Bill Text: CA SB37 | 2019-2020 | Regular Session | Amended
Bill Title: Corporation taxes: tax rates.
Spectrum: Partisan Bill (Democrat 2-0)
Status: (Failed) 2020-02-03 - Returned to Secretary of Senate pursuant to Joint Rule 56. [SB37 Detail]
Download: California-2019-SB37-Amended.html
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Amended
IN
Senate
January 16, 2020 |
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Amended
IN
Senate
April 03, 2019 |
CALIFORNIA LEGISLATURE—
2019–2020 REGULAR SESSION
Senate Bill
No. 37
| Introduced by Senator Skinner (Principal coauthor: Assembly Member Wicks) |
December 03, 2018 |
An act to amend Section 23151 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.
LEGISLATIVE COUNSEL'S DIGEST
SB 37, as amended, Skinner.
Corporation taxes: tax rates.
The Corporation Tax Law imposes taxes according to or measured by net income at a rate of 8.84%, or for financial institutions, at a rate of 10.84%, as specified.
This bill would, for taxable years beginning on or after January 1, 2020, revise that rate for corporations with net income subject to taxes under that law of $10,000,000 or more to instead impose a tax rate from 10.84% to 14.84%, or for financial institutions, from 12.84% to 16.84%, based on the compensation ratio, as defined, of the corporation. The bill would increase the those new applicable tax rate by 50%
rates by a factor of 1.5 for those taxpayers that have a specified decrease in full-time employees employed in the United States as compared to an increase in contracted and employees or foreign full-time employees, as described. The bill would deposit the revenues derived from this tax into the General Fund, as specified, and would require those revenues to be used to offset the fiscal impact of any child tax credit and, upon appropriation by the Legislature, to support the expansions or improvements to early childhood programs and other educational programs. The bill would make these tax rates inoperative for taxable years beginning on or after January 1 of any calendar year in which the federal corporation tax rate is 35% or more.
This
bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Digest Key
Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program: NOBill Text
The people of the State of California do enact as follows:
SECTION 1.
The Legislature finds and declares all of the following:(a) According to the Public Policy Institute of California, income inequality in California rose even more sharply than in the rest of the United States during the last half of the 20th century.
(b) This rise in income inequality has strained the ability for families to meet basic needs and led to families being unable to provide early childhood care and education to their children, which in turn limits the opportunities for these children to increase their economic station. Research shows that children who attend early childhood education do better in school and are more likely to go to college.
(c) Large corporations have continued to increase their profit margins. Meanwhile, their total contributions to the state’s general fund is near its lowest point in 40 years. According to the Legislative Analyst’s Office, the corporate tax liability as a percentage of profits has declined steadily since the 1980s in California—over the same period, income inequality rose sharply.
(d) California is home to more of the superrich than anywhere else in the country, but it also has the highest poverty rate, and the fourth highest income inequality, in the nation.
(e) California’s reliance on personal income taxes, and its relatively low property and corporate tax rates, creates a high level of volatility in the state’s budget.
(f) Income inequality creates a
tax burden on the state as a whole, as families with shrinking incomes must rely more heavily on state services.
(g) Meanwhile, all corporations have benefited from a federal corporate tax rate cut from 35 percent to 21 percent—a tax cut much higher than that enjoyed by working families.
(h) The progressive structure of this tax rate incentivizes corporations to reduce the wage disparity amongst its employees, helping to alleviate income inequality.
(i) Since the 1970s, CEO pay has increased rapidly while the average worker’s pay has stayed stagnant.
(j) To incentivize large corporations to close the wage gap and to bring corporate tax revenues back up to their fair share, closer to the historic levels of the 1970s, and allow California to better fund
its schools, early childhood care and education programs, the Legislature shall increase the corporate income tax rate of the largest, most profitable corporations, and progressively increase the corporate tax rates on companies with large disparities between CEO pay and the pay of the average employee of the company.
SEC. 2.
Section 23151 of the Revenue and Taxation Code is amended to read:23151.
