Governor Intercedes, Panel OKs Unitary Tax Repeal Bill

A unitary tax repeal bill providing an estimated $250 million in state tax breaks for multinational corporations was approved by a key Senate committee Monday after Gov. George Deukmejian personally interceded to gain Republican support for the measure.

The Senate Revenue and Taxation Committee sent the bill to the Senate floor on a 7-2 vote after telephone lobbying by Deukmejian with two Republican committee members--Jim Ellis of San Diego and Marian Bergeson of Newport Beach--who for a while had threatened to tie up the legislation.

The committee vote was seen as a major victory both for Deukmejian and foreign-based corporations, who have been pushing hard for the legislation. It was a setback for U.S.-based companies seeking larger tax breaks for themselves.

Competitive Advantage

Domestic companies, including giants like IBM Corp. and Coca-Cola Co., claim the measure so favors foreign-based multinational corporations that it would give these foreign concerns a competitive advantage over U.S. companies.

Assemblyman John Vasconcellos (D-San Jose), who represents the so-called Silicon Valley area, on the southern part of the San Francisco Peninsula, where many high-technology corporations are headquartered, failed in an effort to amend the bill with tax breaks favored by the domestic firms.

“It’s tragic public policy and threatens California’s leadership in the high-tech industry,” Vasconcellos charged. The assemblyman added that he was “surprised” by Deukmejian’s intercession because of an understanding that the governor was neutral on the bill and would not interfere with the committee process.

Vasconcellos complained that he would have “had votes to spare” if the governor had not personally lobbied the two Republicans.

Sen. John Seymour (R-Anaheim), a committee member, told reporters he set up the gubernatorial phone calls when it appeared that Bergeson and Ellis might support the amendments, which ultimately were rejected on a 6-3 vote.

Vote Switched

Ellis switched his vote on the Vasconcellos amendments after conferring with the governor, conceding later that the conversation was “instrumental” in his reversal.

Bergeson refused to vote on the amendments--either yes or no--until talking with the governor, who reportedly told her that he opposed them. She then voted to reject the amendments.

Ironically, Vasconcellos’ strongest opposition, outside of the governor, came from Sen. Alfred E. Alquist (D-San Jose), who also represents the so-called Silicon Valley area in the Legislature.

Alquist argued during the hearing that the amendments were being introduced too late in the legislative session to be added to the bill, which has been studied and debated for months. He also disputed Vasconcellos’ contention that domestic companies would be hurt by the legislation.

Alquist is backed up by Franchise Tax Board estimates that even without the amendments, domestic corporations would receive about two-thirds of the tax relief under the bill.

The senator had been carrying the main unitary repeal bill until it was stopped in Vasconcellos’ Ways and Means Committee last week. He then amended that legislation into a separate unitary measure authored by Assemblyman Sam Farr (D-Carmel). It was the amended Farr bill that the committee approved Monday.

The unitary method of taxing multinational companies bases a firm’s tax on its worldwide income and profits rather than only on those profits generated within the United States.

Under the amended Farr bill, multinational corporations would be given the option of paying state corporate taxes on the basis of either worldwide profits or on income generated within the United States.

The total tax break, when fully implemented during the 1988-89 fiscal year, would be about $320 million. But companies electing to get out from under the worldwide accounting method would be required to pay the state a fee, which would raise an estimated $70 million in revenue.

Deukmejian, Alquist and others are pushing the tax measure because they say the state’s present unitary system is so unpopular with foreign-based corporations that it is discouraging investment in California.

Senate President Pro Tem David A. Roberti (D-Los Angeles) said he expects the legislation to pass the full Senate, probably on Wednesday. An earlier version of the Alquist bill was approved by the Senate on a solid bipartisan vote.

But the measure could run into trouble in the Assembly. As it moved out of the Senate committee Monday, the legislation did not contain a South African apartheid protest amendment that had been added in the Assembly.

Assembly Speaker Willie Brown (D-San Francisco) said he does not believe the unitary bill will pass in the Assembly unless legislation protesting South Africa’s racial policy is enacted.