Gov. Arnold Schwarzenegger has come out against the Democratic gas-tax swap because it would reduce the percentage of net operating losses that companies can deduct from their current tax liabilities, according to Schwarzenegger press secretary Aaron McLear.
The proposal "is a tax provision and it hurts companies right when they are coming back and trying to create jobs," McLear said. "We're not going to support anything that is a tax increase."
Democrats are trying to send to Schwarzenegger a stopgap budget proposal that would solve $5 billion of the $19.9 billion deficit. Senate President Pro Tem Darrell Steinberg's office said earlier Monday that the Legislature would hold off sending the $1.8 billion gas-tax bill to the governor today, an indication that Democrats are trying to resolve Schwarzenegger's concerns.
Democrats included changes in two corporate tax benefits as a way to raise $650 million for the state's general fund. The proposal Schwarzenegger opposes would only allow companies to count 68 percent of net operating losses as deductions, as opposed to 100 percent.
It is unclear whether Schwarzenegger equally objects to the Democrats' second tax proposal, which would not allow companies to share tax credits belonging to affiliates for another year.
Majority Democrats are trying to pass the delayed corporate tax breaks on a majority vote as part of a complex gas-tax swap. The delay in corporate tax benefits would require a two-thirds vote when passed alone, but Democrats believe they can pass the delay on a majority vote because they are tying it to a reduction in the sales tax on gasoline.
As part of a compromise with Republicans in 2008-09 budget talks, Democrats agreed to a provision that gave companies greater flexibility in deducting operating losses starting in 2010, in exchange for suspending the deduction in 2008 and 2009. Assembly Bill 1452 (2008) doubled from 10 to 20 years the length of time past operating losses remain deductible. It also allowed firms to apply a portion of current losses against the previous two years' worth of tax liability.
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