Similar laws were passed in New Jersey, Illinois, and Texas.

Full text

The full text can be read below:

This initiative measure is submitted to the people in accordance with the provisions of Section 8 of Article II of the California Constitution.

This initiative measure amends, repeals, and adds sections to the Public Resources Code and the Revenue and Taxation Code; therefore, existing provisions proposed to be deleted are printed in; therefore, existing provisions proposed to be deleted are printed in strikeout type and new provisions proposed to be added are printed in underline type to indicate that they are new.

PROPOSED LAW THE CALIFORNIA CLEAN ENERGY JOBS ACT

SECTION 1.

The people of the State of California do hereby find and declare all of the following:

(1) California is suffering from a devastating recession that has thrown more than a million Californians out of work.

(2) Current tax law both discourages multistate companies from locating jobs in California, and puts job-creating California companies at a competitive disadvantage.

(3) To address this problem, most other states have changed their laws to tax multistate companies on the percent of sales in that state, a tax approach referred to as the "single sales factor."

(4) If California were to adopt the single sales factor approach, the independent Legislative Analyst's Office estimates that state revenues would increase by as much as $1.1 billion per year and create a net gain of 40,000 California jobs.

(5) In addition, by dedicating a portion of increased revenue to job creation in the energy efficiency and clean energy sectors, California can create tens of thousands of additional jobs right away, reducing unemployment, improving our economy, and saving taxpayers money on energy.

(6) Additional revenue would be available to public schools consistent with current California law.

SEC. 2.

Division 16.3 (commencing with Section 26200) is added to the Public Resources Code, to read:

DIVISION 16.3. CLEAN ENERGY JOB CREATION

Chapter 1. General Provisions

26200. This division shall be known and may be cited as the California Clean Energy Jobs Act.

26201. This division has the following objectives:

(a) Create good-paying energy efficiency and clean energy jobs in California.

(b) Put Californians to work repairing and updating schools and public buildings to improve their energy efficiency and make other clean energy improvements that create jobs and save energy and money.

(c) Promote the creation of new private sector jobs improving the energy efficiency of commercial and residential buildings.

(d) Achieve the maximum amount of job creation and energy benefits with available funds.

(e) Supplement, complement, and leverage existing energy efficiency and clean energy programs to create increased economic and energy benefits for California in coordination with the California Energy Commission and the California Public Utilities Commission.

(f) Provide a full public accounting of all money spent and jobs and benefits achieved so the programs and projects funded pursuant to this division can be reviewed and evaluated.

Chapter 2. Clean Energy Job Creation Fund

26205. The Clean Energy Job Creation Fund is hereby created in the State Treasury. Except as provided in Section 26208, the sum of five hundred fifty million dollars ($550,000,000) shall be transferred from the General Fund to the Job Creation Fund in fiscal years 2013-14, 2014-15, 2015-16, 2016-17, and 2017-18. Moneys in the fund shall be available for appropriation for the purpose of funding projects that create jobs in California improving energy efficiency and expanding clean energy generation, including all of the following:

(a) Schools and public facilities:

(1) Public schools: Energy efficiency retrofits and clean energy installations, along with related improvements and repairs that contribute to reduced operating costs and improved health and safety conditions, on public schools.

(2) Universities and colleges: Energy efficiency retrofits, clean energy installations, and other energy system improvements to reduce costs and achieve energy and environmental benefits.

(3) Other public buildings and facilities: Financial and technical assistance including revolving loan funds, reduced interest loans, or other financial assistance for cost-effective energy efficiency retrofits and clean energy installations on public facilities.

(b) Job training and workforce development: Funding to the California Conservation Corps, Certified Community Conservation Corps, YouthBuild, and other existing workforce development programs to train and employ disadvantaged youth, veterans, and others on energy efficiency and clean energy projects.

(c) Public-private partnerships: Assistance to local governments in establishing and implementing Property Assessed Clean Energy (PACE) programs or similar financial and technical assistance for cost-effective retrofits that include repayment requirements. Funding shall be prioritized to maximize job creation, energy savings, and geographical and economic equity. Where feasible, repayment revenues shall be used to create revolving loan funds or similar ongoing financial assistance programs to continue job creation benefits.

26206. The following criteria apply to all expenditures from the Job Creation Fund:

(a) Project selection and oversight shall be managed by existing state and local government agencies with expertise in managing energy projects and programs.

(b) All projects shall be selected based on in-state job creation and energy benefits for each project type.

(c) All projects shall be cost effective: total benefits shall be greater than project costs over time. Project selection may include consideration of non-energy benefits, such as health and safety, in addition to energy benefits.

(d) All projects shall require contracts that identify the project specifications, costs, and projected energy savings.

(e) All projects shall be subject to audit.

(f) Program overhead costs shall not exceed 4 percent of total funding.

(g) Funds shall be appropriated only to agencies with established expertise in managing energy projects and programs.

(h) All programs shall be coordinated with the California Energy Commission and the California Public Utilities Commission to avoid duplication and maximize leverage of existing energy efficiency and clean energy efforts.

