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Wednesday, May 18, 2011

Governor Brown Proposal to Improve CA Sales Tax

California Governor Brown's current budget proposal includes a manufacturing sales tax exemption (pages 11 and 31). New businesses would get a maximum 5% exemption while others would only get a 1% exemption. The 5% represents the state level sales tax (the balance of the tax is for local governments. This change eliminates pyramiding of the tax and helps California to be more competitive with other states that offer such a sales tax exemption (although other states have exemptions that apply fully to all manufacturers).

The governor proposes to pay for the exemption by mandating that all companies apportion income using the single sales factor (rather than choosing between that and the double-weighted sales, 3-factor apportionment approach each year.

This is a start towards a better sales tax in California. Certainly, more is needed, most notably a lowering of our high sales tax rate and broadening of the base to include more types of personal consumption.

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