California Propositions to Increase Tax Rates
(Dec. 21, 2012)
California voters recently approved two propositions that will have a significant impact on California taxpayers. Proposition 30 temporarily increases the state sales tax and personal income tax rates. Proposition 39 modifies the apportionment rules for most businesses.
Proposition 30 temporarily increases the California sales and use and the personal income tax rates. The state sales tax rate will temporarily increase from 7.25 percent to 7.5 percent beginning Jan. 1, 2013, through Dec. 31, 2016. Local sales taxes are imposed in addition to the state tax rate.
Proposition 30 also increases California’s personal income tax rates through 2018. Prior to the passage of Proposition 30, rates ranged from 1 percent to 9.3 percent. Under Proposition 30, married taxpayers will pay 10.3 percent on taxable income between $500,000 and $600,000, 11.3 percent on income between $600,000 and $1 million, and 12.3 percent on income more than $1 million. California also imposes a 1 percent mental health surcharge on income more than $1 million, making the effective rate 13.3 percent for income more than $1 million.
Proposition 39 requires most businesses to use a single sales factor method to apportion income for tax years beginning on or after Jan. 1, 2013, and a market-based sourcing method to assign revenue for sales other than sales of tangible personal property.
Before the change, businesses could elect to apportion using one of the following methods:
- Single factor sales apportionment with market sourcing for receipts of sales other than tangible personal property
- Three factor, double-weighted sales apportionment using cost of performance sourcing for receipts of sales other than tangible personal property
Banks, financial businesses, savings and loans, agricultural businesses, and mining and extractive businesses are not affected by Proposition 39 and will continue to use their historic apportionment and sourcing methods.
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