CalChamber requests further analysis of impact on businesses

NORTH BAY - The newly proposed business net receipts tax for the state of California would expand the current sales tax to include intangibles from the service industry.

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This legislation was proposed by Gerald Parsky, a Los Angeles businessman appointed chairman of the state Commission on Tax Reform by the governor.

According to the California Chamber of Commerce, a business net receipts tax is a type of "value-added tax in which companies are taxed on total receipts minus all purchases from other firms."

Michigan, Ohio and Texas as well as a number of European countries have this kind of tax system in place.

The presumed intent behind this new tax is to bring a large category of service businesses into the tax base, according to the California Chamber of Commerce.

Kate King, president and chief executive officer of the Napa Chamber of Commerce, said she understands the intent, but the biggest problem is that employers wouldn't be able to deduct the cost of employees.

Her concern is that larger employers will be able to avoid paying on employees because they can outsource employees, something small businesses will not be able to do.

"It will increase the difficulty small manufacturers have on being able to be competitive," she said.

A specific proposal has yet to be released for comment.

Sue Nelson, chief operating officer of the Santa Rosa Chamber of Commerce, said the chamber will definitely take a very serious look at this but has not yet taken a position on the matter.

"It is intended to broaden the tax base," she said. "There is no question that it would have a very dramatic effect on service-type businesses."

The California chamber's Web site, CalChamber.com stated, "It is impossible to evaluate the impact of a business net receipts tax on the California economy and jobs until the commission has provided a clear, specific written proposal; provided an analysis of the policy, operational and transitional implications of the new tax; and given an opportunity for California businesses and economic experts to respond to the proposal and analysis."

The chamber was one of 24 entities that signed a letter to Mr. Parsky stating, "The commission should refrain from moving forward with any proposal like the BNRT (and related changes to the personal income tax, the corporate tax and the state portion of the sales tax) until there is a specific proposal that is fully vetted with potentially affected businesses and economic experts to determine its ramifications."

Among those business groups that signed the letter were the California Bankers Association, the California Business Property Association, the California Cable & Telecommunications Association, the California Farm Bureau Federation, the California Forestry Association, the California Grocers Association, the California Hotel and Lodging Association and the California Manufacturers and Technology Association.

An analysis on the proposed tax requested by the Commission on Tax Reform was published by Ernst and Young, a professional services firm and one of the Big Four auditors.

It addresses some of the questions as to what states are looking to gain from tax reform and looks at some other states and what they are doing with their business taxes.

The preliminary incidence results for a California net receipts tax showed higher prices for California consumers by 71 percent, lower labor income by 19 percent and lower capital income by 9 percent.

The commission has a deadline of Sept. 20 to present findings, and Gov. Arnold Schwarzenegger said there will be a special session of the Legislature afterwards to consider the commission's recommendations.

Ms. King said that legislature can hide behind the term "tax reform," but if it hurts small businesses, it is not reform.