Targeted Tax on Contractors Passes Assembly Revenue/Taxation Committee

A California Chamber of Commerce-opposed job killer bill that imposes a tax on companies that do business with California’s prison systems passed the Assembly Revenue and Taxation Committee this week.

AB 43 (Thurmond; D-Richmond) imposes a 10% tax on contractors for the privilege of doing business with the state Department of Corrections and Rehabilitation to fund preschool and after school programs. Furthermore, the contractors would be prohibited from passing the cost on to the state purchaser.

According to an estimate from Assemblymember Tony Thurmond’s office, the tax would generate between $110 million and $170 million annually for early childhood education and after-school programs.

CalChamber has identified the bill as a job killer because AB 43 unfairly targets one category of taxpayers to fund a benefit for all of the state by imposing a tax on contractors for the privilege of doing business with the Department of Corrections and Rehabilitation, and requiring the contractor to absorb the cost while maintaining a price of lowest responsible bidder.

Unfair, Targeted Tax

“It unfairly targets the contractors that are providing goods and services to the prisons,” CalChamber Policy Advocate Marti Fisher told the Los Angeles Times recently.

Although CalChamber and the coalition agree that funding for preschool and after school programs is an important policy area, “this is not the way to get there,” Fisher explained to the Times.

Contractors and vendors are pleased to do business with the state and can attribute a portion of their success to that relationship. An added tax on top of an already resource-intensive contracting process for businesses in California could jeopardize the viability of contracting with the Corrections and Rehabilitation Department if costs cannot be calculated into the bid equation.

Fewer Bidders, Higher Costs

Bids are a math calculation; if the math does not work, the transaction will not occur, leading to fewer companies participating in the bidding process. As a result, less competition could lead to higher costs to the state.

An unduly burdensome tax structure built into contracting with the Department of Corrections will ultimately result in a loss to the state of qualified and competitive bidders, as well as a loss of business to the vendors that the state has come to rely on as quality and dependable.

CalChamber has consistently stated that any tax increase should be broad based and shared by all so that the financial impact is mitigated. The CalChamber and coalition appreciate the author’s effort to support preschool and after school programs as these are important issues that benefit all Californians. However, one category of taxpayers should not be burdened with the responsibility to fund these programs.

Key Vote

AB 43 passed Assembly Revenue and Taxation, 7-3 on April 24:

Ayes: Bocanegra (D-Pacoima), Burke (D-Inglewood), Dababneh (D-Encino), Gipson (D-Carson), Mullin (D-South San Francisco), Quirk (D-Hayward), Ridley-Thomas (D-Los Angeles).

Noes: T. Allen (R-Huntington Beach), Brough (R-Dana Point), Chen (R-Walnut).

The bill will be considered next by the Assembly Appropriations Committee.

Staff Contact: Marti Fisher

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Marti Fisher
Marti Fisher joined the CalChamber in January 2006 as a policy advocate. She leads CalChamber advocacy on unemployment insurance, immigration, occupational safety and tourism. She has specialized in workers' compensation, small business, and banking and finance issues. From October 2006 to December 2012, she headed CalChamber advocacy on health care issues. Fisher brought to CalChamber more than 15 years of experience in occupational safety and advocacy. She earned a B.A. in public administration from California State University, Chico, and an M.B.A. from California State University, Sacramento.