BILL ANALYSIS �
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1372|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: SB 1372
Author: DeSaulnier (D) and Hancock (D)
Amended: 8/21/14
Vote: 27
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-2, 4/24/14
AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu
NOES: Knight, Walters
SENATE APPROPRIATIONS COMMITTEE : 5-2, 5/23/14
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NOES: Walters, Gaines
SENATE FLOOR : 19-17, 5/28/14 (FAIL)
AYES: Beall, Corbett, De Le�n, DeSaulnier, Evans, Hancock,
Hernandez, Hueso, Jackson, Lara, Leno, Lieu, Liu, Mitchell,
Monning, Padilla, Pavley, Steinberg, Wolk
NOES: Anderson, Berryhill, Block, Cannella, Correa, Fuller,
Gaines, Galgiani, Hill, Huff, Knight, Morrell, Nielsen, Roth,
Vidak, Walters, Wyland
NO VOTE RECORDED: Calderon, Torres, Wright, Yee
SUBJECT : Corporation taxes: tax rates: publicly held
corporations: credits
SOURCE : Author
DIGEST : This bill, beginning January 1, 2015, replaces a
publicly traded corporation's current tax rate with a rate based
on a ratio between its top paid employee and the median
CONTINUED
SB 1372
Page
2
compensation it pays.
Senate Floor Amendments of 8/21/14 transfer revenues from higher
corporation tax revenues resulting from this bill's changes to
the corporation tax to tax credits administered by the
Governor's Office of Business and Economic Development (GO-Biz).
ANALYSIS : In California, C-Corporations pay 8.84% of
apportioned net income in corporation tax, with banks paying 2%
more, regardless of whether the firm is publicly traded.
The California Competes Tax Credit Committee (Committee)
administers the California Competes Tax Credit, where applicants
can apply for tax credits. The Committee is comprised of the
Treasurer, the Director of Finance, the Director of GO-Biz, one
appointee of the Speaker of the Assembly, and one appointee from
the Senate Committee on Rules. The Committee grants credits to
applicants with the best ratio of tax credit requested to the
amount of the applicant's investment and employment resulting
from the credit.
This bill, beginning in the 2015 tax year, changes the
corporation tax rate for publicly traded corporations, including
wholly owned subsidiaries, according to a ratio between the
greater of the chief operating officer or highest paid
employee's pay for the calendar year before the current taxable
year, over the median compensation of all employees' employed by
the taxpayer in the United States.
-----------------------------------------------------------------
|If the compensation ratio is: |The applicable tax rate is: |
|--------------------------------+--------------------------------|
|Over zero but not over 25 |7% upon the basis of net income |
|--------------------------------+--------------------------------|
|Over 25 but not over 50 |7.5% upon the basis of net |
| |income |
|--------------------------------+--------------------------------|
|Over 50 but not over 100 |8% upon the basis of net income |
|--------------------------------+--------------------------------|
|Over 100 but not over 150 |9% upon the basis of net income |
|--------------------------------+--------------------------------|
|Over 150 but not over 200 |9.5% upon the basis of net |
| |income |
|--------------------------------+--------------------------------|
CONTINUED
SB 1372
Page
3
|Over 200 but not over 250 |10% upon the basis of net |
| |income |
|--------------------------------+--------------------------------|
|Over 250 but not over 300 |11% upon the basis of net |
| |income |
|--------------------------------+--------------------------------|
|Over 300 but not over 400 |12% upon the basis of net |
| |income |
|--------------------------------+--------------------------------|
|Over 400 |13% upon the basis of net |
| |income |
| | |
-----------------------------------------------------------------
This bill defines compensation differently for the executives
and for employees. Employee compensation is calculated
according to the Internal Revenue Code's provisions for Social
Security Taxes, and includes almost any kind of compensation
paid by the taxpayer to the employee, such as wages, benefit
contributions, the value of stock options and deferred
compensation. For executives, it's calculated based on the
Summary Compensation Table the firm reports to the Securities
and Exchange Commission, and includes salary, bonus, grants of
stock options and stock appreciation rights, long-term incentive
plan awards, pension plans, and employment contracts and related
arrangements.