(i) Eligible expenditures include costs associated with technical assistance, and with reducing project costs and delays, such as development and implementation of processes that reduce the costs of design, permitting or financing, or other barriers to project completion and job creation.

26208. If the Department of Finance and the Legislative Analyst jointly determine that the estimated annual increase in revenues as a result of the amendment, addition, or repeal of Sections 25128, 25128.5, 25128.7, and 25136 of the Revenue and Taxation Code is less than one billion one hundred million dollars ($1,100,000,000), the amount transferred to the Job Creation Fund shall be decreased to an amount equal to one-half of the estimated annual increase in revenues.

Chapter 3. Accountability, Independent Audits , Public Disclosure

26210. (a) The Citizens Oversight Board is hereby created.

(b) The board shall be composed of nine members: three members shall be appointed by the Treasurer, three members by the Controller, and three members by the Attorney General. Each appointing office shall appoint one member who meets each of the following criteria:

(1) An engineer, architect, or other professional with knowledge and expertise in building construction or design.

(2) An accountant, economist, or other professional with knowledge and expertise in evaluating financial transactions and program cost-effectiveness.

(3) A technical expert in energy efficiency, clean energy, or energy systems and programs.

(c) The California Public Utilities Commission and the California Energy Commission shall each designate an ex officio member to serve on the board.

(d) The board shall do all of the following:

(1) Annually review all expenditures from the Job Creation Fund.

(2) Commission and review an annual independent audit of the Job Creation Fund and of a selection of projects completed to assess the effectiveness of the expenditures in meeting the objectives of this division.

(3) Publish a complete accounting of all expenditures each year, posting the information on a publicly accessible Internet Web site.

(4) Submit an evaluation of the program to the Legislature identifying any changes needed to meet the objectives of this division.

Chapter 4. Definitions

26220. The following definitions apply to this division:

(a) "Clean energy" means a device or technology that meets the definition of "renewable energy" in Section 26003, or that contributes to improved energy management or efficiency.

(b) "Board" means the Citizens Oversight Board established in Section 26210.

(c) "Job Creation Fund" means the Clean Energy Job Creation Fund established in Section 26205.

(d) "Program overhead costs" include staffing for state agency development and management of funding programs pursuant to this division, but excluding technical assistance, evaluation, measurement, and validation, or costs related to increasing project efficiency or performance, and costs related to local implementation.

SEC. 3.

Section 23101 of the Revenue and Taxation Code is amended to read:

23101. (a) "Doing business" means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.

(b) For taxable years beginning on or after January 1, 2011, a taxpayer is doing business in this state for a taxable year if any of the following conditions has been satisfied:

(1) The taxpayer is organized or commercially domiciled in this state.

(2) Sales, as defined in subdivision (e) or (f) of Section 25120 as applicable for the taxable year, of the taxpayer in this state exceed the lesser of five hundred thousand dollars ($500,000) or 25 percent of the taxpayer's total sales. For purposes of this paragraph, sales of the taxpayer include sales by an agent or independent contractor of the taxpayer. For purposes of this paragraph, sales in this state shall be determined using the rules for assigning sales under Section Sections 25135 and subdivision (b) of Section 25136, and the regulations thereunder, as modified by regulations under Section 25137.

(3) The real property and tangible personal property of the taxpayer in this state exceed the lesser of fifty thousand dollars ($50,000) or 25 percent of the taxpayer's total real property and tangible personal property. The value of real and tangible personal property and the determination of whether property is in this state shall be determined using the rules contained in Sections 25129 to 25131, inclusive, and the regulations thereunder, as modified by regulation under Section 25137.

(4) The amount paid in this state by the taxpayer for compensation, as defined in subdivision (c) of Section 25120, exceeds the lesser of fifty thousand dollars ($50,000) or 25 percent of the total compensation paid by the taxpayer. Compensation in this state shall be determined using the rules for assigning payroll contained in Section 25133 and the regulations thereunder, as modified by regulations under Section 25137.

(c) (1) The Franchise Tax Board shall annually revise the amounts in paragraphs (2), (3), and (4) of subdivision (b) in accordance with subdivision (h) of Section 17041.

(2) For purposes of the adjustment required by paragraph (1), subdivision (h) of Section 17041 shall be applied by substituting "2012" in lieu of "1988."

(d) The sales, property, and payroll of the taxpayer include the taxpayer's pro rata or distributive share of pass-through entities. For purposes of this subdivision, "pass-through entities" means a partnership or an "S" corporation.

SEC. 4.

Section 25128 of the Revenue and Taxation Code is amended to read:

25128. (a) Notwithstanding Section 38006, for taxable years beginning before January 1, 2013, all business income shall be apportioned to this state by multiplying the business income by a fraction, the numerator of which is the property factor plus the payroll factor plus twice the sales factor, and the denominator of which is four, except as provided in subdivision (b) or (c).

