Gov. Jerry Brown unveiled a plan Sept. 6, 2011 to "tighten a corporate tax formula in exchange for giving manufacturers a sales tax exemption and offering enhanced job tax credits." The proposal, part of his job-creation package, requires multistate companies "calculate their tax liability only on the proportion of sales they have in California relative to elsewhere in the nation, a method called single sales factor." The proposal would eliminate a bill passed in 2009 that allows companies choose a more generous of two tax formulas. CA is one of only two states to allow companies a choice on an annual basis. Eliminating the rule could raise $1 billion. The success of the bill requires 2 GOP votes, which seems unlikely. Brown proposes the new savings would give credits for new hires and grant manufactures a sales tax break.
How does single sales factor work? See article
Take PA as example. Corporations pay a 9.99% tax on profits in PA, but only based on the percentage of their business in Pennsylvania (since they will be subject to the same tax in other states). The percentage of their business in PA is calculated based on sales, property, and payroll in the state. The current ratio is 70% sales, 15% property, 15% payroll. Here is how the formula works:
Percent of sales in PA x .70 + Percent of property in PA x .15 + Percent of payroll in PA x .15 = Percent of business in PA.
Moving to a single sales factor would mean corporations use only their percentage of sales to calculate tax liability.
Winners and losers:
-Businesses with a higher percentage of their operations, but a lower percentage of sales in PA would see a tax cut.
-Business with a higher percentage of sales in PA, but more of their operations in other states would see an increase.
There are a couple very good reasons to move to a single-sales factor
-It simplifies tax compliance
-It would stop punishing businesses that keep or move their base of operations to Pennsylvania.
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