In California, workers’ wages have stagnated and families struggle to keep up with the rising costs of living, while corporate profits have skyrocketed. Big corporations have also benefited greatly from the 2017 Trump tax cuts and are poised to receive more benefits from the federal tax and budget bill just enacted by the Trump administration and congressional Republicans. Large tax breaks for corporations widen economic and racial inequality because they largely benefit corporate shareholders, who are disproportionately wealthy and white.
California policymakers should ensure that profitable corporations pay their fair share in state corporate taxes — which represent a tiny share of their expenses — to support public services and help shield Californians from the harms of federal cuts to health care, food assistance, and other basic needs programs.
MORE IN THIS SERIES
To learn more about the water’s edge election, net operating losses, tax credits, corporate tax rates, and options for common-sense reform, see the other fact sheets in this series:
- Water’s Edge: Closing the Largest Corporate Tax Loophole in California
- Profitable Corporations Can’t Keep Paying Zero in California State Taxes
- Legal Loopholes: How Corporations Reduce Their California Tax Bill
- A Graduated Corporate Tax Ensures California’s Most Profitable Corporations Pay Their Fair Share
How do large, profitable corporations currently get away with paying so little in California taxes?
California’s tax code contains several provisions, including the water’s edge election, net operating loss (NOL) deductions, and tax credits like the research and development credit, that corporations can take advantage of to reduce their state taxes. While actual corporate tax calculations can be exceedingly complicated, the following hypothetical — and very simplified — example demonstrates the ways that corporations operating across multiple states and countries can reduce the taxes they owe to California.
State leaders can limit the opportunities corporations have to wipe out their tax bill in years when they are profitable by reforming these elements of the corporate tax system that enable them to do this.
