Californian Assembly Blocks Move To Increase Tax For Offshore Firms

by Mike Godfrey, Tax-News.com, Washington

26 August 2004

Republicans in the Californian State Assembly have succeeded in blocking a bill that would force offshore-based US firms to pay full state taxes.

The bill, sponsored by Democratic Assemblywoman Judy Chu, would prohibit expatriate companies with at least 80% of their assets in the United States from using existing tax breaks to reduce taxable income in California.

It has been reported that the measure would have prevented 18 offshore firms from reducing their tax bill in this way.

The bill needs a two-thirds majority to pass, and Chu faces an uphill battle attempting to convince at least six Republicans to support it. Only two Republicans voted for the measure in last Thursday’s vote.

The Californian Franchise Tax Board claims that failure to close the tax loophole will result in a $10 million annual revenue loss, a figure it says could grow to $132 million over ten years.

However, Republican lawmakers countered that the bill was tantamount to a tax hike for offshore firms and would act as a deterrent to potential investors into the state.

"We can't keep creating more deterrents to invest in California," GOP Assemblyman John Campbell, was quoted as saying.

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