(a) With the exception of banks and financial corporations, every corporation doing business within the limits of this state and not expressly exempted from taxation by the provisions of the Constitution of this state or by this part, shall annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, to be computed at the rate of 7.6 percent upon the basis of its net income for the next preceding income year, or if greater, the minimum tax specified in Section 23153.(b) For calendar or fiscal years ending after June 30, 1973, the rate of tax shall be 9 percent instead of 7.6 percent as provided by subdivision (a).
(c) For calendar or fiscal years ending in 1980 to 1986, inclusive, the rate of tax shall be 9.6 percent.
(d) For calendar or fiscal years ending in 1987 to 1996, inclusive, and for any income year beginning before January 1, 1997, the tax rate shall be 9.3 percent.
(e) For any income year beginning on or after January 1, 1997, and before the income year identified in subparagraph (A) of paragraph (1) of subdivision (f), the tax rate shall be 8.84 percent. The change in rate provided in this subdivision shall be made without proration otherwise required by Section 24251.
(f) (1) For the first taxable year beginning on or after January 1, 2000, the tax imposed under this
section shall be the sum of both of the following:
(A) A tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for the next preceding income year, but not less than the minimum tax specified in Section 23153.
(B) A tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for the first taxable year beginning on or after January 1, 2000, but not less than the minimum tax specified in Section 23153.
(2) Except as provided in paragraph (1) and subdivision (g), for taxable years beginning on or after January 1, 2000, the tax imposed under this section shall be a tax according to or measured by net income, to be computed at the rate of 8.84 percent upon the basis of the net income for that
taxable year, but not less than the minimum tax specified in Section 23153.
(g) (1) For taxable years beginning on or after January 1, 2020, the tax imposed under this section upon a corporation with a net income, as determined pursuant to Chapter 7 (commencing with Section 24341), of ten million dollars ($10,000,000) or more shall be a tax according to or measured by net income, to be computed at the applicable tax rate upon the basis of the net income for that taxable year, as determined by paragraph (2),
(2) or (5), but not less than the minimum tax specified in Section 23153.
(2) The applicable tax rate shall be determined as follows:
| If the compensation ratio is: | The applicable tax rate is: |
| Over zero but not over 50 | 10.84% upon the basis of net income |
| Over 50 but not over 100 | 11.84% upon the basis of net income |
| Over 100 but not over 200 | 12.84% upon the basis of net income |
| Over 200 but not over 300 | 13.84% upon the basis of net income |
| Over 300 | 14.84% upon the basis of net income |
(3) For
purposes of this subdivision:
(A) “Client employer” means an individual or entity that receives workers to perform labor or services within the usual course of business of the individual or entity from a labor contractor.
(B) (i) “Compensation,” in the case of employees of the taxpayer other than the chief executive officer, chief operating officer, or the highest paid employee, means wages as defined in Section 3121(a)
amounts paid or incurred by a taxpayer during the calendar year to employees of the taxpayer pursuant to Section 162(a)(1) of the Internal Revenue Code, relating to wages, paid by the taxpayer during a calendar year to employees of the taxpayer. ordinary and necessary trade or business expenses. Compensation shall not include any excessive remuneration as defined in Section 162(m) of the Internal Revenue Code paid or incurred by the taxpayer during the calendar year to the employees of the taxpayer.
(ii) “Compensation,” in the case of the chief executive officer, chief operating officer, or the highest paid employee of the taxpayer, means total compensation as reported in the Summary Compensation Table reported to the
United States Securities and Exchange Commission pursuant to Item 402 of Regulation S-K of the Securities and Exchange Commission.
(C) (i) “Compensation ratio” for a taxable year means a ratio where the numerator is the amount equal to the greater of the compensation of the chief executive officer, chief operating officer, or the highest paid employee of the taxpayer averaged over the three calendar years preceding the beginning of the taxable year and the denominator is the amount equal to the median compensation of all employees employed by the taxpayer, including all contracted employees under contract with the taxpayer, in the United States for the calendar year preceding the beginning of the taxable year.
(ii) For taxpayers that are required to be included in a combined report under Section 25101 or authorized to be included in a combined report under Section
Sections 25101.15, 25102, 25104, and 25110 the calculation of the ratio in clause (i) shall be made by treating all taxpayers that are required to be or authorized to be included in a combined report as a single taxpayer.
(D) “Contracted employee” means an employee who works for a labor contractor.
