Worldwide Combined Reporting Would Devastate California's Global Image

In just the last two months, Sunergy America, a company with Chinese roots, announced plans to produce high-efficiency solar modules in Sacramento County, with a commitment to create 200 new jobs. Two weeks earlier, Lion Bus, a Canadian manufacturer, announced plans to build a new bus production plant in California. This company won’t just hire Californians, but will roll out thousands of emission-free, electric-powered school buses. A few weeks earlier, the Netherlands signed an agreement with California to pave the way for Netherlands-based companies to invest in zero-emission vehicle infrastructure.

California’s economy exemplifies success on a global stage. It is a two-way highway and global gateway to the Pacific Rim and its billions of consumers and vast pool of cross-border capital. No other location in the world can match California’s large consumer market, top-tier workforce, vibrant 21st century industry network, and beautiful weather.

For these reasons, California attracts more foreign direct investment than any other state. In fact, 665,000 Californians owe their jobs to this investment. The state has one of the largest concentrations of international banks, foreign consulates, and binational chambers of commerce in the United States. It is a melting pot of cultures and corporate heritages that together support the livelihoods of millions of California workers.

The last thing state lawmakers should do is upset this balance and create lasting damage to California’s global reputation. However, Senator Ricardo Lara’s legislation (SB 567) to adopt a complicated tax approach known as “worldwide combined reporting” would do just that. It would revisit a universally rejected tax policy that discriminates against the same global companies that are contributing to California’s economic health.

The effect of worldwide combined reporting without a water’s edge election is simple. Global companies that invest in California would be subject to extraterritorial double taxation on all global income streams, including those which have no connection to U.S. business activities. More alarming, this tax policy knows no boundaries, casting a net across the world that no company can elude. Worldwide combined reporting is a striking departure from international, federal and state tax norms.

California tried worldwide taxation in the 1980s, leading to widespread international condemnation from many of California’s most important trading partners. The United Kingdom went as far as passing retaliatory legislation, and Japan threatened to follow suit. It took presidential force to move California away from worldwide taxation. Since then, this approach has been forever buried in the archives of non-sensible state tax policies. No state has moved in this direction after witnessing the global shock and ire generated by California.

Staying globally competitive for job-creating foreign direct investment is simple if lawmakers don’t revisit failed 20th century tax policies. Let the magic of California’s economy continue to churn, and global capital and international investment will follow.

Evan Hoffman is director of state government affairs for the Organization for International Investment



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