Additionally, for taxpayers required to file a combined report,
the chief operating officer or highest paid employee can include
any person in any firm included on the report. For firms that
reduce employment on a full-time equivalent basis in the United
States by more than 10% over the previous year, and increase
contracted employees or foreign full-time employees for the same
period, this bill additionally increases the rate from the table
above by 50%.
The taxpayer must furnish a detailed compensation report to the
Franchise Tax Board (FTB). The FTB may prescribe rules and
regulations to implement this bill that are exempt from the
Administrative Procedures Act. This bill defines several terms,
and prescribes a methodology for measuring full-time
equivalents.
This bill requires the FTB to determine on or before January 1,
CONTINUED
SB 1372
Page
4
2016, and each January 1, thereafter, the amount of revenue
resulting from this bill that exceeds the amount that would have
been remitted but for this bill's change to the Corporation Tax
rate. If such an amount exists, this bill directs the Committee
to award corporation tax credits to firms with compensation
ratios between 0 and 100 according to the table above.
This bill includes requirements for any tax credit awarded,
including (1) the Committee must base amount of credit based on
the taxpayer's number of jobs created or retained in the state,
(2) compensation paid by the taxpayer to employees, (3) the
taxpayer's amount of investment in the state, and (4) the
overall economic impact of the taxpayer's project or business.
This bill requires any tax credit to be issued pursuant to a
written agreement between the Committee and the taxpayer
verifying the taxpayer has a compensation ratio between 0 and
100, and stating the amount of the credit.
This bill directs GO-Biz to: (1) give priority to a qualified
taxpayer whose business is located in an area of higher
employment or poverty, (2) negotiate with a qualified taxpayer
the amount of credit, (3) provide a written agreement to the
Committee for approval, (4) inform the FTB of the terms of the
written agreement, and (5) adopt any necessary regulations. 25%
of any credits must be allocated to small business, defined as a
trade or business with less than $2 million in annual gross
receipts, but no more than 20% can go to any one taxpayer.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
The FTB estimates that this bill will result in revenue gains
of $100 million in 2014-15, $320 million in 2015-16, and $340
million in 2016-17 (General Fund).
The FTB will incur increased administrative costs to incur the
provisions of this bill. Specifically, this bill's
requirements will impact the FTB's programming, printing,
processing, mailing, and storage costs for tax returns. These
costs are currently unknown, but will likely amount to a
minimum of low millions of dollars annually (General Fund).
CONTINUED
SB 1372
Page
5
SUPPORT : (Verified 8/22/14)
AFSCME
California Labor Federation
California Tax Reform Association
Courage Campaign
OPPOSITION : (Verified 8/22/14)
Air Logistics Corporation
Associated General Contractors of California
California Apartment Association
California Bankers Association
California Chamber of Commerce
California Grocers Association
California Manufacturers and Technology Association
California Restaurant Association
California Retailers Association
California Tank Lines, Inc.
California Taxpayers Association
Chemical Transfer Company
Council on State Taxation
National Federation of Independent Business
Orange County Business Council
Orange County Taxpayers Association
Silicon Valley Leadership Group
Superior Tank Wash, Inc.
TechAmerica
The Chamber of the Santa Barbara Region
West Coast Leasing; LLC
West Coast Lumber and Building Material Association
ARGUMENTS IN SUPPORT : According to the author, "SB 1372
provides an incentive to reduce the gross disparities between
workers and CEOs. The bill creates a corporate tax table that
rewards companies with a reasonable CEO-to-worker pay ratio with
lower taxes (CEOs that make no more than 100 times more than
workers) and increases taxes on those companies that are fueling
income inequality by lavishing CEOs with outrageous compensation
at the expense of their workers (CEOs that make 100-400 times
more than workers)."
ARGUMENTS IN OPPOSITION : California Chamber of Commerce
states this bill "would unnecessarily increase corporate income
CONTINUED
SB 1372
Page
6
tax rates (potentially by more than 120%) whenever the
compensation of a company's highest paid employee exceeds that
of the median wage for all other employees in the company's
unitary combined report. SB 1372 will encourage publicly traded
companies and financial institutions to leave California, and
discourage publicly traded companies or financial institutions
from locating to California, which will ultimately cost
California jobs and reduce much needed private sector investment
in the state."
AB:e 8/22/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED