Senate Rejects Assembly Version of Measure to Cut Unitary Tax

An Assembly-proposed compromise aimed at enacting more than $800 million in special tax cuts for multinational corporations was rejected by the Senate on Thursday.

Lawmakers in the upper house, as expected, refused to concur in Assembly amendments to the bill by Sen. Alfred E. Alquist (D-San Jose).

The action sent the heavily lobbied legislation to an Assembly-Senate conference committee that will attempt to draft a bill that both houses find acceptable. Alquist said the committee will meet sometime during the summer.

“I think we are a long way apart. It’s going to be extremely difficult to reach agreement,” Alquist told reporters.

At issue is the state’s so-called “unitary” tax system, which levies business taxes on the worldwide earnings of a given company and its subsidiaries. Both foreign and domestic firms claim the unitary method is unfair and have been pushing for changes that would allow the state to tax only profits that companies earn doing business in California and the United States.

Alquist, chairman of the Senate Budget and Fiscal Review Committee, called the Assembly’s amendments to a bill he introduced last year “completely unacceptable.”

The lawmaker criticized provisions that would deny the proposed tax breaks to corporations that do business with either South Africa or Libya. Likewise, Gov. George Deukmejian opposes the anti-apartheid South Africa restrictions.

The amendments were added to protest South Africa’s government-sanctioned policy of racial discrimination against blacks and Libya’s role in terrorist attacks against American citizens.

Alquist said he obtained a legal opinion from the Legislature’s lawyer that held that the provisions aimed at the two African nations were not germane to the bill and therefore could be subject to legal challenge later.

He also said the bill, as it returned from the Assembly, “costs too much,” carrying a price tag twice as high as the measure he introduced.

A Senate analysis of the bill said that when fully implemented, the Assembly version of the proposal would cost $830 million a year in lost state revenue, but that is disputed.

The sponsor of the Assembly proposal, John Vasconcellos (D-San Jose), has argued that the measure would not actually cost the state any revenue because it would require firms benefiting by the tax cut to make additional business investments in the state. He argued that the additional investment would produce beneficial econonic spinoffs that would produce enough new sales and income taxes to offset any revenue lost because of the tax cut.

The tax loss under the Alquist proposal would be an estimated $410 million.