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California Tax Credit Disclosure, CARES Act Bills Sent to Governor

Posted on Sep. 1, 2020

California lawmakers have approved legislation requiring large businesses to disclose the value of the state tax credits they receive.

Other bills also sent to Gov. Gavin Newsom (D) for consideration include legislation conforming the state to some provisions of the federal Coronavirus Aid, Relief, and Economic Security Act.

S.B. 972, introduced by Senate Majority Whip Nancy Skinner (D), received concurrence of Assembly amendments in the Senate August 30. It would require the Franchise Tax Board to compile each year a list of businesses with gross receipts of $5 billion or more, minus returns and allowances, for the tax year reported on a return in the previous calendar year. The list would include a company's name, the tax year the return is filed for, gross receipts, state corporate tax liability, and the total amount and type of state tax credits claimed for the year. 

The legislation previously required information about those businesses to be posted online by the FTB, but complaints by critics that the requirement was an attempt to publicly shame large companies receiving California tax incentives led proponents to instead require the board to provide a list including the name, tax liability, and amount and types of credits claimed by taxpayers to the Assembly Revenue and Taxation Committee and the Senate Governance and Finance Committee. Notably, the information would still be accessible to the public, although it wouldn’t be posted online.

Before the August 26 Assembly vote to approve S.B. 972, Assembly member Jesse Gabriel (D) — who carried the legislation in that chamber — told lawmakers that the bill “will better inform California’s policy decisions by requiring large corporations to disclose information about their tax burden, and the utilization of state tax credits.”

“Each year California provides billions of dollars in tax benefits to corporations,” Gabriel said. “S.B. 972 is a modest and practical measure that will align California with numerous other states that require such disclosure, as well as with federal policy that requires publicly traded corporations to provide tax information to the SEC.”

Critics of the legislation include the Council On State Taxation, which in an August 27 letter argued that aggregate data about how tax credits are used would be more useful than specific data about individual taxpayers. COST also warned that the bill represents a violation of taxpayers’ privacy.

“Rather than inform the public policy debate, which could be done with aggregate taxpayer information or without making this list public, S.B. 972 would likely mislead both legislators and the public into thinking that businesses do not pay substantial taxes when, in fact, businesses pay substantial taxes, especially in areas other than the corporate income tax,” according to COST’s letter. “If the Legislature is concerned that certain classes of taxpayers are not taxed appropriately, it should ask the executive branch for aggregate information for that class or classes of taxpayers.”

S.B. 972 was approved by the Assembly on a vote of 42 to 20, and the Senate approved concurrence of the Assembly amendments 28 to 11.

Other bills approved by lawmakers just a day before the August 31 end of session include A.B. 1577, a bill to conform the state to the provision of the CARES Act that excludes forgiven Paycheck Protection Program loans from the definition of taxable income while simultaneously barring the use of the business expense deduction for expenses paid for using forgiven PPP loans.

Another bill, A.B. 276, would conform California to the CARES Act’s provisions temporarily increasing, for people affected by COVID-19, the size of the tax-free loans that they can take from their retirement plans and the provision delaying by a year the repayment time frame for some loans. 

“California does not automatically conform to the increased amount of the allowable loan,” according to arguments by supporters of A.B. 276 included in a staff analysis of the bill. “Thus, a taxpayer that borrows from their retirement according to the new federal rules with the higher thresholds may be faced with an unexpected California tax liability. AB 276 would address this issue.”

A.B. 1577 and A.B. 276 passed the Senate on a unanimous vote August 28 and received final unanimous concurrence votes in the Assembly August 30. 

Another bill approved by lawmakers, A.B. 3372, would establish that if a non-electing, unitary foreign affiliate of a combined reporting group that made a water’s-edge election in California becomes a California taxpayer because of the state’s economic nexus rule on or after January 1, 2021, it will be deemed to have elected with the other members of the unitary combined reporting group. That provision would protect the group’s election from potentially being invalidated by such an event and addresses an unintended consequence of the state’s adoption of economic nexus rules a decade ago. The state’s FTB has been using temporary guidance to address the issue. 

A.B. 3372 was approved in the Senate August 28 by a unanimous vote, and the Assembly unanimously concurred with the Senate amendments August 30. 

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