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

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Proposition 39
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Type:State statute
Referred by:Petition signatures
Topic:Taxes, Environment
Status:On the ballot
Proposition 39, an Income Tax Increase for Multistate Businesses Initiative, is on the November 6, 2012 ballot in California as an initiated state statute.[1] The measure would only affect out-of-state businesses and not California-based companies or California residents.[2][3][4][5][6][7][8][9]

Currently, out-of-state businesses can reduce their California income taxes by not locating facilities or employees within the state.[10] If passed, Proposition 39 would add possibly $1 billion to the state’s revenue and create approximately 40,000 construction and clean energy jobs, according to the non-partisan California Legislative Analyst's Office.[11][3][4][12]

Initially, this extra revenue would fund green energy projects, construction projects, public schools, and boost the state’s general fund. [7][5] Public support for the measure is high, according to opinion polls.[13]

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. [8][13][4][14][15] Opponents argue that Proposition 39 is a tax increase. [8][16]

Similar laws have been passed in New Jersey, Illinois, and Texas.[12][17] New Jersey Republican Governor Chris Christie said, "moving to a single sales factor removes a barrier to firms seeking to locate and grow their business and jobs in New Jersey, while also helping retain companies with headquarters in the state."[17]

John Perez of the California State Assembly is sponsoring very similar legislation. The California State Assembly passed it in early August and it has been sent to the California State Senate. If they pass it, and Jerry Brown signs it, Proposition 39 will essentially become moot. Its supporters have said they would stop actively campaigning for Proposition 39, in that event.[18]

The primary financial backer of Proposition 39 is Thomas Steyer,[19] who played a lead role in designing the initiative.[20]

If approved, Proposition 39 will:

  • Require out-of-state businesses to calculate their California income tax liability based on the percentage of their sales in California.
  • Repeal an existing law that gives out-of-state businesses an option to choose a tax liability formula that provides favorable tax treatment for businesses with property and payroll outside California.
  • Dedicate $550 million annually for five years from the initiative's anticipated increase in revenue in order to fund projects that "create energy efficiency and clean energy jobs" in California.

Text of measure

See also: Complete text of Proposition 39 and Ballot titles, summaries and fiscal statements for California's 2012 ballot propositions


Tax Treatment for Multistate Businesses. Clean Energy and Energy Efficiency Funding. Initiative Statute.


  • Requires out-of-state businesses to calculate their California income tax liability based on the percentage of their sales in California.
  • Repeals existing law giving out-of-state businesses an option to choose a tax liability formula that provides favorable tax treatment for businesses with property and payroll outside California.
  • Dedicates $550 million annually for five years from anticipated increase in revenue for the purpose of funding projects that create energy efficiency and clean energy jobs in California.

Fiscal impact

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

(This is a summary of the initiative's estimated "fiscal impact on state and local government" prepared by the California Legislative Analyst's Office and the Director of Finance.)

  • Approximately $1 billion in additional annual state revenues—growing over time—from eliminating the ability of out-of-state businesses to choose how their California taxable income is determined. This would result in some out-of-state businesses paying more state taxes.
  • Of the revenue raised by this measure over the next five years, about half would be dedicated to energy efficiency and alternative energy projects.
  • Of the remaining revenues, a significant portion likely would be spent on public schools and community colleges.

History of the ballot initiative

In 2009, California state legislators approved a balanced budget that included an option for how out-of-state companies calculated their tax bill.[11][21] Companies could choose the “three-factor” method or the “single-sales factor” method.[7] The single-sales factor uses in-state sales alone to determine a company’s tax obligation. [4] With the three-factor method, companies use a combination of sales, employees, and property to calculate their taxes. [4] 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.[22]

The measure now known as Proposition 39 qualified for the November ballot on June 20, 2012.[23] San Francisco-based philanthropist, businessman, and signer of the Giving Pledge, Tom Steyer conceived the measure.[23] He is also the main financial backer. [3][13][7] Steyer is co-chair of the Californians for Clean Energy & Jobs group, which has launched a campaign in favor of Proposition 39.[24]

State legislator John Pérez introduced Assembly Bill 1500 during the most recent session.[3] The bill had the same intent as Proposition 39, but it failed to gain traction among Senate Republicans.[13][3]


Supporters of Proposition 39 have launched a vigorous campaign, while opponents have been relatively low key.[6]

Campaign funding and spending

Steyer, founder of Farallon Capital and One Pacific Community Bank, has contributed $21.9 million to the “Yes on 39” campaign. [9] In 2010, Steyer co-chaired the effort to beat Proposition 23, a ballot initiative to overturn California’s climate change laws.[25] Californians for Clean Energy & Jobs has added $1.1 million.[9] Other financial contributors to the initiative include the League of Conservative Voters and the Western States Council of Sheet Metal Workers PAC.[9][4]