(b) If an apportioning trade or business derives more than 50 percent of its "gross business receipts" from conducting one or more qualified business activities, all business income of the apportioning trade or business shall be apportioned to this state by multiplying business income by a fraction, the numerator of which is the property factor plus the payroll factor plus the sales factor, and the denominator of which is three.

(c) For purposes of this section, a "qualified business activity" means the following:

(1) An agricultural business activity.

(2) An extractive business activity.

(3) A savings and loan activity.

(4) A banking or financial business activity.

(d) For purposes of this section:

(1) "Gross business receipts" means gross receipts described in subdivision (e) or (f) of Section 25120 (other than gross receipts from sales or other transactions within an apportioning trade or business between members of a group of corporations whose income and apportionment factors are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110), whether or not the receipts are excluded from the sales factor by operation of Section 25137.

(2) "Agricultural business activity" means activities relating to any stock, dairy, poultry, fruit, fur bearing animal, or truck farm, plantation, ranch, nursery, or range. "Agricultural business activity" also includes activities relating to cultivating the soil or raising or harvesting any agricultural or horticultural commodity, including, but not limited to, the raising, shearing, feeding, caring for, training, or management of animals on a farm as well as the handling, drying, packing, grading, or storing on a farm any agricultural or horticultural commodity in its unmanufactured state, but only if the owner, tenant, or operator of the farm regularly produces more than one-half of the commodity so treated.

(3) "Extractive business activity" means activities relating to the production, refining, or processing of oil, natural gas, or mineral ore.

(4) "Savings and loan activity" means any activities performed by savings and loan associations or savings banks which have been chartered by federal or state law.

(5) "Banking or financial business activity" means activities attributable to dealings in money or moneyed capital in substantial competition with the business of national banks.

(6) "Apportioning trade or business" means a distinct trade or business whose business income is required to be apportioned under Sections 25101 and 25120, limited, if applicable, by Section 25110, using the same denominator for each of the applicable payroll, property, and sales factors.

(7) Paragraph (4) of subdivision (c) shall apply only if the Franchise Tax Board adopts the Proposed Multistate Tax Commission Formula for the Uniform Apportionment of Net Income from Financial Institutions, or its substantial equivalent, and shall become operative upon the same operative date as the adopted formula.

(8) In any case where the income and apportionment factors of two or more savings associations or corporations are required to be included in a combined report under Section 25101, limited, if applicable, by Section 25110, both of the following shall apply:

(A) The application of the more than 50 percent test of subdivision (b) shall be made with respect to the "gross business receipts" of the entire apportioning trade or business of the group.

(B) The entire business income of the group shall be apportioned in accordance with either subdivision (a) or (b), or subdivision (b) of Section 25128.5, Section 25128.5 or 25128.7, as applicable.

SEC. 5.

Section 25128.5 of the Revenue and Taxation Code is amended to read:

25128.5. (a) Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2011, and before January 1, 2013, any apportioning trade or business, other than an apportioning trade or business described in subdivision (b) of Section 25128, may make an irrevocable annual election on an original timely filed return, in the manner and form prescribed by the Franchise Tax Board to apportion its income in accordance with this section, and not in accordance with Section 25128.

(b) Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2011, and before January 1, 2013, all business income of an apportioning trade or business making an election described in subdivision (a) shall be apportioned to this state by multiplying the business income by the sales factor.

(c) The Franchise Tax Board is authorized to issue regulations necessary or appropriate regarding the making of an election under this section, including regulations that are consistent with rules prescribed for making an election under Section 25113.

(d) This section shall not apply to taxable years beginning on or after January 1, 2013, and as of December 1, 2013, is repealed.

SEC. 6.

Section 25128.7 is added to the Revenue and Taxation Code, to read:

25128.7. Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2013, all business income of an apportioning trade or business, other than an apportioning trade or business described in subdivision (b) of Section 25128, shall be apportioned to this state by multiplying the business income by the sales factor.

SEC. 7.

Section 25136 of the Revenue and Taxation Code is amended to read:

25136. (a) For taxable years beginning before January 1, 2011, and for taxable years beginning on or after January 1, 2011, and before January 1, 2013, for which Section 25128.5 is operative and an election under subdivision (a) of Section 25128.5 has not been made, sales, other than sales of tangible personal property, are in this state if:

(1) The income-producing activity is performed in this state; or

(2) The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

(3) This subdivision shall apply, and subdivision (b) shall not apply, for any taxable year beginning on or after January 1, 2011, and before January 1, 2013, for which Section 25128.5 is not operative for any taxpayer subject to the tax imposed under this part.

(b) For taxable years beginning on or after January 1, 2011, and before January 1, 2013:

(1) Sales from services are in this state to the extent the purchaser of the service received the benefit of the service in this state.

(2) Sales from intangible property are in this state to the extent the property is used in this state. In the case of marketable securities, sales are in this state if the customer is in this state.

(3) Sales from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

(4) Sales from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state.

