The disagreement extends to uncertainty about how much AB 71 would increase. Rivas says it could be “up to $ 1 billion a year,” opponents say it could be $ 2.4 billion a year, and the state’s Franchise Tax Board estimates it at $ 950 million for a couple of years and then sinks to it $ 600 million.
The discrepancy arises from the very complex nature of the legislation and the impossibility of calculating how companies would react to the reversal of a major change in corporate tax policy introduced in 1986.
California has for many years followed a “one size” approach to taxing multinational corporations. They had to report their global earnings and use a rigid formula to calculate how much California is due for taxation.
Overseas-based companies, particularly in Japan and the UK, hated the reporting requirements, which they considered intrusive, and urged California to change them. The problem arose during Jerry Brown’s first governorship and initially he defended the California system to do a 180 degree flip after visiting Japan.
Brown attributed his change of heart to “fluffy data” from top Franchise Tax Board manager Martin Huff, but Huff publicly called Brown a liar. Huff had also angered lawmakers by saying their “daily rate” payments should be taxed, and eventually Brown and lawmakers forced Huff to resign.