VETO  

Bill No: SB 972

Author: Skinner (D)

Amended: 7/28/20

Vote: 27

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 5/28/20

AYES: McGuire, Beall, Hertzberg, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hurtado

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 25-12, 6/22/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Dodd, Durazo, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NOES: Bates, Borgeas, Chang, Dahle, Galgiani, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

NO VOTE RECORDED: Caballero, Glazer, Hurtado

SENATE FLOOR: 28-11, 8/30/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Galgiani, Lena Gonzalez, Hertzberg, Hill, Hueso, Hurtado, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NOES: Bates, Borgeas, Chang, Dahle, Glazer, Grove, Melendez, Moorlach, Morrell, Nielsen, Wilk

NO VOTE RECORDED: Jones

ASSEMBLY FLOOR: 42-20, 8/26/20 - See last page for vote

SUBJECT: Corporation taxes: disclosure

SOURCE: SEIU California

DIGEST:

This bill requires the Franchise Tax Board (FTB) to compile information regarding corporate taxpayers’ tax liabilities and amounts of tax credits claimed, and send the information to two legislative committees.

ANALYSIS:

Existing law:

1. Prohibits, generally, disclosure or inspection of any income tax return information.
2. Sets forth criminal sanctions, including imprisonment, which apply to FTB personnel convicted of unlawful disclosure or inspection of tax records.
3. Directs FTB to notify a taxpayer if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data.
4. Contains explicit exemptions from the above requirements allowing FTB to disclose information to certain entities for specified purposes, such as to other state agencies to assist administering programs, such as to the Department of Health Care Services for use in determining eligibility for Medi-Cal.
5. Permits FTB to provide any information to a committee formed by either the Assembly or Senate; however, states that it is a misdemeanor for any member, clerk, or other officer to disclose the information except to law enforcement to detect or prosecute crimes.
6. Allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving.
7. Applies the combined report method of corporate taxation, which requires a corporation computing its California tax liability to include the tax returns of its unitary subsidiaries and affiliates into one report, and divide the corporation’s overall income among the taxing jurisdictions in which it does business.

This bill:

1. Directs FTB to compile a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more for the taxable year reported on a return submitted in the previous calendar year.
2. Requires the list to include:
   1. The taxpayer’s name,
   2. Its tax liability,
   3. The taxable year for which the return is filed,
   4. The total gross receipts for that taxable year, and
   5. The amount and types of credits against the corporation tax claimed for that taxable year.
3. Provides that any determination with regard to calculating gross receipts must be made at the combined group level.
4. Requires FTB to provide the information to the Assembly Committee on Revenue and Taxation and the Senate Committee on Governance and Finance site by May 1, 2021, and each May 1 thereafter, in a list that includes:
   1. The taxpayer’s name as listed on its tax return.
   2. The taxpayer’s total amount of tax liability for the taxable year reported on a return in the previous calendar year.
   3. The total amount and types of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
5. Disconnects existing provisions of state law prohibiting disclosure or inspection of any income tax return information.
6. Defines several terms, including “credits claimed,” “gross receipts,” and “tax liability.”

Background

In 2017, Congress enacted HR 1, which comprehensively changed federal personal income and corporation taxes. HR 1 enacted several changes that significantly reduced federal taxes on corporations, including lowering the statutory rate from 35% to 21%, allowing immediate expensing when purchasing or leasing new equipment, and adopting a “territorial” system that mostly excludes from tax the income of a U.S. company’s foreign subsidiaries. As a result of these changes, the Institute on Taxation and Economic Policy recently found in a sample of 397 companies for the 2018 taxable year that the effective federal income tax rate is only 11.3%, or less than half of the new statutory rate, with many prominent firms paying no federal taxes at all. In California, the Legislative Analyst’s Office (LAO) has found that the corporation tax’s share of total general fund revenues has declined from 16% in the 1950s and 60s to 9% in the early 2010s. LAO states that changes in state law made since the mid-to-late 1980s and increased usage of tax credits reduced annual revenues by approximately $3 billion annually.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee, this bill results in minor costs for the FTB to compile the relevant information and send to the Legislature.

SUPPORT: (Verified 8/26/20)

SEIU California (source)
American Civil Liberties Union
California Alliance for Retired Americans
California Association of Professional Scientists
California Federation of Teachers
California Professional Firefighters
California Tax Reform Association
California Teachers Association
Evolve California
Professional Engineers in California Government
UDW/AFSCME Local 3930
United Food and Commercial Workers, Western States Council

OPPOSITION: (Verified 8/26/20)

Biocom
Calaveras County Taxpayers Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Life Sciences Association
California Manufacturers & Technology Association
California Retailers Association
California Taxpayers Association
COMPTIA
Council on State Taxation
Family Business Association of California
Kern County Taxpayers Association
Orange County Taxpayers Association
San Gabriel Valley Economic Partnership
Santa Maria Valley Chamber of Commerce
Silicon Valley Leadership Group
Solano County Taxpayers Association
Sutter County Taxpayers Association
Technet
Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to the author, “With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits. California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast, Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This data provides policymakers the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers’ dollars

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “Currently, lawmakers have access to the anonymized aggregate data from the FTB and do not need taxpayer information to make policy decisions. Any and all information necessary to evaluate tax credits is available to lawmakers under current law. SB 972 would violate the California Taxpayers’ Bill of Rights, which requires the FTB to protect the rights of all California taxpayers. These rights include the right to privacy and confidentiality, and the right to pay no more than the correct legal amount of tax owed. There is no reason to disclose private taxpayer information unless the goal is to publicly target certain taxpayers, which would be an improper application of the tax code. There is no valid reason to violate the fundamental principle of taxpayer confidentiality. Information submitted by taxpayers to tax agencies should remain confidential to encourage the self-reporting upon which California’s income tax system relies. Under SB 972 an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. This bill discriminates against certain businesses based upon subjective criteria. The bill arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public. Taxpayers should not be singled out based upon the amount of business they conduct.”

GOVERNOR'S VETO MESSAGE:

I am returning Senate Bill 972 without my signature.

This bill would require the Franchise Tax Board (FTB) to provide certain information about corporate tax filings to two legislative committees.

This bill is unnecessary, as current law already authorizes the FTB, upon request, to disclose taxpayer data to legislative committees. The committee, its officers and employees are required to maintain the confidentiality of the information provided.

I am not persuaded that enactment of this bill would provide additional value to future policy deliberations.

