WATCH: ‘Waters Edge’ tax breaks would end if California bill passes

By Madeline Shannon
The Center Square

Editor’s note: This story has been updated since its original publication to add a video.

Corporations would no longer be able to get billions of dollars of tax breaks if a new bill introduced in the California Legislature makes it across the finish line.

Assemblymember Damon Connolly, D-San Rafael, together with other lawmakers and members of the SEIU of California, announced Assembly Bill 1790, which would end the “Waters Edge” corporate tax break. SEIU stands for Service Employees International Union.

“For the past 40 years, California has given multi-national corporations the opportunity to choose what tax scheme they would like to use to ensure they pay as little taxes as possible in our state,” Connolly said during a press conference Tuesday morning. “They do this through the use of the Waters Edge tax election, which allows a corporation to only pay taxes on revenue they decide is earned through the ‘waters edge’ boundaries of California.”

This choice of what a company pays in taxes, Connolly continued, gives corporations the incentive to shift as much income as they can off-shore through subsidiary companies and foreign tax aids. He noted California’s working taxpayers pick up the tab.

As much as $3 billion in new revenue would be generated to help pay for California’s schools, health care system, nutrition assistance programs, green energy generations and climate programs, Connolly said.

“We see California taxpayers and small business owners continue to subsidize the record profits of these huge, multi-national corporations,” the Assembly member said.

During the press conference, The Center Square asked Connolly how much the average California household pays to subsidize the tax liability of large corporations. Connolly said he didn’t have those numbers in front of him. But he noted corporate tax breaks, paired with the state’s budget woes, negatively impacted the average Californian.

“We’ve talked about some of the ways the budget hole is hurting real Californians,” Connolly said. “We’ll tie it more into the average household, what’s this costing now and layering it with the federal outrageous tax breaks.”

According to the California Budget & Policy Center, corporate profits in California increased to $368 billion in 2021, up 155% since 2002, adjusted for inflation. Additional data from the center shows only 0.6% of corporations made $10 million or more in California in 2021, despite accounting for more than 60% of corporate profits in the state that year.

Numbers from Connolly’s office show that some corporations have only had to pay an $800 minimum tax, less than individuals who work as janitors or nurses. Additional tax breaks from the federal government have allowed those corporations the opportunity to accumulate $900 billion over the next 10 years, according to Connolly’s staff.

“It is very important that we finally tax the rich, and we make corporations pay their fair share,” Assemblymember Alex Lee, D-Milpitas, said during the press conference. “It is a movement that is growing nationally as wealth disparity is growing untenably. We have some of the wealthiest companies in California, and yet we have record rates of people who are unhoused.”

Advocates for Connolly’s bill said the additional revenue could help backfill lost federal funds California can normally count on to help pay for taxpayer-funded programs like Medicaid, known as Medi-Cal in California; the Supplemental Nutrition Assistance Program and other services Californians rely on.

“Federal budget cuts fall hardest on communities like mine,” Assemblymember Sade Elhawary, D-Los Angeles, said during the press conference. “Losing access to these resources is not a talking point for me. We are talking about missed doctors’ visits, empty refrigerators, parents choosing between paying rent and keeping the lights on.”