Plan Closes Toxic Tax Loophole and Helps Small Businesses and Working Families
SACRAMENTO—Governor Edmund G. Brown Jr. today announced a bipartisan agreement with Assembly Democrats and Republicans in support of the California Jobs First Plan. The plan will eliminate a “toxic tax loophole” that rewards businesses who move jobs out of state, and uses this savings to give working families an income tax break; lower taxes for California manufacturers; and provide more than $300 million in permanent tax relief to small businesses.
“The agreement reached today with the cooperation of members of both parties closes the toxic tax loophole that rewards businesses for locating jobs outside California. These funds will help California manufacturers buy the equipment they need and reduce the tax burden on families as well as small businesses,” said Governor Brown.
The cornerstone of the bipartisan plan is the application of the Mandatory Single Sales Factor (SSF) to all businesses in California. This change levels the playing field by eliminating what Governor Brown has called “an outrageous and perverse tax incentive that encourages multi-state businesses to create jobs outside of the state.” Shifting to SSF will put California-based businesses at a competitive advantage and encourage out-of-state businesses to locate jobs here.
The bipartisan plan provides hundreds of millions in tax relief to businesses that purchase new manufacturing equipment by exempting start-ups in their first three years from the state portion of sales tax (3.9375 percent)—and provides an exemption of 1 percent for all other firms—on manufacturing equipment purchases.
It helps working families and infuses hundreds of millions into the California economy by increasing the standard deduction that individuals and couples can claim on their income tax returns. Individuals can claim an additional $1,000 and couples can claim an additional $2,000. This change will help more than 4 million working Californians.
The bipartisan plan helps employers across the state by providing more than $300 million a year in permanent tax relief to small businesses. In 2011, job creation by small employers has outpaced job creation by larger employers. According to the ADP® National Employment Report, 64 percent of jobs created from July to August were in firms with fewer than 50 employees.
The bipartisan plan:
• Applies the Mandatory Single Sales Factor (SSF) to all businesses in California.
• Reduces the tax rate by a half percent for the first $50,000 in taxable income for most corporations (from 8.84 percent to 8.34 percent). Estimated tax relief: $18 million.
• Offers a 10 percent exemption for the first $50,000 in business income for Personal Income Tax taxpayers. Estimated tax relief: $255 million.
• Cuts the minimum tax from $800 to $750—a 12.5 percent reduction. Estimated tax relief: $59 million.
• Increases the standard deduction of $1,000 for individuals and $2,000 for couples. Estimated tax relief: $306 million.
• Enacts a sales tax exemption on manufacturing—approximately 4 percent reduction for start ups and 1 percent reduction for established businesses. Estimated tax relief: $299 million.