(5) (A) If Section 25128.5 is operative, then this subdivision shall apply in lieu of subdivision (a) for any taxable year for which an election has been made under subdivision (a) of Section 25128.5.

(B) If Section 25128.5 is not operative, then this subdivision shall not apply and subdivision (a) shall apply for any taxpayer subject to the tax imposed under this part.

(C) Notwithstanding subparagraphs (A) or (B), this subdivision shall apply for purposes of paragraph (2) of subdivision (b) of Section 23101.

(c) The Franchise Tax Board may prescribe those regulations as necessary or appropriate to carry out the purposes of subdivision (b).

(d) This section shall not apply to taxable years beginning on or after January 1, 2013, and as of December l, 2013, is repealed.

SEC. 8.

Section 25136 is added to the Revenue and Taxation Code, to read:

25136. (a) Notwithstanding Section 38006, for taxable years beginning on or after January 1, 2013, sales, other than sales of tangible personal property, are in this state if:

(1) Sales from services are in this state to the extent the purchaser of the service received the benefit of the services in this state.

(2) Sales from intangible property are in this state to the extent the property is used in this state. In the case of marketable securities, sales are in this state if the customer is in this state.

(3) Sales from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state.

(4) Sales from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state.

(b) The Franchise Tax Board may prescribe regulations as necessary or appropriate to carry out the purposes of this section.

SEC. 9.

Section 25136.1 is added to the Revenue and Taxation Code, to read:

25136.1. (a) For taxable years beginning on or after January 1, 2013, a qualified taxpayer that apportions its business income under Section 25128.7 shall apply the following provisions:

(1) Notwithstanding Section 25137, qualified sales assigned to this state shall be equal to 50 percent of the amount of qualified sales that would be assigned to this state pursuant to Section 25136 but for the application of this section. The remaining 50 percent shall not be assigned to this state.

(2) All other sales shall be assigned pursuant to Section 25136.

(b) For purposes of this section:

(1) "Qualified taxpayer" means a member, as defined in paragraph (10) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations as in effect on the effective date of the act adding this section, of a combined reporting group that is also a qualified group.

(2) "Qualified group" means a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, as in effect on the effective date of the act adding this section, that satisfies the following conditions:

(A) Has satisfied the minimum investment requirement for the taxable year.

(B) For the combined reporting group's taxable year beginning in calendar year 2006, the combined reporting group derived more than 50 percent of its United States network gross business receipts from the operation of one or more cable systems.

(C) For purposes of satisfying the requirements of subparagraph (B), the following rules shall apply:

(i) If a member of the combined reporting group for the taxable year was not a member of the same combined reporting group for the taxable year beginning in calendar year 2006, the gross business receipts of that nonincluded member shall be included in determining the combined reporting group's gross business receipts for its taxable year beginning in calendar year 2006 as if the nonincluded member were a member of the combined reporting group for the taxable year beginning in calendar year 2006.

(ii) The gross business receipts shall include the gross business receipts of a qualified partnership, but only to the extent of a member's interest in the partnership.

(3) "Cable system" and "network" shall have the same meaning as defined in Section 5830 of the Public Utilities Code, as in effect on the effective date of the act adding this section. "Network services" means video, cable, voice, or data services.

(4) "Gross business receipts" means gross receipts as defined in paragraph (2) of subdivision (f) of Section 25120 (other than gross receipts from sales or other transactions between or among members of a combined reporting group, limited, if applicable, by Section 25110).

(5) "Minimum investment requirement" means qualified expenditures of not less than two hundred fifty million dollars ($250,000,000) by a combined reporting group during the calendar year that includes the beginning of the taxable year.

(6) "Qualified expenditures" means any combination of expenditures attributable to this state for tangible property, payroll, services, franchise fees, or any intangible property distribution or other rights, paid or incurred by or on behalf of a member of a combined reporting group.

(A) An expenditure for other than tangible property shall be attributable to this state if the member of the combined reporting group received the benefit of the purchase or expenditure in this state.

(B) A purchase of or expenditure for tangible property shall be attributable to this state if the property is placed in service in this state.

(C) Qualified expenditures shall include expenditures by a combined reporting group for property or services purchased, used, or rendered by independent contractors in this state.

(D) Qualified expenditures shall also include expenditures by a qualified partnership, but only to the extent of the member's interest in the partnership.

(7) "Qualified partnership" means a partnership if the partnership's income and apportionment factors are included in the income and apportionment factors of a member of the combined reporting group, but only to the extent of the member's interest in the partnership.

(8) "Qualified sales" means gross business receipts from the provision of any network services, other than gross business receipts from the sale or rental of customer premises equipment. "Qualified sales" shall include qualified sales by a qualified partnership, but only to the extent of a member's interest in the partnership.

(c) The rules in this section with respect to qualified sales by a qualified partnership are intended to be consistent with the rules for partnerships under paragraph (3) of subdivision (f) of Section 25137-1 of Title 18 of the California Code of Regulations.

