Dan Walters

By Dan Walters
dwalters@sacbee.com
January 10, 2016 3:30 PM

  • Brown wrestled with complex issue four decades ago
  • State has changed corporate taxation formulas several times since
  • It’s still unsettled in Brown’s second governorship

State taxation of multistate and multinational corporations is not an issue for the fainthearted.

The formulas for calculating their tax liabilities are complex and interpreting them has involved decades of political and legal wrangling, fueled by the issue’s multibillion-dollar stakes.

The issue bugged Jerry Brown during his first governorship four decades ago and as his second governorship winds down, it’s still percolating.

Just before Brown was elected governor in 1974, the state joined a multistate compact to bring uniformity to corporate taxation, its major feature being the use of three equal factors – payroll, property and sales – to calculate what portion of corporate income should be attributed to each state.

To illustrate: If a company had 21 percent of its sales, 12 percent of its payroll and 17 percent of its property in California, 16.67 percent of its income would be considered taxable by the state.

However, to audit corporations’ tax returns, state tax officials required access to their internal books, and multinationals headquartered in other countries – Japan and Great Britain, particularly – bridled.

Sony Corp., which had a large operation in San Diego, was particularly resentful, and its executives, as well as those of other corporations, hammered on Brown over the issue.

Initially, Brown backed the state’s position, but after a trip to Japan he flip-flopped, accusing the state’s crusty top tax official, Martin Huff, of feeding him “flaky data.”

Huff, in effect, called Brown a liar and the governor backed a successful – and very sneaky – effort in the Legislature to get rid of him.

To read expanded column, click here.