ASSEMBLY FLOOR: 42-20, 8/26/20

AYES: Aguiar-Curry, Berman, Bloom, Bonta, Burke, Calderon, Carrillo, Chau, Chiu, Chu, Cooley, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Holden, Jones-Sawyer, Kalra, Kamlager, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Quirk, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Santiago, Smith, Mark Stone, Ting, Weber, Wood, Rendon

NOES: Bigelow, Brough, Chen, Choi, Cunningham, Megan Dahle, Daly, Flora, Fong, Gallagher, Kiley, Lackey, Maienschein, Mathis, Mayes, Obernolte, Patterson, Petrie-Norris, Salas, Waldron

NO VOTE RECORDED: Arambula, Bauer-Kahan, Boerner Horvath, Cervantes, Cooper, Diep, Eggman, Frazier, Gray, Grayson, Irwin, O'Donnell, Ramos, Rodriguez, Blanca Rubio, Voepel, Wicks

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

10/25/20 13:20:36

**** END ****

 UNFINISHED BUSINESS  

Bill No: SB 972

Author: Skinner (D)

Amended: 7/28/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 5/28/20

AYES: McGuire, Beall, Hertzberg, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hurtado

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SENATE FLOOR: 25-12, 6/22/20

AYES: Allen, Archuleta, Atkins, Beall, Bradford, Dodd, Durazo, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NOES: Bates, Borgeas, Chang, Dahle, Galgiani, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

NO VOTE RECORDED: Caballero, Glazer, Hurtado

ASSEMBLY FLOOR: 42-20, 8/26/20 - See last page for vote

SUBJECT: Corporation taxes: disclosure

SOURCE: SEIU California

DIGEST:

This bill requires the Franchise Tax Board (FTB) to compile information regarding corporate taxpayers’ tax liabilities and amounts of tax credits claimed, and send the information to two legislative committees.

Assembly Amendments

(1) delete the requirement that FTB publish information on its website regarding corporate taxpayers’ tax liabilities and amounts of tax credits claimed, instead directing FTB to send the information to the Assembly Committee on Revenue and Taxation and the Senate Committee on Governance and Finance, and (2) state that FTB must include the types of credits claimed by corporate taxpayers, not just the amounts.

ANALYSIS:

Existing law:

1. Prohibits, generally, disclosure or inspection of any income tax return information.
2. Sets forth criminal sanctions, including imprisonment, which apply to FTB personnel convicted of unlawful disclosure or inspection of tax records.
3. Directs FTB to notify a taxpayer if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data.
4. Contains explicit exemptions from the above requirements allowing FTB to disclose information to certain entities for specified purposes, such as to other state agencies to assist administering programs, such as to the Department of Health Care Services for use in determining eligibility for Medi-Cal.
5. Permits FTB to provide any information to a committee formed by either the Assembly or Senate; however, states that it is a misdemeanor for any member, clerk, or other officer to disclose the information except to law enforcement to detect or prosecute crimes.
6. Allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving.
7. Applies the combined report method of corporate taxation, which requires a corporation computing its California tax liability to include the tax returns of its unitary subsidiaries and affiliates into one report, and divide the corporation’s overall income among the taxing jurisdictions in which it does business.

This bill:

1. Directs FTB to compile a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more for the taxable year reported on a return submitted in the previous calendar year.
2. Requires the list to include:
   1. The taxpayer’s name,
   2. Its tax liability,
   3. The taxable year for which the return is filed,
   4. The total gross receipts for that taxable year, and
   5. The amount and types of credits against the corporation tax claimed for that taxable year.
3. Provides that any determination with regard to calculating gross receipts must be made at the combined group level.
4. Requires FTB to provide the information to the Assembly Committee on Revenue and Taxation and the Senate Committee on Governance and Finance site by May 1, 2021, and each May 1 thereafter, in a list that includes:
   1. The taxpayer’s name as listed on its tax return.
   2. The taxpayer’s total amount of tax liability for the taxable year reported on a return in the previous calendar year.
   3. The total amount and types of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
5. Disconnects existing provisions of state law prohibiting disclosure or inspection of any income tax return information.
6. Defines several terms, including “credits claimed,” “gross receipts,” and “tax liability.”

Background

In 2017, Congress enacted HR 1, which comprehensively changed federal personal income and corporation taxes. HR 1 enacted several changes that significantly reduced federal taxes on corporations, including lowering the statutory rate from 35% to 21%, allowing immediate expensing when purchasing or leasing new equipment, and adopting a “territorial” system that mostly excludes from tax the income of a U.S. company’s foreign subsidiaries. As a result of these changes, the Institute on Taxation and Economic Policy recently found in a sample of 397 companies for the 2018 taxable year that the effective federal income tax rate is only 11.3%, or less than half of the new statutory rate, with many prominent firms paying no federal taxes at all. In California, the Legislative Analyst’s Office (LAO) has found that the corporation tax’s share of total general fund revenues has declined from 16% in the 1950s and 60s to 9% in the early 2010s. LAO states that changes in state law made since the mid-to-late 1980s and increased usage of tax credits reduced annual revenues by approximately $3 billion annually.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Assembly Appropriations Committee, this bill results in minor costs for the FTB to compile the relevant information and send to the Legislature.

SUPPORT: (Verified 8/26/20)

SEIU California (source)
American Civil Liberties Union
California Alliance for Retired Americans
California Association of Professional Scientists
California Federation of Teachers
California Professional Firefighters
California Tax Reform Association
California Teachers Association
Evolve California
Professional Engineers in California Government
UDW/AFSCME Local 3930
United Food and Commercial Workers, Western States Council

OPPOSITION: (Verified 8/26/20)

Biocom
Calaveras County Taxpayers Association
California Business Properties Association
California Business Roundtable
California Chamber of Commerce
California Life Sciences Association
California Manufacturers & Technology Association
California Retailers Association
California Taxpayers Association
COMPTIA
Council on State Taxation
Family Business Association of California
Kern County Taxpayers Association
Orange County Taxpayers Association
San Gabriel Valley Economic Partnership
Santa Maria Valley Chamber of Commerce
Silicon Valley Leadership Group
Solano County Taxpayers Association
Sutter County Taxpayers Association
Technet
Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to the author, “With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits. California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast, Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This data provides policymakers the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers’ dollars.”

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “Currently, lawmakers have access to the anonymized aggregate data from the FTB and do not need taxpayer information to make policy decisions. Any and all information necessary to evaluate tax credits is available to lawmakers under current law. SB 972 would violate the California Taxpayers’ Bill of Rights, which requires the FTB to protect the rights of all California taxpayers. These rights include the right to privacy and confidentiality, and the right to pay no more than the correct legal amount of tax owed. There is no reason to disclose private taxpayer information unless the goal is to publicly target certain taxpayers, which would be an improper application of the tax code. There is no valid reason to violate the fundamental principle of taxpayer confidentiality. Information submitted by taxpayers to tax agencies should remain confidential to encourage the self-reporting upon which California’s income tax system relies. Under SB 972 an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. This bill discriminates against certain businesses based upon subjective criteria. The bill arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public. Taxpayers should not be singled out based upon the amount of business they conduct.”

ASSEMBLY FLOOR: 42-20, 8/26/20

AYES: Aguiar-Curry, Berman, Bloom, Bonta, Burke, Calderon, Carrillo, Chau, Chiu, Chu, Cooley, Friedman, Gabriel, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Holden, Jones-Sawyer, Kalra, Kamlager, Levine, Limón, Low, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Quirk, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Santiago, Smith, Mark Stone, Ting, Weber, Wood, Rendon

NOES: Bigelow, Brough, Chen, Choi, Cunningham, Megan Dahle, Daly, Flora, Fong, Gallagher, Kiley, Lackey, Maienschein, Mathis, Mayes, Obernolte, Patterson, Petrie-Norris, Salas, Waldron

NO VOTE RECORDED: Arambula, Bauer-Kahan, Boerner Horvath, Cervantes, Cooper, Diep, Eggman, Frazier, Gray, Grayson, Irwin, O'Donnell, Ramos, Rodriguez, Blanca Rubio, Voepel, Wicks

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

8/28/20 20:04:08

**** END ****

SENATE THIRD READING

STR Bill Id:SB 972

Author:(Skinner)

As Amended Ver:July 28, 2020

Majority vote

SUMMARY:

Requires the Franchise Tax Board (FTB) to compile a list of taxpayers that are subject to the Corporation Tax (CT) Law, with gross receipts of $5 billion or more, and to disclose the taxpayer's name, the tax liability owed by the taxpayer, and the total amount of credits claimed by the taxpayer.

