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Proposition 39: Tax Treatment for Multistate Businesses

Molly Young | 10/18/2012, 5 p.m.

Proposition 39 addresses three issues. First, it will require multistate businesses (businesses that operate both in California and other states or countries) to use the 'single sales factor.' (Currently, multistage businesses are allowed to choose between two methods of being taxed.) One is the three-factor method, which uses the location of a company's sales, property, and employees, or the single-sales factor, which uses only the location of the company's sales. Depending upon the amount of any aspect of the three-factor method, the business may choose one of these factors to choose how they wish to be taxed.

For example, if a company has only a few employees in California, the company can file their taxable rate on the number of employees, regardless of how much profit they make here. Prop. 39 would repeal a business' ability to make that choice and only allow the single-sales factor. Therefore, if a company makes a percentage of their sales in California, then that percentage is subject to being taxed.

Supporters of the initiative anticipate $1 billion a year from this change.
Prop. 39 would dedicate $550 million a year for five years from this increased revenue to funding projects that create energy efficiency and clean energy jobs in California, such as retrofitting public schools and community colleges, developing alternative energy projects, as well as providing job training and workforce development programs in energy efficiency and alternative energy.

Supporters of the initiative feel that Prop. 39 will close the loophole that allows companies to send jobs out of the state and bring more jobs and revenue back into California. The principal financial backer of the proposition is Thomas Steer, a businessman and philanthropist who, according to the California Secretary of State website, has contributed more than $22 million to the campaign..

According to Alexa Bluth, the spokeswoman for the Yes on 39 campaign, "We are asking voters to close this loophole and bring a billion dollars back to California, and tens of thousands of jobs. We have broad support in the African American community, Asian American community and Latino American community."

Financially, the main backer of the opposition is the California Manufacturers & Technology Association (CMTA), which according to the secretary of state, has contributed more than $56,000. The opponents feel that Prop. 39 will discourage future companies from doing business in California and make it harder for businesses currently here.

Businesses which operate only in California will be unaffected by the proposition.