Gov. Jerry Brown celebrated a corporate tax deal Thursday with the Assembly, but he acknowledged he still has to persuade enough senators to support the package.
The agreement would require companies to base their corporate tax calculations only on the share of sales they have in California, raising about $1 billion annually starting in the 2012 tax year, mostly from out-of-state firms. It would redirect that money to tax breaks for in-state businesses and individual taxpayers.
Brown and lawmakers hailed the plan as a jobs creator, though they offered no projections on the extent of its economic impact. The Democratic governor was joined by GOP Assemblymen Nathan Fletcher and Cameron Smyth, whose votes would put the plan over the top in the Assembly if all 52 Democrats support the package.
"This is a very important coming together of very disparate individuals and philosophical views to do something for California," Brown said. "So instead of just acting as Democrats or Republicans, the people you see here behind me are acting as Californians first."
Under the plan, Californians would receive an increase in the personal income tax standard deduction, jumping from $3,769 to $4,769 for individuals and $7,538 to $9,538 for couples. That change would offer relief mostly to low- and middle-income families who do not itemize their deductions.
Start-up manufacturers will receive a 4 percent sales tax reduction on equipment purchases, while other firms will get a 1 percent reduction.
The plan also contains a series of business income tax breaks. It would cut the corporate tax rate from 8.84 percent to 8.34 percent on the first $50,000 in taxable income. It would exempt 10 percent of the first $50,000 for small businesses who file as personal income taxpayers. And it would cut the "minimum franchise tax" that all businesses must pay from $800 to $750.
Sources said earlier there was agreement between the Assembly and Brown on a five-year extension in the state's film tax credit from 2014 to 2019. But the governor declined to discuss the film tax credit Thursday, and the Senate has been reluctant to support that extension. The idea was that future growth in corporate tax dollars under the latest change would help pay for the tax credit.
Since announcing his plan last month, Brown had been negotiating primarily with Fletcher, a Republican who is running for mayor in San Diego. The city is home to biotechnology firms and telecommunications giant Qualcomm, who support the corporate tax change because it provides tax breaks and would raise costs for out-of-state competitors.
"By switching to a mandatory single sales factor, we're closing an indefensible loophole," Fletcher said. "By closing a corporate loophole that only benefits out-of-state corporations, we're providing real and permanent tax relief to Californians. The measure is much needed and will do a lot to help people get working again."
Still, Brown has to clear a major hurdle in convincing senators to support his plan. Only one, Sen. Kevin de León, D-Los Angeles, the original author of the corporate tax change, was on hand for the press conference.
Brown has not identified any Senate Republicans who back his proposal, but he hopes that winning an Assembly deal will put pressure on the upper house in the final two days of session. The governor can count on an unlikely assist from influential conservative blogger Jon Fleischman, who stated on Twitter, "Because the tax plan is revenue neutral, supporting it does NOT violate a no new taxes pledge."
"Obviously it's going to be incumbent on us in the Senate to do everything possible to cajole, to convince, to lobby a few Republican senators to make sure we can do the right thing," de León said.
Senate Republican Leader Bob Dutton, R-Rancho Cucamonga, asked Brown on Thursday to call a special session so lawmakers can reconvene on jobs and tax reform after Friday's regular session close. He called it a "tax increase," which spokeswoman Jann Taber said was the case because the plan raises taxes on some businesses.
"There is nothing more complex than tax reform, and trying to jam through a proposal on the last day of session without transparency or input from the public and tax experts is irresponsible," Dutton wrote in a letter to the governor.
Some Democrats were previously reluctant because they would rather see the tax dollars redirected to schools and state services. Labor groups had been neutral, but the late addition of a larger personal income tax deduction appears to have won support of Assembly Democrats and the California Labor Federation, whose executive secretary-treasurer, Art Pulaski, was on hand Thursday.