SACRAMENTO, CA — Today, Senator Ricardo Lara (D-Bell Gardens) requested that the Joint Legislative Audit Committee (JLAC) approve an audit of California corporate tax expenditures, to determine their effectiveness and benefit to the state. According to a report from the Department of Finance, California invests over $5 billion dollars each year on tax credits for corporations. The audit was approved with bipartisan support.
“California law allows various tax credits, deductions, sales and use tax exemptions to provide incentives to taxpayers, or to influence business behavior, but are these credits effective?” asked Senator Lara. “It is vital that we evaluate existing tax credits and incentives to ensure that they are successfully meeting outlined goals and that California is receiving the highest return on its investment.”
Many of these tax credits were approved by the legislature with the intent of creating jobs, stimulating economic development, or helping California remain competitive with other states. This audit will evaluate whether the credits are achieving those objectives.
California law allows various tax credits, deductions, and sales and use tax exemptions to provide incentives to taxpayers, or to influence behavior, including business practices and decisions, such as research and development credits.
The audit is requesting the examination of at least six of the largest corporate tax credits and incentives during the last 3 fiscal years according to the Department of Finance Tax Expenditure report. Additionally, the request asks that the following be considered:
1. Identify the purpose for which the credits and incentives were established and determine whether those credits are fulfilling their intended purpose.
2. Determine the cost impact of those credits and incentives on the State and whether the benefits derived from those expenditures justify the cost to the State.
3. Determine whether certain types of incentives are more effective or beneficial to the State economy.
4. To the extent possible, determine the impact a cap on total expenditures for each tax credit would have on the State.