Major Provisions

1. Requires the FTB, on or before April 1, 2021, and on or before April 1 thereafter, to compile a list of all taxpayers subject to the CT Law, with gross receipts, less returns and allowances, of $5 billion or more, for the taxable year reported on a return in the previous calendar year.
2. Requires the FTB to provide the information to the Assembly Committee on Revenue and Taxation and the Senate Committee on Governance and Finance by May 1, 2021, and each May 1 thereafter, in a list that includes the following:
   1. The taxpayer's name listed on the tax return;
   2. The amount of tax liability of the taxpayer for the taxable year reported on a return in the previous calendar year; and,
   3. The total amount and types of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
3. Provides that the determination to include a taxpayer that is part of a combined reporting group shall be based on the gross receipts, less returns and allowances, of the combined reporting group.
4. Defines "credits claimed" as the amount of credits allowed under the CT Law that are applied on the return for the taxable year used to offset the tax liability.
5. Defines "tax liability" as the amount of tax owed, in a taxable year, as a result of the taxes imposed under the CT Law, and excluding overpayments, estimated tax payments, withholdings, and any other amount paid.
6. Defines "gross receipts" in the same manner as defined under Revenue and Taxation Code Section 25120.

COMMENTS:

Background: State law generally prohibits the unlawful disclosure or inspection of any income tax return information, except as specifically authorized in statute. Generally, disclosure is authorized to other state agencies, federal tax agencies, and the Multistate Tax Commission solely for tax administration purposes. FTB may also publish statistical data related to taxpayer information so long as nothing specific to a single taxpayer is disclosed. Notwithstanding these provisions, the Legislature directed FTB to publish a list of the top 250 tax delinquencies over $100,000. This list was later expanded to the top 500.

Additionally, the State publishes two related reports. First, Department of Finance (DOF) is required to report tax expenditures on an annual basis. DOF's "Tax Expenditure Report" is a list of all tax expenditures, with revenue estimates. Second, FTB's "California Income Tax Expenditures: Compendium of Individual Provisions" describes and discusses each item in addition to providing foregone revenue totals and number of tax returns affected.

Is there a benefit to having taxpayer-specific disclosure? According to Michael Mazerov, taxpayer-specific information could be valuable in evaluating the effectiveness of certain tax provisions that are intended to stimulate job creation, investment, and other desired behavior^[1]. There are a number of studies that have attempted to quantify the benefits of certain government tax programs intended to produce specific outcomes. However, these studies have produced a wide range of conclusions. Mazerov argues that taxpayer-specific information may provide additional information to evaluate specific subsidies. Mazerov also makes the argument that there is a strong justification for taxpayer-specific information of state tax incentives. According to Mazerov, "[i]f state revenues are deliberately being forgone to provide incentives for corporations to create jobs, conduct R&D activities, or invest in the state, then the public arguably has a right to know specifically which corporations are benefiting from such provisions and what the state is gaining in return."

Tax credit programs that have been added in recent history tend to follow the model mentioned above. For example, the California Competes Tax Credit, which was created in 2013 to attract or retain businesses considering a significant new investment in California, requires businesses to fill out an application that is then evaluated by the Governor's Office of Business and Economic Development (GO-Biz). The application requires specific information such as the amount of new investments, the number of new employees, and the average wage paid to those employees. Another similar program that requires specific taxpayer information is the Film Tax Credit, which was adopted in 2009 to encourage the production of qualified film and television shows in the state. Similar to the California Competes Tax Credit program, the Film Tax Credit requires specific taxpayer and project information, and an approval process before the tax credit can be utilized. Over the years, both programs have been updated. In fact, California is currently on its third version of the Film Tax Credit. Moreover, changes to these programs have been informed, in part, by the specific taxpayer information that is received during the application process.

According to the Author:

With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits.

California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This publicly available data provides policymakers and the public the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight.

By creating a database of corporations with $5 billion or more in gross receipts and requiring those corporations to disclose any state tax subsidies taken and the amount of state taxes paid, SB 972 provides a tool that policymakers and the public can access. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers' dollars.

Arguments in Support:

Supporters argue that "[i]n a time when corporate profits are at record highs while governments around the world are facing unprecedented fiscal crises, it is more important than ever to have a complete understanding of the full scope of the taxes paid and tax credits claimed by these large corporations. Tax revenues have plunged to historic lows, and even before the pandemic spurred an economic downturn, corporations were paying the lowest proportion of tax revenue in decades." Additionally, supporters state that "[p]roviding this information publicly will allow for the state and tax agencies to ensure that tax credits are being claimed by the intended recipients and being put to the use for which they were created."

Arguments in Opposition:

Opponents state that SB 972 "would require the [FTB] to violate taxpayers' right to confidentiality by producing annual reports on corporate taxpayers with gross receipts of $5 billion or more. The mandated reports would include the name and tax liability of each taxpayer, the taxable year for which the return was filed, and the amount of credits claimed for the taxable year." Specifically, opponents argue that this bill "arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public" and will violate "the fundamental principle of taxpayer confidentiality." Opponents also state that lawmakers already "have access to the anonymized aggregate data from the FTB and do not need taxpayer information to make policy decisions."

FISCAL COMMENTS:

According to the FTB, this bill would not impact state income or franchise tax revenues.

VOTES:

SENATE FLOOR: 25-12-3

YES: Allen, Archuleta, Atkins, Beall, Bradford, Dodd, Durazo, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Umberg, Wieckowski, Wiener

NO: Bates, Borgeas, Chang, Dahle, Galgiani, Grove, Jones, Melendez, Moorlach, Morrell, Nielsen, Wilk

ABS, ABST OR NV: Caballero, Glazer, Hurtado

ASM REVENUE AND TAXATION: 6-4-0

YES: Burke, Chu, Levine, Mullin, Quirk, Luz Rivas

NO: Gray, Mayes, Petrie-Norris, Megan Dahle

ASM APPROPRIATIONS: 11-7-0

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Quirk, Robert Rivas

NO: Bigelow, Bauer-Kahan, Megan Dahle, Diep, Fong, Petrie-Norris, Voepel

UPDATED:

VERSION: July 28, 2020

CONSULTANT: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0003227

1. Michael Mazerov, State Corporate Tax Disclosure: The Next Step in Corporate Tax Reform, Center on Budget and Policy Priorities, February 2007. ↑

Date of Hearing: August 11, 2020

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

SBPCA Bill Id:SB 972

Author:(Skinner) – As Amended Ver:July 28, 2020

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill requires the Franchise Tax Board (FTB) to compile a list of taxpayers with gross receipts of $5 billion or more subject to the Corporation Tax, and to send to the Legislature specified information, including the taxpayers’ names, tax liabilities and the total amounts and types of tax credits claimed.

