November 06, 2012

CALIFORNIA voters approved two ballot initiatives on November 6 that will affect tax burdens in the state.

Proposition 30 increased the statewide sales tax rate from 7.25% to 7.5% starting on January 1, 2013.

Proposition 39 will require companies that operate in California as well as other states to determine the amount of income they earn in California for state income tax purposes based on the percentage of sales in the state as a percentage of their total sales. Companies have had the option since January 2011 to apportion income to California based on a single-factor formula — sales — or a three-factor formula — property, payroll and sales. (For most companies, sales are given double weighting in the three-factor formula.) The choice reportedly costs the state $1 billion a year. Companies will now be limited to apportionment based on sales starting January 1, 2013. Half of the $1 billion that Proposition 39 is expected to raise will be used for energy efficiency and clean energy programs like retrofitting schools and government buildings so that they draw less electricity from the grid. The remaining funds go into the general revenue account of the state. The governor said during the campaign that Proposition 30 was needed to avoid steep additional cuts to spending on schools.

The votes were a watershed. There have been seven previous unsuccessful attempts in California to increase taxes through ballot initiatives since 2004.