Fiscal impact

See also: Fiscal impact statements for California's 2012 ballot propositions

The following is a summary of the initiative's estimated fiscal impact on state and local government that was prepared by the California Legislative Analyst's Office and the Director of Finance.

“

Increase in State Revenues. As shown in the top line in Figure 1, this measure would increase state revenues by around $1 billion annually starting in 2013–14. (There would be a roughly half-year impact in 2012–13.) The increased revenues would come from some multistate businesses paying more taxes. The amounts generated by this measure would tend to grow over time. Some Revenues Used for Energy Projects. For a five-year period (2013–14 through 2017–18), about half of the additional revenues—$500 million to $550 million annually—would be transferred to the Clean Energy Job Creation Fund to support energy efficiency and alternative energy projects. School Funding Likely to Rise Due to Additional Revenues. Generally, the revenue raised by the measure would be considered in calculating the state’s annual Proposition 98 minimum guarantee. The funds transferred to the Clean Energy Job Creation Fund, however, would not be used in this calculation. As shown in the bottom part of Figure 1, the higher revenues likely would increase the minimum guarantee by at least $200 million for the 2012–13 through 2017–18 period. In some years during this period, however, the minimum guarantee could be significantly higher. For 2018–19 and beyond, the guarantee likely would be higher by at least $500 million. As during the initial period, the guarantee in some years could be significantly higher. The exact portion of the revenue raised that would go to schools in any particular year would depend upon various factors, including the overall growth in state revenues and the size of outstanding school funding obligations.

”

Support

"Yes on 39" logo

Supporters

Supporters referred to the measure as the Clean Energy Jobs Act.

Individuals

• Thomas Steyer, chairman of Californians for Clean Energy and Jobs
• Jane Warner, president of the American Lung Association in California
• Mary Leslie, president of the Los Angeles Business Council
• Alan Joseph Bankman, professor of tax law at Stanford Law School
• Ruben Guerra, CEO of the Latin Business Association
• Jane Skeeter, small business owner in California
• George Schultz, Former U.S. Secretary of State to Ronald Reagan
• California State Senate President pro-tem Darrell Steinberg
• California State Assembly Speaker John Perez
• California Democratic Party Chairman, John Burton

Businesses

• Disney
• Cisco
• Qualcomm
• Amgen
• The California Teachers Association
• Atlas Project Support
• Genentech

Organizations

• San Francisco Chamber of Commerce
• California Labor Federation
• California Nurses Association
• American Lung Association - California
• CA NOW
• California Alliance for Retired Americans
• California Church IMPACT
• Latin Business Association
• California Labor Federation
• CleanTECH San Diego
• Los Angeles/Orange Counties Building & Construction Trades Council
• Los Angeles Business Council
• California Community College Trustees
• California League of Conservation Voters

Arguments

• Thomas Steyer, the founder and co-senior managing partner of Farallon Capital Management, said, "We have a loophole. It is worth over $1 billion a year. We should close the loophole, and that is what we are doing."

Official arguments

The official arguments in favor of Proposition 39 that were presented in the state's 2012 voter guide were signed by Thomas Steyer, chairman of Californians for Clean Energy and Jobs; Jane Warner, president of the American Lung Association in California; and Mary Leslie, president of the Los Angeles Business Council. The arguments were as follows:

“

IN 2009, A POLITICAL DEAL CREATED A BILLION DOLLAR TAX LOOPHOLE FOR OUT-OF-STATE CORPORATIONS . . . At the end of the 2009 budget negotiations in Sacramento, in the middle of the night, legislators and lobbyists for out-of-state corporations made a deal—with no public hearings and no debate. They put a loophole into state law that allows out-of-state corporations to manipulate our tax system every single year, and avoid paying their fair share to California. The cost of this loophole: $1 billion per year in lost revenues for California. YES on 39 ELIMINATES THE OUT-OF-STATE TAX LOOPHOLE Prop. 39 simply closes this loophole. It ends this manipulation of our tax system—and requires that all corporations doing business in California pay taxes determined by their sales here, no matter where they are based. Prop. 39 LEVELS THE PLAYING FIELD, ensuring that multistate companies play by the same rules as California employers. YES on 39—ELIMINATING THE LOOPHOLE IS GOOD FOR CALIFORNIA’S JOB MARKET The current tax loophole lets corporations pay less tax to California if they have FEWER employees here—giving companies a reason to send jobs out of state. In fact, the state’s nonpartisan, independent Legislative Analyst has cited studies showing that the tax policy in Prop. 39 will bring California as many as 40,000 jobs. That’s why the independent Legislative Analyst has called for eliminating the present loophole. YES on 39 BENEFITS CALIFORNIA TAXPAYERS Multistate corporations that provide few jobs here are using the loophole to avoid paying their fair share to California, costing the state $1 billion per year in lost revenues. Prop. 39 will close that loophole and keep these funds in California to provide vitally-needed revenues for public services. Because almost half of all new revenue is legally required to go to education, hundreds of millions of dollars per year will be dedicated to schools. Additionally, Prop. 39 will create savings for taxpayers. 39 will use a portion of the revenues from closing the loophole to fund energy efficiency projects at schools and other public buildings. Using proven energy efficiency measures like improving insulation, replacing leaky windows and roofs and adding small-scale solar panel installations will reduce state energy costs—freeing up dollars for essential services like education, police, and fire. “By increasing energy efficiency, Prop. 39 will reduce air pollution that causes asthma and lung disease. In the process of upgrading school buildings, Prop. 39 will also remove lead, asbestos, mold, and other toxic substances from schools.”—Jane Warner, President, American Lung Association in California YES on 39—STRICT ACCOUNTABILITY Prop. 39 contains tough financial accountability provisions —including INDEPENDENT ANNUAL AUDITS, ongoing review and evaluation by a CITIZENS OVERSIGHT BOARD, a COMPLETE ACCOUNTING of all funds and expenditures, and FULL PUBLIC DISCLOSURE. YES on 39—IT’S COMMON SENSE: CLOSE the OUT-OFSTATE TAX LOOPHOLE. BRING $1 BILLION per YEAR BACK TO CALIFORNIA.

