Prop 39 Cheat Sheet: Multistate Business Tax and Clean Energy Initiative

Multistate businesses represent the third largest source of revenue for the state's General Fund -- $9.6 billion in 2010-11, according to the legislative analyst. These are businesses that operate in California and in other states or countries at the same time.

Currently, multistate businesses have two options for calculating their tax liability in California, and they can choose whichever is cheaper. Prop 39 would require them to use the "single sales factor method," in which their liability is based solely on their amount of sales in the state. They would no longer be allowed to use the other option, known as the "three-factor method," which bases tax liability on a combination of the sales, property, and number of employees a business has in the state.

Half of the revenues raised by requiring the single sales factor, with a maximum of $550 million a year, would go into a newly created fund to support projects that improve energy efficiency and expand the use of alternative energy. Deposits into the Clean Energy Job Creation Fund would continue for five years, ending in 2018. The legislature would decide how to use that money, though it would be required to use it on "cost-effective projects run by agencies with expertise in managing energy projects," according to the legislative analyst. The fund could be used to support:

  • energy efficiency retrofits and alternative energy projects in public schools, colleges, universities, and other public facilities
  • financial and technical assistance for energy retrofits
  • job training and workforce development programs

Any projects would have to be coordinated with the California Public Utilities Commission and the California Energy Commission, and Prop 39 would create a nine-member oversight board responsible for annual reviews and audits.

WHAT YOUR VOTE MEANS
Voting YES means that you accept the provisions of Prop 39. Multistate businesses will be required to calculate their tax liability using the single sales factor method, and half the new revenues raised would go to the creation and support of the Clean Energy Job Creation Fund.

Voting NO means that you reject Prop 39. Existing rules governing multistate business tax liability remain in place, and the Clean Energy Job Creation Fund will not be created.

WHO/WHAT IT WOULD AFFECT
Multistate Businesses: Many of these businesses would end up paying more in state taxes each year.

State Government: The state stands to collect about $1 billion in added revenues each year, according to the legislative analyst. Half of that money must be used on the Clean Energy Job Creation Fund for the first five years, but after that it would all go to the General Fund. The legislative analyst predicts that the amount collected annually will increase to well over $1 billion in future years.

Schools: Because of the Prop 98 minimum guarantee for education funding, which was passed by voters in 1988, any increase to overall revenues automatically means an increase to education funding. The amount apportioned for the Clean Energy Jobs Creation Fund will not be used to recalculate the minimum guarantee, but the legislative analyst predicts the total increase to education funding because of Prop 39 could still be from $200 million to $500 million in the next five years. After that, schools could conceivably collect more than $1 billion every year. Some schools would also be affected as new clean energy retrofitting projects get under way.

Clean/Alternative Energy Companies: Contractors in clean and alternative energy stand to benefit from new projects started with support from the new fund.

California's Workforce: New jobs could be created as the state begins to spend money from the fund on retrofitting and new alternative energy projects. Workers could also presumably benefit from new job training programs.

WHO'S BEHIND IT
Prop 39 is financed almost entirely by hedge fund manager Thomas F. Steyer. Steyer is also the co-chair of Californians for Clean Energy & Jobs, the other major financial backer of the measure.

WHO'S AGAINST IT
As of Aug. 31, the Secretary of State has not reported any fundraising committees formed to support an opposition campaign. However, among those affixing their names to the official arguments against Prop 39 in the state's voter information guide are:

  • Jack Stewart, president of the California Manufacturers & Technology Association
  • Mike Spence, president of the California Taxpayer Protection Committee, a slate mail publisher
  • Lew Uhler, president of the National Tax Limitation Committee, a slate mail publisher

ARGUMENTS BEING MADE FOR

  • The current tax loophole for out-of-state corporations costs California $1 billion a year in lost revenues.

  • Prop 39 levels the playing field, ensuring that multistate companies play by the same rules as California employers.

  • Prop 39 could bring in as many as 40,000 new jobs to the state.

  • Hundreds of millions of dollars per year will be dedicated to schools.

  • Using energy-efficiency measures will reduce state energy costs, freeing up dollars for essential services like education, police, and fire.

ARGUMENTS BEING MADE AGAINST

  • Prop 39 is a massive $1 billion tax increase on job-creating companies that will result in the loss of thousands of middle-class jobs.

  • Prop 39 is open to waste and corruption: the legislature gets a blank check to spend billions without real accountability or taxpayer protections against conflicts of interest, and Prop 39 spends up to $22 million on a new bureaucracy and special interest commission.

  • Prop 39 is so poorly written that it doesn't prohibit contractors from giving campaign money to the politicians that award the contracts.

  • It's wasteful spending - Prop 39 takes $2.5 billion that could go to schools, health and welfare, environmental protection or public safety and instead diverts it to a new government commission with fat salaries and little accountability.

Photo: Workers install solar electric panels on a residential rooftop in 2009 in Santa Monica, Calif. | Credit: David McNew/Getty Images

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