Amidst the multitude of measures on next Tuesday’s ballot, Proposition 39 has garnered little media attention. For proponents of renewable energy, however, it might be the second most important vote you can cast on Election Day. Here’s our take.
Prop 39 seeks to close a loophole in existing state tax law that allows multistate corporations to decide for themselves how to calculate their taxable income. Present law provides either of two methods, the “Three-Factor Method” or the “Singles Sales Factor Method” as explained by the independent Legislative Analyst:
- “Three-Factor Method“: This method uses the location of the company’s sales, property and employees. When using this method, the more sales, property or employees the multistate business has in California, the more of the business’ income is subject to state tax.
- “Single Sales Factor Method“: This method uses only the location of the company’s sales. When using this method, the more sales the multistate business has in California, the more the business’ income is taxed.
Under Prop 39, the first method would be repealed and every multistate business would pay state income taxes based on the proportion of its actual sales in California. Frankly, this only seems fair – if a company is deriving 75% of its revenue from sales in California, why shouldn’t it pay taxes on that 75%? Moreover, the other method allows a multistate company to reduce its California taxes by moving employees or property out of the state – why would we want to provide a financial incentive for them to do that? Indeed, this is such a common sense modification to the tax code that, according to Prop 39 proponents, it has already been adopted by both red and blue states including New York, Michigan and Texas.
Ok, so this makes sense as a measure of tax policy, but why should renewable energy proponents be backing this measure? Simple — Prop 39 splits the money it raises for the first five years between the General Fund (which will boost school funding thanks to Prop 98 and help close California’s budget gap) and a special fund to support energy efficiency and alternative energy projects in the state. (After five years, all of the money raised goes to the General Fund.)
Specifically, Prop 39 would create the Clean Energy Job Creation Fund to provide financial support for projects at schools (including public schools, colleges and universities) and other public buildings as well as support for innovative public-private partnerships like PACE programs. The ballot measure also creates a Citizens Oversight Board to provide for audits of the program and complete documentation of how every dollar of the Fund is spent. (You can read the full text of Prop 39 here.)
Prop 39 has extremely broad support (see a larger list here) including from the following:
- Former Secretary of State George P. Shultz (Co-Chair)
- Los Angeles Business Council
- American Lung Association/California
- Coalition for Clean Air
- California Alliance for Retired Americans
- California Federation of Teachers
- Los Angeles Conservation Corps
- Natural Resources Defense Council (NRDC)
- The Nature Conservancy of California
- Planning and Conservation League
- Sierra Club California
- Communities for a Better Environment
- Solar Energy Industries Association (SEIA)
- The Fresno Bee
- La Opinión
- Los Angeles Times
Here’s a one-minute video from the measure’s sponsor:
We hope you will join us in supporting this tremendously important – if largely unheralded – ballot measure.