”

Opposition

Opponents

Individuals

• Jack Stewart, president of the California Manufacturers & Technology Association
• Lew Uhler, president of the National Tax Limitation Committee
• Pat Kong Kushida, president of the California Asian Pacific Chamber of Commerce
• Mike Spence, president of the California Taxpayer Protection Committee
• Robert Ming, chairman of Friends for Saving California Jobs

Businesses

• Chrysler
• General Motors
• Kimberly-Clark
• International Pape

Organizations

• The California Republican Party
• California Employers against Higher Taxes
• Carpinteria Valley Chamber of Commerce
• Simi Valley Chamber of Commerce
• Oxnard Chamber of Commerce
• United Chambers of Commerce

Arguments

Official arguments

The official arguments in favor of Proposition 39 that were presented in the state's 2012 voter guide were signed by Mike Spence, California Taxpayer Protection Committee; Robert Ming, chairman of Friends for Saving California Jobs; and Jack Stewart, president of California Manufacturers and Technology Association. The arguments were as follows:

“

When you read Prop. 39’s campaign promises, remember that Tom Steyer—whom CNN called “California’s Hedge Fund King”—is bankrolling $20 million on slick poll-tested buzzwords like “loophole,” and promising “clean jobs.” California is already losing businesses at a record rate. Ask yourself how raising taxes on companies employing tens of thousands of Californians makes things better? It won’t! CALIFORNIA IS ALREADY BILLIONS IN DEBT BUT PROP. 39 MAKES THINGS WORSE! California is the worst state for business for eight consecutive years, and has the worst credit rating in America. Millions are unemployed. Loophole? No. Prop. 39 repeals a tax law that’s been in effect for decades generating billions in state revenue. The nonpartisan Legislative Analyst and the Department of Finance agree: 39 IS A $1 BILLION TAX INCREASE. Here’s the truth. A $1 billion tax increase gives California employers another reason not to invest or hire. Fewer jobs mean lower revenue and more cuts to schools and law enforcement. Is that good for California? Prop. 39 is ballot box budgeting at its worst. It raids $2.5 billion from the state budget—money that could go to schools, roads, infrastructure, or public safety. PROP. 39 ALSO ADDS NEW BUREAUCRACY— MILLIONS IN SALARIES AND PENSIONS FOR POLITICAL CRONIES. No accountability, and no taxpayer protection against corruption. Higher taxes, fewer jobs, more bureaucracy and waste . . . ZERO accountability and no taxpayer protections against conflicts of interest. That’s the story on Prop. 39. Democrats, Independents, and Republicans agree—vote NO!

”

Editorial opinion

See also: Endorsements of California ballot measures, 2012

"Yes on 39"

2012 propositions
June 5
Proposition 28
Proposition 29
November 6
Proposition 30
Proposition 31
Proposition 32
Proposition 33
Proposition 34
Proposition 35
Proposition 36
Proposition 37
Proposition 38
Proposition 39
Proposition 40
Donations • Vendors
Endorsements • Full text
Ballot titles • Fiscal impact
Local measures

• The Bakersfield Californian: "It's time to fix a bad tax policy, created three years ago by the California Legislature, once and for all."

• The Contra Costa Times: "State lawmakers have refused to correct the mistake they made in 2009 when, in a late-night budget session, they created a tax incentive for companies to locate outside California. Voters need to fix it for them on Nov. 6 by voting for Proposition 39."

• The Daily Democrat (Woodland, California): "Vote yes on this initiative to end a system that lets out-of-state corporations choose their methods of taxation."

• The Fresno Bee endorsed Proposition 39 on October 1st, 2012. They wrote, "If it's approved, the initiative would generate $1 billion a year."

• The Marin Independent Journal: "This measure needs to be on the ballot because the state Legislature has refused to close a business tax loophole it approved in a late-night budget decision in 2009."

