California’s Current Sales Factor Landscape

INTRODUCTION

On November 2, 2010, by a margin of nearly 1.5 million votes, California voters rejected Proposition 24.¹ In doing so, the voters decided to maintain three business tax provisions scheduled to take effect in 2011: (1) the single sales factor apportionment election; (2) net operating loss carrybacks; and (3) shared tax credits for "unitary" businesses. This Proposition, also known as the Repeal Corporate Tax Loopholes Act, sought to eliminate these provisions enacted in the fiscal year 2008 and fiscal year 2009 budgets to prevent the loss of general fund revenue. Indeed, the California Franchise Tax Board ("FTB") had projected the single sales factor apportionment election would cost California nearly $2 billion cumulatively by 2013.² Accordingly, after back-to-back budget measures³ and now the failed Proposition, the dust has settled – for now – for corporate taxpayers who make sales of other than tangible personal property (i.e., intangibles and