FISCAL EFFECT:

Minor costs for the FTB to compile the relevant information and send to the Legislature. However, because this bill’s primary purpose is to provide for a report, this bill is eligible for the committee’s Suspense File, per committee rules.

COMMENTS:

1. Tax expenditures. A tax expenditure is a tax provisions that reduces tax revenues that the state would otherwise collect. Generally, policymakers create tax expenditures to encourage certain types of behavior and activities or to provide direct financial assistance. Current law allows for a range of income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. Each year, the Department of Finance (DOF) releases an annual report summarizing the cost of these expenditures. The 2019-20 report estimated total expenditures cost the state in excess of $70 billion in lost revenue each year.
2. The Legislature’s approach to tax expenditures. In recent years, the Legislature has kept a wary eye on new tax expenditures. When the Legislature does create a new tax expenditure program, such as the California Earned Income Tax Credit (Cal EITC), it often does so through the budget process to allow policymakers to evaluate the tax expenditure along with other types of government spending. Moreover, the policy committee process enforces strict standards around sunset dates and program evaluation. These approaches help ensure that if policymakers choose to use tax policy as a way to direct public dollars to induce behavior or to provide financial relief, then these programs contain guardrails and off-ramps.

Despite the Legislature’s current approach to tax expenditures, a number of older and high-cost tax expenditures face little oversight and will remain permanent fixtures of California tax policy absent proactive legislative action. Researchers have repeatedly called for more stringent evaluations or additional data on these programs.^[1]

1. The Research and Development (R&D) Tax Credit. The Research and Development (R&D) Tax Credit highlights the need for additional information on tax expenditures. Created in 1987, the R&D tax credit allows a company to reduce its tax liabilities if the company engages in certain types of R&D activities. In 2018-19, the total cost of the program was $1.8 billion, and there is little publicly available information on who claims the credit, how the credit is used and whether the credit is an effective use of state dollars.

Concern about the R&D Tax Credit is not new. A 2003 analysis by the Legislative Analyst’s Office cast doubt on whether a state subsidy on research activities is justified, concluding that a “state credit is likely to be costly overall relative to the benefits it provides in terms of additional research activity.^[2]” In 2016, the California State Auditor (Auditor) released an evaluation of state tax expenditure programs in which the Auditor states that it was “unable to determine the R&D credit’s effectiveness because no state entity oversees or regularly evaluates it.”^[3]

1. The California Competes Tax Credit (Cal Competes). In contrast to the R&D Tax Credit, the Cal Competes program allows for ample public data on who receives the credit, which has allowed researchers to conduct in-depth evaluations of its effectiveness. The Legislature created Cal Competes in 2013 to replace the existing Enterprise Zone tax credit program, and the program provides tax benefits to businesses in exchange for meeting contractual hiring and investment goals. In FY 2018-19, the total cost for the program was $70 million. The Governor’s Office of Business and Economic Development (GO‑Biz) manages Cal Competes and uses a range of factors to evaluate applications and eligibility for the tax credit. GO-Biz regularly publishes a list of who receives the credit and the credit amount. In 2017, LAO conducted a thorough review of the program and provided a number of detailed recommendations on ways the program could be modified to better meet its goals.^[4]
2. Benefit of firm-level data. As the Assembly Revenue and Taxation Committee notes in its analysis of this bill, taxpayer-specific information can provide additional context to evaluate specific subsidies. This information can help policymakers evaluate whether tax incentives used to create jobs or to promote certain business behavior actually achieve those goals. This data can also give local governments seeking to create or retain jobs in their communities additional information when they construct economic development proposals of their own.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

1. See: Kayla Kitson, “Tax Breaks: California’s $60 Billion Loss,” California Budget & Policy Center (January 2020), available at https://calbudgetcenter.org/wp-content/uploads/2020/01/CA_Budget_Center_tax-expenditures-2020.pdf and Brian Weatherford and Seth Kerstein, “Evaluating Tax Expenditures,” Legislative Analyst’s Office (August 2019), available at: https://lao.ca.gov/LAOEconTax/Article/Detail/396 ↑

2. Legislative Analyst’s Office, An Overview of California's Research and Development Tax Credit (November 2003), available at https://lao.ca.gov/2003/randd_credit/113003_research_development.html. ↑

3. California State Auditor, Corporate Income Tax Expenditures: The State’s Regular Evaluation of Corporate Income Tax Expenditures Would Improve Their Efficiency and Effectiveness (April 2016), available at https://www.bsa.ca.gov/pdfs/reports/2015-127.pdf ↑

4. Legislative Analyst’s Office, Review of the California Competes Tax Credit (October 2017), available at https://lao.ca.gov/Publications/Report/3709. ↑

Date of Hearing: July 27, 2020

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

SBPCA Bill Id:SB 972

Author:(Skinner) – As Amended Ver:June 15, 2020

Majority vote. Fiscal committee.

SENATE VOTE: 25-12

SUBJECT: Corporation taxes: disclosure

SUMMARY: Requires the Franchise Tax Board (FTB) to compile a list of taxpayers that are subject to the Corporation Tax (CT) Law, with gross receipts of $5 billion or more, and to disclose the taxpayer's name, the tax liability owed by the taxpayer, and the total amount of credits claimed by the taxpayer. Specifically, this bill:

1. Requires the FTB, on or before April 1, 2021, and on or before April 1 thereafter, to compile a list of all taxpayers subject to the CT Law, with gross receipts, less returns and allowances, of $5 billion or more, for the taxable year reported on a return in the previous calendar year.
2. Requires the list to include the name and tax liability of each taxpayer, the taxable year for which the return is filed, the total gross receipts for that taxable year, and the amount of credits claimed for that taxable year.
3. Requires the FTB to post the information on its internet website by May 1, 2021, and each May 1 thereafter, in a list that includes the following information:
   1. The taxpayer's name listed on the tax return;
   2. The amount of tax liability of the taxpayer for the taxable year reported on a return in the previous calendar year; and,
   3. The total amount of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
4. Provides that the determination to include a taxpayer that is part of a combined reporting group shall be based on the gross receipts, less returns and allowances, of the combined reporting group.
5. Defines "credits claimed" as the amount of credits allowed under the CT Law that are applied on the return for the taxable year used to offset the tax liability.
6. Defines "tax liability" as the amount of tax owed, in a taxable year, as a result of the taxes imposed under the CT Law, and excluding overpayments, estimated tax payments, withholdings, and any other amount paid.
7. Defines "gross receipts" in the same manner as defined under Revenue and Taxation Code Section 25120.

EXISTING LAW:

1. Prohibits the disclosure of any taxpayer information, except as specifically authorized by statute. Generally, disclosure is authorized to other state tax agencies, federal tax agencies, and the Multistate Tax Commission solely for tax administration purposes.
2. Authorizes the FTB to publish statistical data related to taxpayer information so long as no individually identifiable information is revealed. Unauthorized disclosure of state tax information is a misdemeanor and unauthorized disclosure of federal tax information is a felony.
3. Requires the FTB to compile and make publically available an annual list that identifies the largest 500 tax debtors whose delinquencies exceed $100,000. The debtors are selected from both the Personal Income Tax and CT records.
4. Requires the Department of Finance (DOF) to provide an annual report to the Legislature on tax expenditures providing details on individual categories of the expenditures and historical information on the enactment and repeal of the expenditures.