(E) “Corporation” shall not include a business entity that has elected to be classified for federal income tax purposes as a C corporation pursuant to rules in Section 301.7701-3 of Title 26 of the Code of Federal Regulations, as it read on January 1, 2020.
(F) “Detailed compensation report” means a report that
includes every employee of a corporation and the compensation and location for each employee.
(E)
(G) “Labor contractor” means an individual or entity that contracts with a client employer to supply workers to perform labor or services or otherwise provides workers to perform labor or services within the usual course of business for the client employer.
(4) A taxpayer subject to this subdivision shall furnish a detailed compensation report to the Franchise Tax Board with its timely filed original return.
(5)(A)If the
total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for a taxable year is reduced by more than 10 percent, as compared to the total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for the preceding taxable year and the total number of contracted employees or foreign full-time employees, determined on an annual full-time equivalent basis, of the taxpayer for that taxable year has increased as compared with the total number of contracted employees or foreign full-time employees, determined on an annual full-time equivalent basis, of the taxpayer for the preceding taxable year, then the applicable tax rate determined under paragraph (2) shall be increased by 50 percent. For taxpayers who first commence doing business in this state during the taxable year, the number of full-time employees, contracted employees, and foreign full-time employees for the
immediately preceding prior taxable year shall be zero.
(5) (A) The applicable tax rate shall be equal to the applicable tax rate determined under paragraph (2) multiplied by 1.5 if either of the following apply:
(i) The total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for a taxable year is reduced by more than 10 percent, as compared to the total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for the preceding taxable year and the total number of contracted employees, determined on an
annual full-time equivalent basis, of the taxpayer for that taxable year has increased as compared with the total number of contracted employees, determined on an annual full-time equivalent basis, of the taxpayer for the preceding taxable year.
(ii) The total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for a taxable year is reduced by more than 10 percent, as compared to the total number of full-time employees, determined on an annual full-time equivalent basis, employed by the taxpayer in the United States for the preceding taxable year and the total number of foreign full-time employees, determined on an annual full-time equivalent basis, of the taxpayer for that taxable year has increased as compared with the total number of foreign full-time employees, determined on an annual full-time equivalent basis, of the taxpayer for the preceding taxable year.
(B) For purposes of this paragraph, for taxpayers who first commence doing business in this state during the taxable year, the number of full-time employees, contracted employees, and foreign full-time employees for the immediately preceding prior taxable year shall be zero.
(B)
(C) For purposes of this paragraph:
(i) “Annual full-time equivalent” means either of the following:
(I) In the case of a full-time employee paid hourly qualified wages, “annual
full-time equivalent” means the total number of hours worked for the qualified taxpayer by the employee, not to exceed 2,000 hours per employee, divided by 2,000.
(II) In the case of a salaried full-time employee, “annual full-time equivalent” means the total number of weeks worked for the qualified taxpayer by the employee divided by 52.
(ii) “Foreign full-time employee” means a full-time employee of the taxpayer that is employed at a location other than the United States.
(iii) “Full-time employee” means an employee of the taxpayer that satisfies either of the following requirements:
(I) Is paid compensation by the taxpayer for services of not less than an average of 30 hours per week.
(II) Is a salaried employee of the taxpayer and is paid compensation during the taxable year for full-time employment, within the meaning of Section 515 of the Labor Code. employment.
(6) The Franchise Tax Board may prescribe rules, guidelines, or procedures necessary or appropriate to carry out the purposes of this subdivision, including any guidelines regarding the determination of wages, average compensation, and compensation ratio. Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code shall not apply to any rule, guideline, or procedure prescribed by the Franchise Tax Board pursuant to this subdivision.
(7) After satisfying the
requirements of Section 8 of Article XVI of the California Constitution and Section 20 of Article XVI of the California Constitution, any remaining revenues generated pursuant to this subdivision shall be deposited into the General Fund and shall be used to offset the fiscal impact of any child tax credit and, upon appropriation by the Legislature, to support the expansions or improvements to early childhood programs and other educational programs.
(8) This subdivision shall be inoperative for taxable years beginning on or after January 1 of any calendar year in which the federal corporation tax rate imposed pursuant to Section 11(b) of the Internal Revenue Code, relating to amount of tax, is 35 percent or more.
