ShareThisMonth after month this spring, California officials cheered as personal income and sales taxes flowed into state coffers at a robust clip.
But one area repeatedly underperformed: taxes on corporate profits.
While California corporations have reported strong profits this year, taxes on those profits repeatedly have underperformed, state officials say.
That occurred even though more than 75 percent of S&P 500 companies beat earnings estimates in the second quarter, according to Bloomberg, the financial software, data and media company.
It's hard to find concrete answers without reviewing corporate tax records, but fiscal experts suggest recent tax breaks are more lucrative for corporations than once thought.
Lawmakers and then-Gov. Arnold Schwarzenegger negotiated the changes in closed-door budget talks and approved them with little public review. California Department of Finance forecasters say they considered those tax changes in their January projections. But analysts say they underestimated the tax benefits' cost.
Through the first seven months of 2011, California received $708 million less -- or 10 percent -- in corporate tax revenue than projected. Over that same period, personal income taxes topped expectations by 15 percent, while sales taxes were slightly above target.
"What's happening in our numbers is not really about corporate profits," said Jason Sisney, director of state finance for the nonpartisan Legislative Analyst's Office. "What's happening now is all the effect of the policy changes we've had."
Starting this year, firms were allowed to ignore the amount of California property and employees they have when calculating corporate tax liability. Instead, they pay only on their percentage of sales in the state, called the "single sales factor." The change benefits California-based companies.
Most other large states have moved to the single sales formula in an economic development arms race, hoping to attract companies by removing tax burdens based on property and payroll.
In its switch, California became the only state besides Missouri to allow companies to choose annually between the single sales formula and the traditional one. Companies with large sales in California but fewer employees or facilities can choose to pay less.
Gov. Jerry Brown has called on lawmakers to force all companies to use the single sales formula. That would raise an estimated $1 billion annually, mostly from out-of-state firms.
The analyst's office recommended last year that the state eliminate the two-formula option by 2013.
Business leaders blame the economy for corporate taxes revenues falling behind projections, though they still were up 2.6 percent over last year.
Corporate profits are up much more. In its July quarterly report, Google Inc., of Mountain View, Calif., reported a 36 percent increase in net income year over year. Cupertino-based Apple Inc. showed a 125 percent increase in profits.
Even if major corporations are reporting impressive numbers, business leaders say firms may have had less economic activity in California, where the unemployment rate was at 12 percent in July. Nationally, it was at 9.1 percent.
The state could see another corporate tax reduction next year. Lawmakers agreed to restrict deductions for operating losses from 2008 to 2011, but expand their use thereafter. That is projected to cost the state $205 million starting next year.
(Contact Kevin Yamamura at kyamamura(at)sacbee.com.)
(Distributed by Scripps Howard News Service, www.scrippsnews.com.)
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