"Yes on 39" logo


Thomas Steyer, the founder and co-senior managing partner of Farallon Capital Management, supports Proposition 39. He says, "We have a loophole. It is worth over $1 billion a year. We should close the loophole, and that is what we are doing."[19]

Several California-based companies have voiced support for changes to corporate tax law, including Disney, Cisco, Qualcomm, and Amgen.[26] These companies argue that current law gives out-of-state companies an unfair advantage.[26][8]

The California Teachers Association also supports the measure, as much of the extra funding would go toward education. [13] Atlas Project Support, a green energy firm, said that the measure would greatly increase its business. [13] Genentech, a California-based biotech firm, has expressed support for Proposition 39. [7] Executive Andrea Jackson explained that the company recently built a $450 million facility in Oregon to take advantage of the three-factor method. [7] She stated that the company would rather keep all of its assets in-state. [7]

The San Francisco Chamber of Commerce,[27] former U.S. Secretary of State to Ronald Reagan, George Schultz,[28] The Sacramento Bee,[15] the San Jose Mercury News[29], California State Assembly Speaker John Perez,[30] the California Labor Federation,[31] and California State Senate President pro Tem Darrell Steinberg,[32] had endorsed the initiative.

The arguments in favor of Proposition 39 in the state's official voter guide were submitted by:

  • Jane Warner. Warner is the president of the American Lung Association in California.
  • Thomas Steyer.
  • Mary Leslie. Leslie is the president of the Los Angeles Business Council.
  • Alan Joseph Bankman. Bankman is a professor of tax law at Stanford Law School.
  • Ruben Guerra. Guerra is the CEO of the Latin Business Association.
  • Jane Skeeter. Skeeter is a small business owner in California.

Arguments in favor

The arguments presented in favor of Proposition 39 in the state's official voter guide include:

  • "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."
  • "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 out-of-state companies play by the same rules as California employers."
  • "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."
  • "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 clovitally-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."
  • "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."


Total campaign cash Invest.png
Category:Ballot measure endorsements Support: $23,100,000
Circle thumbs down.png Opposition: $0

Thomas Steyer is the primary financial backer of Proposition 39.[33]

These are the $10,000 and over donors to the "yes" campaign as of October 1, 2012:

Donor Amount
Thomas Steyer $21,900,000
Californians for Clean Energy and Jobs $350,000
League of Conservation Voters $25,000



Opponents of the measure argue that California already has an unfriendly business climate. According to the Tax Foundation, California’s business tax climate ranks 48th in the nation.

Several major corporations benefit from the current law, including General Motors, International Paper, Kimberley-Clark, and Chrysler. [3] Since 2006, these companies have earned $42.4 million in state contracts. [3] These four companies vocally opposed Assembly Bill 1500, and they equally oppose Proposition 39. [3] In September 2012, Proctor & Gamble and Chrysler both announced they wouldn’t oppose Proposition 39.[34][35]

The lobbyist group California Employers against Higher Taxes has also opposed the measure. [3] Opponents claim that Proposition 39 will add more bureaucracy to California government and discourage businesses from contributing to the economy through job creation. [8] They also claim that the three-factor method has been on the books since 1966 with no ill effects. [16] The Carpinteria Valley Chamber of Commerce, The Simi Valley Chamber of Commerce, the Oxnard Chamber of Commerce, and the United Chambers of Commerce all oppose Proposition 39.[28]

The arguments against Proposition 39 in the state's official voter guide were submitted by:

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

Other opponents include:

  • Peter DeMarco, a spokesperson for a coalition of businesses that oppose the initiative, said that if approved, Proposition 39 is "going to drive workers and jobs out of California."[36]

The "Yes on 39" campaign ran a full-page ad in the Sacramento Bee the last week of July 2012 asking four companies who had indicated their opposition to Proposition 39 to back off and pledge not to oppose Proposition 39. The four companies identified in the advertisement were Chrysler, General Motors, Kimberly-Clark and International Paper.[38]

Arguments against

The arguments in opposition to Proposition 39 presented in the state's official voter guide include:

