The headline basically tells the story. The commission appointed by Governor Schwarzenegger to look at California’s tax structure will apparently propose a Business Net Receipts Tax. The tax would not be based on gross receipts but net receipts: gross income less cost of goods sold. The proposed tax rate is 4.2%. The commission hopes that the tax would lead to the lowering of California’s corporate and personal income tax rates as well as the state’s sales tax rate.
The article I linked to notes that there is a lot of opposition to the tax. As I’ve mentioned before, all taxes and fees to businesses are passed on to consumers. This tax would also hit intellectual property producers hard, as labor is usually a “below the line” cost and wouldn’t be deductible. That’s not good news for Silicon Valley. It would also impact apartment owners and other service businesses.
What I worry about is that the liberals in the legislature will look at this proposed tax not to replace California’s current tax system but as an additional source of revenue. Frankly, I don’t think this tax can pass given that all new taxes require a two-thirds vote; Republicans in California’s legislature have vowed to block any tax increases.
Hopefully, there will be some better nuggets in the commission’s report than this lemon of a tax.