FISCAL EFFECT: According to the FTB, this bill would not impact state income or franchise tax revenues.

COMMENTS:

1. The author has provided the following statement in support of this bill:

With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits.

California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This publicly available data provides policymakers and the public the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight.

By creating a database of corporations with $5 billion or more in gross receipts and requiring those corporations to disclose any state tax subsidies taken and the amount of state taxes paid, SB 972 provides a tool that policymakers and the public can access. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers' dollars.

1. Supporters argue that "[i]n a time when corporate profits are at record highs while governments around the world are facing unprecedented fiscal crises, it is more important than ever to have a complete understanding of the full scope of the taxes paid and tax credits claimed by these large corporations. Tax revenues have plunged to historic lows, and even before the pandemic spurred an economic downturn, corporations were paying the lowest proportion of tax revenue in decades." Additionally, supporters state that "[p]roviding this information publicly will allow for the state and tax agencies to ensure that tax credits are being claimed by the intended recipients and being put to the use for which they were created."
2. Opponents state that SB 972 "would require the [FTB] to violate taxpayers' right to confidentiality by producing annual reports on corporate taxpayers with gross receipts of $5 billion or more. The mandated reports would include the name and tax liability of each taxpayer, the taxable year for which the return was filed, and the amount of credits claimed for the taxable year." Specifically, opponents argue that this bill "arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public" and will violate "the fundamental principle of taxpayer confidentiality." Opponents also state that lawmakers already "have access to the anonymized aggregate data from the FTB and do not need taxpayer information to make policy decisions."
3. Committee Staff Comments:
   1. Background: Tax expenditure programs are special tax provisions that reduce the amount of revenues the tax system would otherwise collect in order to provide benefits to certain groups of taxpayers and/or to encourage certain types of behavior and activities. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax.

State law generally prohibits the unlawful disclosure or inspection of any income tax return information, except as specifically authorized in statute. Generally, disclosure is authorized to other state agencies, federal tax agencies, and the Multistate Tax Commission solely for tax administration purposes. FTB may also publish statistical data related to taxpayer information so long as nothing specific to a single taxpayer is disclosed. Notwithstanding these provisions, the Legislature directed FTB to publish a list of the top 250 tax delinquencies over $100,000. This list was later expanded to the top 500.

Additionally, the State publishes two related reports. First, DOF is required to report tax expenditures on an annual basis. DOF's "Tax Expenditure Report" is a list of all tax expenditures, with revenue estimates. Second, FTB's "California Income Tax Expenditures: Compendium of Individual Provisions" describes and discusses each item in addition to providing foregone revenue totals and number of tax returns affected.

• 1. What does this bill do? This bill would require the FTB to publish a list of taxpayer names with gross receipts, less returns and allowances, of $5 billion or more. The list shall be compiled on April of each year, beginning with 2021, and the list shall be published by May of each year. The publication shall include the taxpayer's name listed on the tax return, the amount of tax liability for the taxable year reported on a return in the previous calendar year, and the total amount of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
  2. Is there a benefit to having taxpayer-specific disclosure? According to Michael Mazerov, taxpayer-specific information could be valuable in evaluating the effectiveness of certain tax provisions that are intended to stimulate job creation, investment, and other desired behavior^[1]. There are a number of studies that have attempted to quantify the benefits of certain government tax programs intended to produce specific outcomes. However, these studies have produced a wide range of conclusions. Mazerov argues that taxpayer-specific information may provide additional information to evaluate specific subsidies. Mazerov also makes the argument that there is a strong justification for taxpayer-specific information of state tax incentives. According to Mazerov, "[i]f state revenues are deliberately being forgone to provide incentives for corporations to create jobs, conduct R&D activities, or invest in the state, then the public arguably has a right to know specifically which corporations are benefiting from such provisions and what the state is gaining in return."

Tax credit programs that have been added in recent history tend to follow the model mentioned above. For example, the California Competes Tax Credit, which was created in 2013 to attract or retain businesses considering a significant new investment in California, requires businesses to fill out an application that is then evaluated by the Governor’s Office of Business and Economic Development (GO-Biz). The application requires specific information such as the amount of new investments, the number of new employees, and the average wage paid to those employees. Another similar program that requires specific taxpayer information is the Film Tax Credit, which was adopted in 2009 to encourage the production of qualified film and television shows in the state. Similar to the California Competes Tax Credit program, the Film Tax Credit requires specific taxpayer and project information, and an approval process before the tax credit can be utilized. Over the years, both programs have been updated. In fact, California is currently on its third version of the Film Tax Credit. Moreover, changes to these programs have been informed, in part, by the specific taxpayer information that is received during the application process.

Despite the value of receiving specific taxpayer information, the posting of that information on FTB's internet Web site may appear to be a kind of public shaming. The Committee may wish to instead have the compiled list of taxpayers sent to the Assembly Committee on Revenue and Taxation and the Senate Governance and Finance Committee. Additionally, public policy may be better served if the Legislature were informed of the types of credits claimed by each taxpayer, and not just the total amount.

REGISTERED SUPPORT / OPPOSITION:

Support

American Civil Liberties Union/northern California/southern California/San Diego and Imperial Counties

California Professional Firefighters

California State Council of Service Employees International Union (SEIU California)

Evolve California

Pico California

UDW/AFSCME Local 3930

Opposition

Bay Area Council

Biocom

Calaveras County Taxpayers Association

California Bankers Association

California Business Properties Association

California Business Roundtable

California Cable & Telecommunications Association

California Chamber of Commerce

California Life Sciences Association

California Manufacturers and Technology Association

California Retailers Association

California Taxpayers Association

CompTIA

Council on State Taxation

Family Business Association of California

Inland Action

Kern County Taxpayers Association

Orange County Taxpayers Association

San Gabriel Valley Economic Partnership

Santa Maria Valley Chamber of Commerce

Silicon Valley Leadership Group

Solano County Taxpayers Association

Sutter County Taxpayers Association

TechNet

Western States Petroleum Association

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098

1. Michael Mazerov, State Corporate Tax Disclosure: The Next Step in Corporate Tax Reform, Center on Budget and Policy Priorities, February 2007. ↑

 THIRD READING  

Bill No: SB 972

Author: Skinner (D)

Amended: 6/15/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 5/28/20

AYES: McGuire, Beall, Hertzberg, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hurtado

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Corporation taxes: disclosure

SOURCE: SEIU California

DIGEST:

This bill requires the Franchise Tax Board to publish a list of large corporate taxpayers’ tax liabilities and the amounts of tax credits claimed.

Senate Floor Amendments of 6/15/20 shift the requirement to post specified information from the State Controller to the Franchise Tax Board, and make conforming changes.