  • "Proposition 39 is a massive $1 billion tax increase on California job creators that will result in the loss of thousands of middle class jobs. California's unemployment rate is already third worst in the country at nearly 11%. Prop. 39 makes our problems worse."
  • "Proposition 39 is a recipe for waste and corruption. It spends up to $22 million on a new bureaucracy and special interest commission. It gives Sacramento politicians a blank check to spend billions without real accountability or taxpayer protections against conflicts of interest."
  • "Here are the facts: a billionaire who CNN called 'California’s Hedge Fund King' is bankrolling 39, spending $20 million to influence your vote and buy the election. His political consultants use terms like 'closing a loophole' but don’t believe them. Prop. 39 is politics at its worst. California needs reform, not more taxes and wasteful spending."
  • "$2.5 billion that could go to schools, health and welfare, environmental protection or public safety is instead diverted to a new government commission with fat salaries and little accountability. Our state budget deficit today is nearly $16 billion and Prop. 39 makes things worse by wasting money on a new unnecessary bureaucracy. California needs teachers and police officers, not more bureaucrats!"
  • "Manufacturing jobs that provide for families are vanishing. Almost two million hard-working Californians are struggling to find any kind of work. The $1 billion Prop. 39 tax increase changes tax laws that have been in effect for more than 40 years and will cost more union and non-union workers their jobs."
  • "You’ve heard it before. Sacramento has a plan to create jobs. We give them money to create a commission of political appointees with an appealing name like Citizens Oversight Board. They get a blank check to spend (or waste) tax dollars. Under Prop. 39, money is spent to give contracts to so-called 'Green Energy' programs. Who is likely to get those contracts? Big campaign contributors, that’s who."
  • "California needs reform, not tax increases that eliminate middle class jobs. Prop. 39 raises taxes by $1 billion on California job creators to help fund more government bureaucracy and more bloated pensions. It doesn’t protect against ongoing state budget deficits, high nemployment and continued economic recession. Remember, a billionaire with an agenda is bankrolling 39. It’s up to voters to protect California taxpayers. By voting NO on Prop. 39, you will stop a job-killing $1 billion tax increase on California job creators. You will support middle class California jobs that provide for families and sustain our economy. And you’ll tell Sacramento politicians no more blank checks for more special interest spending on bloated government and pensions."


Total campaign cash Invest.png
Category:Ballot measure endorsements Support: $23,100,000
Circle thumbs down.png Opposition: $0
  • As of October 2, 2012, no campaign committees in opposition to Proposition 39 have registered with election officials.
  • A Stop 39 website was registered with GoDaddy on July 18, 2012. This presumably entailed the expenditure of a small amount of money. However, the identity of the organization or individual who registered the URL is unavailable, since they used "Domains by Proxy" to shield their identity.
  • As of September 26, 2012, visitors to the Stop 39 website see no content, other than the phrase, "This site is under construction."

Editorial opinion

See also: Endorsements of California ballot measures, 2012

"Yes on 39"

  • The Contra Costa Times favors Proposition 39. They write, "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."[39]
  • The Los Angeles Times has endorsed Proposition 39. In a September 27, 2012 opinion piece, they wrote that, "Proposition 39, would raise an estimated $1 billion a year, about half of which would be dedicated temporarily to making public buildings more energy efficient."[20]
  • 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."[40]
  • The Sacramento Bee has endorsed Proposition 39. The newspaper advocated that voters approve the measure, writing, “Essentially, out-of-state corporations such as cigarette maker Altria gained the privilege to determine which of two methods of taxation allowed them to pay the least in state taxes, and they are allowed to toggle back and forth each year so as to gain the greatest benefit,... Proposition 39 shows how direct democracy should work.”[14]

"No on 39"

  • The editorial board of the Appeal-Democrat opposed Proposition 39 in an editorial in May, 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."[41]
  • 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."[42]
  • 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."[43]

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.[44]

A Field Poll conducted in mid-September showed similar levels of support and opposition.[45]

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. [13] Twenty-nine percent opposed the measure. [13]

Path to the ballot

See also: California signature requirements
See also: California ballot initiative petition signature costs

External links

2012 propositions
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November 6
Proposition 30
Proposition 31
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Proposition 39
Proposition 40
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Basic information:




