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California Election Results: What They May Mean for Business

California voters went to the polls recently to cast their votes, not only for their candidates of choice, but also on several ballot measures that may affect individuals and businesses far beyond the state’s borders. Two particularly notable measures that voters passed are Proposition 30 and Proposition 39.

Proposition 30

This is a vital component of Governor Brown’s tax initiative aimed at balancing California’s budget. By passing Proposition 30, Californians voted to increase personal income taxes on high-income taxpayers for seven years and sales taxes for four years. While these tax increases remain in effect, Proposition 30 is expected to increase state tax revenues by approximately $6 billion annually.

Proposition 39

California voters also passed Proposition 39, which changes the manner in which multi-state businesses are taxed in California. It repeals the recently enacted law that allowed many businesses the option to choose between a three-factor apportionment formula consisting of property, payroll and sales or a single sales apportionment formula. Now, with the exception of certain excluded taxpayers, multistate businesses are required to calculate their California income tax liability using only a single sales apportionment formula.

In connection with this switch to the single sales method, taxpayers are required to source sales, other than sales of tangible personal property, based on a market approach as opposed to cost of performance. A market-based approach sources revenues to where the customer receives benefit as opposed to the cost of performance approach which assigns revenues to where the income-producing activity is performed.


On the candidate front, California Democrats have emerged with a surprising pick up of the additional seats necessary to assume a supermajority in both houses after the conclusion of the November 2012 elections. Both houses of the California legislature are currently controlled by Democrats, but the party is now poised to hold a supermajority in both houses. This will be the first time in California since 1933 that one party has held a supermajority in both houses. This will give the Democratic Party the two-thirds majority it needs to pass legislation without participation from the Republican Party.

The Democrats’ supermajority is not completely set in stone, however. Two Democratic State Senators, Gloria Negret McCloud and Juan Vargas, will resign in January to take their newly-elected seats in the US Congress. This will leave the Senate Democrats with 26 votes – one vote shy of the two-thirds supermajority. Governor Jerry Brown will need to call elections to fill these seats, meaning the two-thirds majority will likely lapse until early summer.

With the changing landscape in California, it will be very important to have a pulse on the legislative priorities in the state as they relate to tax payers and the programs for which ADP provides services. We are closely monitoring the political and legislative activities in the state and will provide updates as they arise.

LaRae serves on the Board of Directors for both CAEZ (California Enterprise Zone) in Action and CEON (California Employers Opportunity Network); both are key California stakeholder organizations with a focus on advocacy strategies.

Learn more about leveraging tax credits and incentives with help from ADP.


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