Sacramento Bee 9/30/2010
By Kevin Yamamura
Republicans negotiating the state budget are demanding tax breaks for companies such as cable television providers and oil producers, sources said Tuesday.
Democrats so far have not agreed to the changes, which they estimate could cost the state as much as $500 million annually in future years. The tax dispute is one of several unresolved issues that legislative leaders and Gov. Arnold Schwarzenegger must negotiate before ending the state's record-long budget impasse.
Today marks the 91st day of the fiscal year without a budget. Legislative leaders and Schwarzenegger did not meet Tuesday because budget aides were still sorting out numbers, their offices said. Key sticking points include the tax issue, pension cuts and school funding.
Republicans want the new tax rules in exchange for suspending a business deduction known as "net operating loss." (NOL) Senate Republican leader Dennis Hollingsworth, R-Murrieta, acknowledged Monday that Republicans have agreed to delay that deduction until 2012. The NOL benefit, which was supposed to begin this year, would give companies greater leeway to apply operating losses against past and future earnings.
Delaying the NOL would raise about $1.4 billion toward the state's projected $19 billion deficit and avoid deeper cuts in state spending.
But Republicans want to modify a 2009 law governing how companies calculate their tax burdens in California, said sources who would not speak on the record because of the sensitive nature of talks. The 2009 law, part of last February's budget agreement, enables companies to choose the more beneficial of two tax formulas.
Republicans promoted the 2009 "single sales factor" change as necessary to encourage businesses to create or expand jobs in California because other states have approved similar tax benefits.
But the 2009 change affected industries differently. One provision in last year's law could raise taxes for cable and software companies. Lobbyists for those firms have sought a change since last year that would reduce their tax costs, and Republicans are now asking to tweak the law as part of a budget deal.
The 2009 law excluded businesses in the fields of agriculture, mineral extraction and banking. Republicans believe the law had the unintended consequence of raising taxes on some of those firms. But sources said one change would allow oil companies to include financial activities such as oil hedging in their tax calculations to help them reduce their tax burdens. A source specifically cited San Ramon-based Chevron Corp. as a beneficiary.
Hollingsworth acknowledged after Monday's budget meeting that he was seeking tax changes in exchange for the NOL delay, though he did not provide details. "We're working on language that would clarify some of the things that were unintentionally changed by the tax provisions that were provided in the February deal," he said.
The tax changes sought by Republicans would be permanent, while tax revenue from delaying the NOL would end after two years. Democrats and Republicans have considerably different estimates on how much the changes would cost, which is one disagreement leaders are trying to sort out.
Democrats say the tax changes would cost the state as much as $500 million annually in future years, and roughly $100 million in the current year. But Republicans contend that the changes would cost $140 million in future years, and significantly less than $100 million in the current year.
In their initial proposal, Democrats wanted to delay the 2009 two-formula system, dubbed "single sales factor," as part of this year's budget agreement. They also sought to delay a tax benefit allowing companies to apply tax credits across subsidiary lines. But Republicans agreed to delay only the NOL.
The California Teachers Association is seeking to repeal all three of the tax benefits as part of Proposition 24 on the November ballot.
Read more: http://www.sacbee.com/2010/09/29/3064059/gop-seeks-tax-breaks-in-california.html#ixzz112cVEymU
Democrats so far have not agreed to the changes, which they estimate could cost the state as much as $500 million annually in future years. The tax dispute is one of several unresolved issues that legislative leaders and Gov. Arnold Schwarzenegger must negotiate before ending the state's record-long budget impasse.
Today marks the 91st day of the fiscal year without a budget. Legislative leaders and Schwarzenegger did not meet Tuesday because budget aides were still sorting out numbers, their offices said. Key sticking points include the tax issue, pension cuts and school funding.
Republicans want the new tax rules in exchange for suspending a business deduction known as "net operating loss." (NOL) Senate Republican leader Dennis Hollingsworth, R-Murrieta, acknowledged Monday that Republicans have agreed to delay that deduction until 2012. The NOL benefit, which was supposed to begin this year, would give companies greater leeway to apply operating losses against past and future earnings.
Delaying the NOL would raise about $1.4 billion toward the state's projected $19 billion deficit and avoid deeper cuts in state spending.
But Republicans want to modify a 2009 law governing how companies calculate their tax burdens in California, said sources who would not speak on the record because of the sensitive nature of talks. The 2009 law, part of last February's budget agreement, enables companies to choose the more beneficial of two tax formulas.
Republicans promoted the 2009 "single sales factor" change as necessary to encourage businesses to create or expand jobs in California because other states have approved similar tax benefits.
But the 2009 change affected industries differently. One provision in last year's law could raise taxes for cable and software companies. Lobbyists for those firms have sought a change since last year that would reduce their tax costs, and Republicans are now asking to tweak the law as part of a budget deal.
The 2009 law excluded businesses in the fields of agriculture, mineral extraction and banking. Republicans believe the law had the unintended consequence of raising taxes on some of those firms. But sources said one change would allow oil companies to include financial activities such as oil hedging in their tax calculations to help them reduce their tax burdens. A source specifically cited San Ramon-based Chevron Corp. as a beneficiary.
Hollingsworth acknowledged after Monday's budget meeting that he was seeking tax changes in exchange for the NOL delay, though he did not provide details. "We're working on language that would clarify some of the things that were unintentionally changed by the tax provisions that were provided in the February deal," he said.
The tax changes sought by Republicans would be permanent, while tax revenue from delaying the NOL would end after two years. Democrats and Republicans have considerably different estimates on how much the changes would cost, which is one disagreement leaders are trying to sort out.
Democrats say the tax changes would cost the state as much as $500 million annually in future years, and roughly $100 million in the current year. But Republicans contend that the changes would cost $140 million in future years, and significantly less than $100 million in the current year.
In their initial proposal, Democrats wanted to delay the 2009 two-formula system, dubbed "single sales factor," as part of this year's budget agreement. They also sought to delay a tax benefit allowing companies to apply tax credits across subsidiary lines. But Republicans agreed to delay only the NOL.
The California Teachers Association is seeking to repeal all three of the tax benefits as part of Proposition 24 on the November ballot.
Read more: http://www.sacbee.com/2010/09/29/3064059/gop-seeks-tax-breaks-in-california.html#ixzz112cVEymU