• The Merced Sun-Star: "The initiative on the Nov. 6 ballot would close a $1 billion corporate tax loophole, one that legislators are incapable of shutting because they are beholden to outside influences."

• The Modesto Bee: "Proposition 39 shows how direct democracy should work."

• The Oakland Tribune: "Prop. 39 will help keep businesses here."

• The Press-Enterprise: "California has no need for a tax break that puts the state at an economic disadvantage."

• The Redding Record Searchlight: "[Proposition 39] ends a billion-dollar giveaway to out-of-state corporations."

• The San Diego Free Press: "Proposition 39 would eliminate the ability of companies to choose between two methods to calculate their taxable income in California and require them to use sales only for the calculation."

• The San Francisco Bay Guardian: "It's more fair, it creates the right incentives to keep jobs and equipment in the state, and it cuts a hole in the deficit."

• The San Jose Mercury News endorsed Proposition 39, writing, "State lawmakers have so far refused to correct the mistake they made in 2009 when, in a late-night budget session, they created a tax incentive for companies to locate outside California. Voters will be able to fix it for them Nov. 6 by voting yes on Proposition 39."

• The Santa Cruz Sentinel: "Ballot-budgeting? Yes. But as it stands, Steyer's Prop. 39 revenue would help create jobs while also cutting down on energy use and greenhouse gas emissions at public buildings -- and the revenue directed toward these causes is limited to five years. More importantly, the tax loophole is egregious and only encourages multistate companies doing business in California to create jobs outside the state."

• The Vallejo Times-Herald: "We'd prefer to see all the money go to the general fund, but it almost doesn't matter. The important thing is to change a tax policy that now encourages firms to leave California or to expand in other states. Proposition 39 does that."

"No on 39"

• The editorial board of the Appeal-Democrat opposed Proposition 39, writing, "Steyer said the initiative would create green jobs. But taxes kill jobs by sucking money out of the private sector. Similar green-jobs claims were made about Assembly Bill 32, the Global Warming Solutions Act of 2006, by Gov. Arnold Schwarzenegger. But A.B. 32 didn't prevent state unemployment from soaring well above the national rate. California's real employment problem is not a lack of green jobs, but the state's severe anti-jobs climate, to which A.B. 32 and the specter of Steyer's initiative contribute."

• The Bay Area Reporter: "We agree that this is a loophole in the state tax code that should be eliminated. However, this proposition then mandates that the increased revenue, estimated at up to $1 billion annually, be earmarked for specific energy and education programs. This is ballot box budgeting, and we oppose it. It is the role of the legislature to determine the most effective use of revenues, particularly in these hard times of competing priorities. This is a loophole that needs to be closed, but this proposition brings too much other baggage."

• The Long Beach Press-Telegram: "Proposition 39 is a mixed bag - like so many of the initiatives that appear on California's ballots - that should be rejected. At its core is a sound idea: changing the way multistate corporations are taxed in order to remove a perverse incentive against locating operations in California. But the measure has two big problems: One, it's yet another example of ballot-box budgeting, directing half the revenue that would be generated into niche projects instead of into the general fund; and two, it goes back on a budget deal that the Legislature made three years ago."

• The Los Angeles Daily News: "...the measure has two big problems: One, it's yet another example of ballot-box budgeting, directing half the revenue that would be generated into niche projects instead of into the general fund; and two, it goes back on a budget deal that the Legislature made three years ago."

• The Orange County Register: "Prop. 39 ultimately would punish companies with higher taxes and consequently their customers with higher prices, while discouraging hiring in California. We suspect a substantial motive behind the initiative, which largely was funded by a private equity fund partner with clean energy investments, is to extract more taxes, and to use much of the additional money to reward favored projects."

• The Pasadena Star-News opposed Proposition 39, writing that, "PROPOSITION 39 is a mixed bag - like so many of the initiatives that appear on California's ballots - that should be rejected."

• The San Bernadino Sun opposed the initiative, writing, "Of the $1 billion or so in additional tax revenue that change would produce, Proposition 39 directs half into energy efficiency and alternative energy projects for four years."

• The San Diego Union-Tribune opposed Proposition 39, writing, "Proposition 39 targets this same loophole. But instead of using the extra revenue to help small business and spur the struggling economy, the measure would devote half the new revenue, up to $550 million, to alternative energy and energy efficiency projects. These areas are already getting billions of dollars in federal funding, sometimes with horrible track records. We much prefer Fletcher’s approach – or the simplest idea of all: just putting all the money back in the general fund, not half of it."

• The San Francisco Chronicle opposed the initiative in a September editorial, stating that, "Proposition 39, which would direct about half of the extra $1 billion in annual revenue to energy-efficient projects, corrupts a very good idea (tax reform) with a very bad one (ballot-box budgeting)."

• The San Gabriel Valley Tribune: "California can't stand any more ballot-box budgeting that squirrels away money for a single purpose favored by an initiative's proponents - in this case a hedge-fund billionaire. Proposition 39 creates the Clean Energy Job Creation Fund, another otherwise untouchable pot of money like the First 5 and mental health funds that past initiatives have given us. The purposes are good, but they should be weighed against other priorities like education and care for the indigent and elderly."

