Schwarzenegger Vetoes Corporate Tax Reporting Bill

by Mike Godfrey, Tax-News.com, Washington

11 September 2006

California Governor Arnold Schwarznegger has refused to sign a legislative bill which seeks to reduce corporate tax evasion, because he argues that there are already sufficient safeguards in place under current law.

The Honest Corporate Tax Reporting Act requires businesses with assets over $10 million to file an “information return” in addition to their tax return with the Franchise Tax Board, to explain the difference between their book income and their taxable income. It imposes significant penalties for any information return that is incomplete.

"While this bill purports to offer shareholders protection against corporations engaging in tax shelter schemes, it only creates a level of additional bureaucracy and unnecessary costs on top of many significant legal and oversight protections put in place after the Enron scandal," Schwarzenegger commented in a statement to the California State Assembly last week.

"In response to the public’s outrage over the Enron scandal, significant new laws and regulations were enacted by Congress and the Securities and Exchange Commission (SEC) to protect shareholders and ensure accurate disclosure of earnings on financial statements," he added.

Schwarzenegger also pointed to further laws passed in California requiring corporations to report to the State Board of Accountancy whenever they restate their earnings.

The California Public Interest Research Group (CALPIRG), which supports the bill, claims that corporations report profits to the California state tax board that are on average 20% lower than the profits they report to shareholders.

"Just a few years removed from the Enron debacle, it’s hard to fathom a legitimate justification for vetoing a bill to increase the honesty and transparency in corporate taxes," stated Emily Rusch, CALPIRG Tax and Budget Advocate.

However, Schwarzenegger argued that "requiring yet an additional information return to be filed with the state is unnecessary and will add costs and burdens to doing business in California without offering protection to shareholders they don’t already have".

"For these reasons, I am returning this bill without my signature," the Governor concluded.

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