ANALYSIS:

Existing law:

1. Prohibits, generally, disclosure or inspection of any income tax return information.
2. Sets forth criminal sanctions, including imprisonment, which apply to Franchise Tax Board (FTB) personnel convicted of unlawful disclosure or inspection of tax records.
3. Directs FTB to notify a taxpayer if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data.
4. Contains explicit exemptions from the above requirements allowing FTB to disclose information to certain entities for specified purposes, such as to other state agencies to assist administering programs, such as to the Department of Health Care Services for use in determining eligibility for Medi-Cal.
5. Requires FTB to publish a list of the top 250 tax delinquencies over $100,000 (AB 1418, Horton, Chapter 716, Statutes of 2006), which it subsequently expanded to the top 500 (AB 1424, Perea, Chapter 455, Statutes of 2011).
6. Allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving.
7. Applies the combined report method of corporate taxation, which requires a corporation computing its California tax liability to include the tax returns of its unitary subsidiaries and affiliates into one report, and divide the corporation’s overall income among the taxing jurisdictions in which it does business.

This bill:

1. Directs FTB to compile a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more for the taxable year reported on a return submitted in the previous calendar year.
2. Requires the list to include:
   1. The taxpayer’s name,
   2. Its tax liability,
   3. The taxable year for which the return is filed,
   4. The total gross receipts for that taxable year, and
   5. The amount of credits against the corporation tax claimed for that taxable year.
3. Provides that any determination with regard to calculating gross receipts must be made at the combined group level.
4. Requires FTB to post the information on its Internet website by May 1, 2021, and each May 1 thereafter, in a list that includes:
   1. The taxpayer’s name as listed on its tax return.
   2. The taxpayer’s total amount of tax liability for the taxable year reported on a return in the previous calendar year.
   3. The total amount of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
5. Disconnects existing provisions of state law prohibiting disclosure or inspection of any income tax return information.
6. Defines several terms, including “credits claimed,” “gross receipts,” and “tax liability.”

Background

In 2017, Congress enacted HR 1, which comprehensively changed federal personal income and corporation taxes. HR 1 enacted several changes that significantly reduced federal taxes on corporations, including lowering the statutory rate from 35% to 21%, allowing immediate expensing when purchasing or leasing new equipment, and adopting a “territorial” system that mostly excludes from tax the income of a U.S. company’s foreign subsidiaries. As a result of these changes, the Institute on Taxation and Economic Policy recently found in a sample of 397 companies for the 2018 taxable year that the effective federal income tax rate is only 11.3%, or less than half of the new statutory rate, with many prominent firms paying no federal taxes at all. In California, the Legislative Analyst’s Office (LAO) has found that the corporation tax’s share of total general fund revenues has declined from 16% in the 1950s and 60s to 9% in the early 2010s. LAO states that changes in state law made since the mid-to-late 1980s and increased usage of tax credits reduced annual revenues by approximately $3 billion annually.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 6/10/20)

SEIU California (source)

Alameda Labor Council

American Civil Liberties Union of California

California Alliance for Retired Americans

California Association of Professional Scientists

California Federation of Teachers

California Professional Firefighters

California School Employees Association

California Teachers Association

California Tax Reform Association

Evolve California

Friends Committee on Legislation of California

Professional Engineers in California Government

UDW/AFSCME Local 3930

United Food and Commercial Workers – Western States Council

OPPOSITION: (Verified 6/16/20)

Bay Area Council

Biocom

Calaveras County Taxpayers Association

California Bankers Association

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California Life Sciences Association

California Manufacturers & Technology Association

California Retailers Association

California Taxpayers Association

CompTIA

Council on State Taxation

Family Business Association of California

Kern County Taxpayers Association

Orange County Taxpayers Association

San Gabriel Valley Economic Partnership

Santa Maria Valley Chamber of Commerce

Silicon Valley Leadership Group

Solano County Taxpayers Association

Sutter County Taxpayers Association

TechNet

Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to the author, “With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits. California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast, Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This publicly available data provides policymakers and the public the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight. By creating a database of corporations with $5 Billion or more in gross receipts and requiring those corporations to disclose any state tax subsidies taken and the amount of state taxes paid, SB 972 provides a tool that policymakers and the public can access. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers’ dollars.”

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “This proposed law would violate the California Taxpayers’ Bill of Rights, which requires the Franchise Tax Board to protect the rights of all California taxpayers. These rights include the right to privacy and confidentiality, and the right to pay no more than the correct legal amount of tax owed. There is no valid reason to violate the fundamental principle of taxpayer confidentiality. Information submitted by taxpayers to tax agencies should remain confidential to encourage the self-reporting upon which California’s income tax system relies. Under SB 972 an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. This bill discriminates against certain businesses based upon subjective criteria. The bill arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public. Taxpayers should not be singled out based upon the amount of business they conduct. The COVID-19 pandemic is having a devastating impact on California workers, and the number of unemployment insurance claims has shattered the previous record high. Now more than ever, California needs to look for ways to improve its business climate so jobs can be preserved and Californians can go back to work when the pandemic is over. By violating business taxpayers’ rights and creating a disincentive for using tax credits designed to increase job-creation, this legislation goes in the opposite direction.”

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

6/17/20 16:55:01

**** END ****

 THIRD READING  

Bill No: SB 972

Author: Skinner (D)

Amended: 5/29/20

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 4-2, 5/28/20

AYES: McGuire, Beall, Hertzberg, Wiener

NOES: Moorlach, Nielsen

NO VOTE RECORDED: Hurtado

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

SUBJECT: Corporation taxes: disclosure

SOURCE: SEIU California

DIGEST:

This bill requires the State Controller to publish a list of large corporate taxpayers’ tax liabilities and amounts of tax credits claimed based on information received from the Franchise Tax Board.

ANALYSIS:

Existing law:

1. Prohibits, generally, disclosure or inspection of any income tax return information.
2. Sets forth criminal sanctions, including imprisonment, which apply to Franchise Tax Board (FTB) personnel convicted of unlawful disclosure or inspection of tax records.
3. Directs FTB to notify a taxpayer if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data.
4. Contains explicit exemptions from the above requirements allowing FTB to disclose information to certain entities for specified purposes, such as to other state agencies to assist administering programs, such as to the Department of Health Care Services for use in determining eligibility for Medi-Cal.
5. Requires FTB to publish a list of the top 250 tax delinquencies over $100,000 (AB 1418, Horton, Chapter 716, Statutes of 2006), which it subsequently expanded to the top 500 (AB 1424, Perea, Chapter 455, Statutes of 2011).
6. Allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving.
7. Applies the combined report method of corporate taxation, which requires a corporation computing its California tax liability to include the tax returns of its unitary subsidiaries and affiliates into one report, and divide the corporation’s overall income among the taxing jurisdictions in which it does business.

This bill:

1. Directs FTB to provide the State Controller with a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more for the taxable year reported on a return submitted in the previous calendar year.
2. Requires the list to include:
   1. The taxpayer’s name,
   2. Its tax liability,
   3. The taxable year for which the return is filed,
   4. The total gross receipts for that taxable year, and
   5. The amount of credits against the corporation tax claimed for that taxable year.
3. Provides that any determination with regard to calculating gross receipts must be made at the combined group level.
4. Requires the State Controller to post the information provided by FTB on its Internet Web site by May 1, 2021, and each May 1 thereafter, in a list that includes:
   1. The taxpayer’s name as listed on its tax return.
   2. The taxpayer’s total amount of tax liability for the taxable year reported on a return in the previous calendar year.
   3. The total amount of credits claimed by the taxpayer for the taxable year reported on a return in the previous calendar year.
5. Disconnects existing provisions of state law prohibiting disclosure or inspection of any income tax return information, but bars officers, employees, or agents of the State Controller’s Office from disclosing any other information except as required to implement the bill.
6. Defines several terms, including “credits claimed,” “gross receipts,” “identifying information,” and “tax liability.”

