Bill Would Base Corporate Taxes on Compensation Ratio
The California Senate is considering a bill that would increase the state’s tax rate for publicly held corporations.
California imposes a corporate tax on net income of 8.84% for most businesses or 10.84% for financial institutions. SB 573 would revise that rate and tax publicly held corporations from 7% to 13% (9% to 15% for financial institutions) based on CEO-to-median-employee compensation ratio.
The applicable tax rate would increase by 50% if a company’s workforce in the United States decreases by more than 10% against an increase in contracted and foreign full-time employees. This could raise corporate taxes to as high as 19.5% for some corporations (22.5% for financial institutions). The new rates would begin for tax years beginning on and after January 1, 2026.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution. This would require the approval of 2/3 of the membership of each house of the legislature for passage.
Tax Rate and Compensation Ratio
The proposed tax rates on net income are as follows:
7% for compensation ratio is more than zero to 25
7.5% for compensation ratio of more than 25 to 50
8% for compensation ratio of more than 50 to 100
9% for compensation ratio of more than 100 to 150
9.5% for compensation ratio of more than 150 to 200
10% for compensation ratio of more than 200 to 250
11% for compensation ratio of more than 250 to 300
12% for compensation ratio of more than 300 to 400
13% for compensation ratio of more than 400.