• The Ventura County Star opposed Proposition 39, stating, "Supporters of Proposition 39 may have had good intentions, but this initiative on the Nov. 6 ballot doesn't measure up to reasonable expectations. The Star recommends a no vote."

• The Victorville Daily Press: "Thomas Steyer, a San Francisco hedge-fund manager who’s worth in excess of $1.3 billion, authored Prop 39 and has invested millions of dollars in the campaign to have it approved. This is far from selfless. Mr. Steyer’s hedge funds invest in 'clean' energy — windmills, you know, and solar plants. So it’s easy to understand why, in writing Prop 39, Mr. Steyer stipulated that for the first five years after it becomes law, some $5 billion of tax revenue it throws off will go into building 'green' projects. Remember, that $5 billion is going to come from you because of higher prices on the stuff you buy, just to keep Mr. Steyer’s hedge funds spewing cash for his investors. Just what we need, another environmental activist mandate to soak Californians’ family budgets — to no justifiable purpose. Like other tax increase measures on the Nov. 6 ballot (Prop 30, for instance) Prop. 39 is just another measure that would raise taxes at the expense of private-sector economic growth, to hand billions of dollars to Gov. Jerry Brown and Legislature to do with as they please."

Polling information

See also: Polls, 2012 ballot measures

A Field Poll taken in late June/early July showed that the "yes" side had a very slight lead over the "no" side, but with less than 50% support.

A Field Poll conducted in mid-September showed similar levels of support and opposition.

Date of Poll	Pollster	In favor	Opposed	Undecided	Number polled
June 21-July 2, 2012	Field Poll	44%	43%	13%	997
September 6-18, 2012	Field Poll	45%	39%	16%	902
September 17-23, 2012	USC Dornsife/Los Angeles Times	51%	29%	20%	1,504
October 7-10, 2012	California Business Roundtable	60.6%	25.1%	14.3%	830
October 21-28, 2012	California Business Roundtable	54.5%	28.5%	17.0%	2,115

A poll of 802 likely voters conducted by the California Business Roundtable and Pepperdine University’s School of Public Policy showed 57 percent of voters in support of Proposition 39. Twenty-nine percent opposed the measure.

Background

See Energy policy in California for a full explanation of energy policy across the state.

In 2009, the California State Legislature approved a budget that included an option for how out-of-state companies calculated their tax bill. Companies could choose the “three-factor” method or the “single-sales factor” method. The single-sales factor uses in-state sales alone to determine a company’s tax obligation. With the three-factor method, companies use a combination of sales, employees, and property to calculate their taxes. For out-of-state companies with no physical presence in the state, the three-factor method offers a large savings. Thus, out-of-state businesses overwhelmingly choose the three-factor method.

The measure now known as Proposition 39 qualified for the November ballot on June 20, 2012. San Francisco-based philanthropist, businessman, and signer of the Giving Pledge, Tom Steyer conceived the measure. He is also the main financial backer. Steyer is co-chair of the Californians for Clean Energy & Jobs group, which has launched a campaign in favor of Proposition 39.

State legislator John Pérez introduced Assembly Bill 1500 during the most recent session. The bill had the same intent as Proposition 39, but it failed to gain traction among Senate Republicans.

Path to the ballot

See also: California signature requirements

• The letter requesting a title and summary was signed by Joseph Caves.
• The 150-day circulation deadline for #11-0080 was June 11, 2012.
• 504,760 valid signatures were required for qualification purposes.
• Signatures to qualify the initiative for the November 6, 2012, ballot were submitted to county election officials throughout the state on May 4, 2012.
• On June 20, the California Secretary of State announced that Proposition 39 had qualified for the November 6, 2012, ballot.

Cost of signature collection:

The cost of collecting the signatures to qualify Proposition 39 for the ballot came to $1,796,003.

The signature vendor was Masterson & Wright.

See also

2012 Measures

• 2012 Measures
• Redistricting policy on the ballot
• 2012 legislative sessions

California

• California ballot measures
• California ballot measure laws

News and analysis

• Ballot measure lawsuits
• Ballot measure readability
• Ballot measure polls

External links

Suggest a link

• November 2012 official voter guide
• Ballot title, summary and LAO analysis of Proposition 39
• Arguments for and against Proposition 39 in the official state voter guide
• Letter requesting a ballot title for Initiative 11-0080
• Living Voters Guide to Proposition 39
• Proposition 39, an overview prepared by the League of Women Voters of California
• Proposition 39 on Voter's Edge
• Proposition 39 Cheatsheet from KCET
• Proposition 39 on California Choices (sponsored by Next 10, IGS at UC Berkeley, the UC San Diego Political Science Department, the Bill Lane Center for the American West at Stanford, and the Center for CA Studies at Sac State)
• Proposition 39 at the California Voter Foundation