Background

In 2017, Congress enacted HR 1, which comprehensively changed federal personal income and corporation taxes. HR 1 enacted several changes that significantly reduced federal taxes on corporations, including lowering the statutory rate from 35% to 21%, allowing immediate expensing when purchasing or leasing new equipment, and adopting a “territorial” system that mostly excludes from tax the income of a U.S. company’s foreign subsidiaries. As a result of these changes, the Institute on Taxation and Economic Policy recently found in a sample of 397 companies for the 2018 taxable year that the effective federal income tax rate is only 11.3%, or less than half of the new statutory rate, with many prominent firms paying no federal taxes at all. In California, the Legislative Analyst’s Office (LAO) has found that the corporation tax’s share of total general fund revenues has declined from 16% in the 1950s and 60s to 9% in the early 2010s. LAO states that changes in state law made since the mid-to-late 1980s and increased usage of tax credits reduced annual revenues by approximately $3 billion annually.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

SUPPORT: (Verified 6/10/20)

SEIU California (source)

Alameda Labor Council

American Civil Liberties Union of California

California Alliance for Retired Americans

California Association of Professional Scientists

California Federation of Teachers

California Professional Firefighters

California School Employees Association

California Teachers Association

California Tax Reform Association

Evolve California

Friends Committee on Legislation of California

Professional Engineers in California Government

UDW/AFSCME Local 3930

United Food and Commercial Workers – Western States Council

OPPOSITION: (Verified 6/10/20)

Biocom

Calaveras County Taxpayers Association

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California Life Sciences Association

California Manufacturers & Technology Association

California Retailers Association

California Taxpayers Association

CompTIA

Council on State Taxation

Family Business Association of California

Kern County Taxpayers Association

Orange County Taxpayers Association

San Gabriel Valley Economic Partnership

Santa Maria Valley Chamber of Commerce

Silicon Valley Leadership Group

Solano County Taxpayers Association

Sutter County Taxpayers Association

TechNet

Western States Petroleum Association

ARGUMENTS IN SUPPORT: According to the author, “With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits. California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast, Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This publicly available data provides policymakers and the public the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight. By creating a database of corporations with $5 Billion or more in gross receipts and requiring those corporations to disclose any state tax subsidies taken and the amount of state taxes paid, SB 972 provides a tool that policymakers and the public can access. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers’ dollars.”

ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “This proposed law would violate the California Taxpayers’ Bill of Rights, which requires the Franchise Tax Board to protect the rights of all California taxpayers. These rights include the right to privacy and confidentiality, and the right to pay no more than the correct legal amount of tax owed. There is no valid reason to violate the fundamental principle of taxpayer confidentiality. Information submitted by taxpayers to tax agencies should remain confidential to encourage the self-reporting upon which California’s income tax system relies. Under SB 972 an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. This bill discriminates against certain businesses based upon subjective criteria. The bill arbitrarily sets a threshold of $5 billion annually in gross receipts for businesses whose confidential information must be shared with the public. Taxpayers should not be singled out based upon the amount of business they conduct. The COVID-19 pandemic is having a devastating impact on California workers, and the number of unemployment insurance claims has shattered the previous record high. Now more than ever, California needs to look for ways to improve its business climate so jobs can be preserved and Californians can go back to work when the pandemic is over. By violating business taxpayers’ rights and creating a disincentive for using tax credits designed to increase job-creation, this legislation goes in the opposite direction.”

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

6/10/20 13:25:05

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Corporation taxes: disclosure

Requires public disclosure of large corporate taxpayers’ tax liabilities and amounts of tax credits claimed.

Background

Existing state and federal laws generally prohibit disclosure or inspection of any income tax return information. State law sets forth criminal sanctions, including imprisonment, which apply to Franchise Tax Board (FTB) personnel convicted of unlawful disclosure or inspection of tax records. FTB must notify a taxpayer if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data. However, state law contains explicit exemptions allowing FTB to disclose information to certain entities for specified purposes, including to state agencies. For example FTB can share tax return information with the Department of Health Care Services, or county departments or agencies through information sharing agreements to verify or determine Medi-Cal eligibility, among other purposes. FTB may also publish aggregate statistical data related to taxpayer information so long as it cannot be used to identify a taxpayer.

Notwithstanding these provisions, the Legislature directed FTB to publish a list of the top 250 tax delinquencies over $100,000 (AB 1418, Horton, 2006), which it subsequently expanded to the top 500 (AB 1424, Perea, 2011). FTB updates the list regularly, one for individuals and another for business entities, which can be found here: https://www.ftb.ca.gov/about-ftb/newsroom/top-500-past-due-balances/index.html.

California law allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something that but for the tax credit, they would otherwise not do. The Department of Finance (DOF) must annually publish a list of tax expenditures, currently totaling around $72.8 billion per year, which can be found on its website.

California applies the combined report method of corporate taxation, which requires a corporation computing its California tax liability to include the tax returns of its unitary subsidiaries and affiliates into one report, and divide the corporation’s overall income among the taxing jurisdictions in which it does business. While determining whether a subsidiary or affiliate is unitary for tax purposes is often subject to disputes, the combined report method generally allows for the cancellation of any intercompany transactions, such as dividends paid from a subsidiary to its corporate parent. However, taxpaying corporations can elect to exclude the income and expenses of its foreign subsidiaries from its combined report, called the “water’s edge” election, with some exceptions.

While FTB can publish aggregate information regarding corporate taxation and tax credit usage, it is legally barred from disclosing any specific taxpayer information. The author wants FTB to disclose the tax liabilities and credit usage of the state’s largest taxpayers.

Proposed Law

Senate Bill 972 directs FTB to provide an unspecified office a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more, for the taxable year reported on a return in the previous calendar year. The list must include:

• The taxpayer’s name,
• Its tax liability,
• The taxable year for which the return is filed,
• The total gross receipts for that taxable year, and
• The amount of credits claimed for that taxable year.

Any determination with regard to calculating gross receipts must be made at the combined group level.

SB 972 requires the unspecified office to post the information provided by FTB on its internet website by May 1, 2021, and each May 1 thereafter, in a list that includes:

• The entity’s name as listed on its tax return.
• The entity’s total amount of tax liability for the taxable year reported on a return in the previous calendar year.
• The total amount of credits claimed by the entity for the taxable year reported on a return in the previous calendar year.

The measure disconnects existing provisions of state law prohibiting disclosure or inspection of any income tax return information, but bars officers, employees, or agents of the unspecified entity from disclosing any other information except as required to implement the bill. The measure also defines specific terms.

State Revenue Impact

No estimate.