  1. 1.0 1.1 Sacramento Bee, "Jerry Brown's proposal and two other tax measures qualify for November ballot", June 21, 2012
  2. Monterey County Herald, "Other views: Vote for Prop. 39, return business", August 14, 2012
  3. 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 The Sacramento Bee, "Prop. 39 backers suggest California end contracts with tax foes", July 31, 2012
  4. 4.0 4.1 4.2 4.3 4.4 4.5 Legislative Analyst's Office, "Tax Treatment for Multistate Businesses. Clean Energy and Energy Efficiency Funding. Initiative Statue.", July 18, 2012
  5. 5.0 5.1, "Proposition 39", 2012
  6. 6.0 6.1 San Diego Free Press, "Proposition 39 – Why You Should Vote Yes on the Most Boring Proposition on the 2012 Ballot", September 6,2012
  7. 7.0 7.1 7.2 7.3 7.4 7.5 7.6 Silicon Valley Mercury News, "", August 9, 2012
  8. 8.0 8.1 8.2 8.3 8.4, "ARGUMENT IN FAVOR OF PROPOSITION 39", 2012
  9. 9.0 9.1 9.2 9.3 KCET, "Prop 39 Funding", September 26, 2012
  10. NBC Bay Area, "The Three Numbers You'll Hear This Fall: 38 - 39 - 40", June 30, 2012
  12. 12.0 12.1 Legislative Analyst's Office, "Reconsidering the Optional Single Sales Factor", May 26, 2012
  13. 13.0 13.1 13.2 13.3 13.4 13.5 13.6 13.7 BloombergBusinessweek, "California Voters Weigh $1 Billion Tax Break for Business" September 17,2012
  14. 14.0 14.1 The California Majority Report, Sacramento Bee Backs Prop 39", September 24, 2012
  15. 15.0 15.1 Sacramento Bee, "Endorsements: Proposition 39 is a tax code fix worthy of your 'yes' vote", September 23, 2012
  16. 16.0 16.1 CalWatchdog, "Prop 39 and AB 1500: A taxing alliance", August 20, 2012
  17. 17.0 17.1 State of New Jersey Governor Chris Christie, "The New Jersey Comeback", June 14, 2012
  18. Press Telegram, "Moot measures on the November ballot", August 14, 2012
  19. 19.0 19.1 Sacramento Bee, "Tax campaign targets Capitol's inside game", January 29, 2012
  20. 20.0 20.1 Los Angeles Times, "Yes on Proposition 39", September 27, 2012
  21. Institute on Taxation and Economic Policy, "Corporate Income Tax Apportionment and the Single Sales Factor", August, 2012
  22. [Oakland Tribune,"Oakland Tribune editorial: California's Prop. 39 will help keep businesses here", August 13, 2012.]
  23. 23.0 23.1 Scaramento Bee, "Jerry Brown's proposal and two other tax measures qualify for November ballot", June 21, 2012
  24. Californians for Clean Energy & Jobs Network, "About Us", 2012
  25., "Up against Big Oil: Tom Steyer on backing state pro-environment initiatives" August 31, 2012
  26. 26.0 26.1 Sacramento Bee, "Dan Morain: Tax campaign targets Capitol's inside game", January 29, 2012
  27. San Francisco Chamber of Commerce, "San Francisco Chamber of Commerce Announces Ballot Positions for November Presidential Election" 2012
  28. 28.0 28.1 Chamber of Commerce Alliance, "2012 Ballot Measures", September 17, 2012
  29. Silicon Valley Mercury News, "Mercury News editorial: California's Prop. 39 will help keep businesses here", August 9, 2012
  30. San Francisco Chronicle, "Tax measure gets Speaker Pérez's support", September 14, 2012
  31. California Labor Federation, "Prop 39: Closing a Corporate Tax Loophole and Bringing Jobs Back to California", 2012
  32. YesOnProp39, "California State Senate President pro Tem Darrell Steinberg Endorses Proposition 39", September 20, 2012
  33. Sacramento Bee, "Billionaire will give $20 million for corporate tax hike initiative", May 10, 2012
  34. Sacramento Bee, "Chrysler States it Will Not Oppose Proposition 39", September 19, 2012
  35. Los Angeles Times, "Procter & Gamble stands aside as corporate tax battle heats up", August 3, 2012
  36. 36.0 36.1 89.3 KPCC, "Initiative to close tax exemption for out-of-state businesses to join November ballot", May 4, 2012
  37. Walnut Creek Patch, "California Republicans Oppose Proposed Tax Measures", August 12, 2012
  38. Sacramento Bee, "AM Alert: Yes on Prop. 39 campaign throws down gauntlet", July 30, 2012
  39. Monterey Herald, "Contra Costa Times: Repeal Prop. 39, return business", August 14, 2012
  40. Mercury News, "California's Prop. 39 will help keep businesses here", August 9, 2012
  41. Appeal-Democrat, "Our View: California businesses facing new tax hikes", May 10, 2012
  42. Los Angeles Daily News, "Editorial: No on Proposition 39", October 1, 2012
  43. San Gabriel Valley Tribune, "Our View: No on Prop. 39's ballot-box budget", September 30, 2012
  44. Field Poll released July 5, 2012
  45. Field Poll, "California's Tax Initiatives", September 20, 2012