Comments

1. Purpose of the bill. According to the author, “With California facing a $54 billion deficit as a result of the COVID-19 pandemic, expenditures the state makes or forgoes merit thorough scrutiny to ensure that the budget enacted meets its intended goal. One area that policymakers and the public have little ability to assess is the over $70 billion a year California gives in tax credits, deductions, exclusions, exemptions, or other tax benefits. California does not collect or make available data on the state tax breaks that a particular corporation takes or the amount of state taxes an individual corporation pays. In contrast, Florida, Indiana, Iowa, Maine, Maryland, Minnesota, Mississippi, Nebraska, Oklahoma, and Washington all require companies to disclose varying levels of information on the state specific tax credits taken by those companies and the amount of taxes the companies pay to the state. Federally, all publicly traded companies must annually disclose to the Securities Exchange Commission data on the amount of federal taxes paid by the corporation, federal tax deductions taken, CEO and median employee pay, and other info. This publicly available data provides policymakers and the public the ability to evaluate the benefits of various tax policies that can guide future policy recommendations, and ensure appropriate oversight. By creating a database of corporations with $5 Billion or more in gross receipts and requiring those corporations to disclose any state tax subsidies taken and the amount of state taxes paid, SB 972 provides a tool that policymakers and the public can access. SB 972 does not eliminate any tax benefit and does not raise any taxes, it simply provides transparency and access to information on how California spends its taxpayers’ dollars

2. Tradeoffs. SB 972 presents a clear tradeoff in tax policy: are taxpayer privacy protections more important than publicly disclosing information that will help determine whether individual corporations are paying their fair share of California corporate taxes? While taxpayer privacy is the cornerstone of a self-assessed income tax system, the Legislature currently possesses only aggregate information when evaluating whether its current corporate taxation system is adequate, or whether the state’s corporate tax credits are effective. However, tax return information is highly sensitive, and publicly disclosing it could be used to embarrass or shame certain firms.

3. Scope. The Securities and Exchange Act requires companies with more than $10 million in assets whose securities are held by more than 500 owners to file annual and other periodic reports for the benefit of its shareholders and the investing public. These reports are available to the public through the Securities and Exchange Commission’s (SEC's) EDGAR database. The Act generally regulates “publicly-traded” firms whose ownership shares are offered for public sale; however, privately-held companies are not generally subject to the Act having foregone access to public equity markets in exchange for keeping its sensitive information private. SB 972 requires FTB to disclose and an unspecified office to publish currently confidential taxpayer information regardless of whether the firm is publicly-traded. However, neither SEC filings nor FIN 48, a regulation enacted by the Financial Accounting Standards Board for firms to advise investors and the public of uncertain tax positions, contain information specific to each state about the firm’s tax expenditures claimed. The Committee may wish to consider whether SB 972’s scope is appropriate.

4. One way or another. California has two ways of designing tax incentives to hopefully spur economic activity that would not occur but for the tax benefit. California’s key business tax credit, the Research and Development Tax Credit is based on largely on its counterpart in federal law, and is neither capped to a specified amount of foregone revenue nor specifically allocated by a state agency. If firms comply with the legal and regulatory requirements of the credit, such as increasing qualified research year-over-year, the firm claims the credit on its return, thereby reducing its tax in the current tax year, or carrying the credit over to be used to reduce tax due in a future year. Once granted, the state cannot cancel the credit and make the firm repay the amount, a procedure known as a claw back, if the firm followed the law. In that way, California’s key business tax expenditures function similarly to entitlement programs, but unlike spending programs, cannot be limited or eliminated without 2/3 vote required by Section Three of Article XIIIA of the State Constitution. Other credits, like the Motion Picture Production Credit or the California Competes Tax Credit, are administered by state agencies based on a

competitive allocation process according to criteria set forth in law and regulation. The state agency awarding the credit publish a list of successful tax credit applicants. If an applicant does not perform the activity as required by law or its agreement with the administering agency, the law permits a credit claw back. Unlike the research and development credit, the Legislature applies a sunset date for these credits, which it recently extended for both (SB 855, Committee on Budget and Fiscal Review, 2019). While SB 972 requires publishing data regarding aggregate credit usage, it would provide some public information regarding which companies claim research and development credits.

5. Fair share? In 2017, Congress enacted HR 1, which comprehensively changed federal personal income and corporation taxes. HR 1 enacted several changes that significantly reduced federal taxes on corporations, including lowering the statutory rate from 35% to 21%, allowing immediate expensing when purchasing or leasing new equipment, and adopting a “territorial” system that mostly excludes from tax the income of a U.S. company’s foreign subsidiaries. As a result of these changes, the Institute on Taxation and Economic Policy recently found in a sample of 397 companies for the 2018 taxable year that the effective federal income tax rate is only 11.3%, or less than half of the new statutory rate, with many prominent firms paying no federal taxes at all. In California, the Legislative Analyst’s Office (LAO) has found that the corporation tax’s share of total general fund revenues has declined from 16% in the 1950s and 60s to 9% in the early 2010s.^[1] LAO states that changes in state law made since the mid-to-late 1980s and increased usage of tax credits reduced annual revenues by approximately $3 billion annually. The Committee may wish to consider SB 972 in the context of determining whether corporate taxpayers are paying a sufficient share of the costs of public services.

6. Related legislation. SB 972 is similar to two other measures considered by the Legislature in recent years:

• AB 2666 (Skinner, 2011) required FTB to compile information on corporation tax expenditures claimed and reported by publicly traded companies and requires the State Chief Information Officer to publish this information on the Reporting Transparency in Government Internet Website. Governor Arnold Schwarzenegger vetoed the bill.
• AB 2439 (Eng, 2012) required FTB to publish a list of the 500 largest corporate taxpayers and their tax liability. The measure failed passage on the Senate Floor.

7. Filling blanks. SB 972 directs FTB to provide an unspecified office a list of all taxpayers subject to the Corporation Tax with gross receipts of $5 billion or more, and then requires the unspecified office to publicly disclose a list with the above information. The Controller is the state’s chief fiscal official and a member of FTB. The Committee may wish to consider inserting the Controller into SB 972’s current blank spaces.

8. Technical. Committee staff recommends replacing the term “entity” with “taxpayer” for consistency of use.

Support and Opposition

(5/26/20)

Support: SEIU California (sponsor), Alameda Labor Council; American Civil Liberties Union of California; California Alliance for Retired American;, California Association of Professional Scientists; California Federation of Teachers; California Professional Firefighters; California Teachers Association; Evolve California, UDW/AFSCME Local 3930; United Food and Commercial Workers – Western States Council.

Opposition: Biocom; Calaveras County Taxpayers Association; California Business Properties Association; California Business Roundtable; California Chamber of Commerce; California Life Sciences Association; California Manufacturers & Technology Association; California Retailers Association; California Taxpayers Association; CompTIA; Council on State Taxation; Family Business Association of California; Kern County Taxpayers Association; Orange County Taxpayers Association; San Gabriel Valley Economic Partnership; Santa Maria Valley Chamber of Commerce; Silicon Valley Leadership Group; Solano County Taxpayers Association; Sutter County Taxpayers Association; TechNet; Western States Petroleum Association.

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1. Letter to Honorable Mark Leno, March 12, 2014. ↑