Firms that paid no state taxes set to get $82 million in refunds

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Riverside Press-Enterprise

SACRAMENTO — In a move that has stirred critics, three California-based companies that reportedly paid no state business income taxes last year will receive $5 million in tax refunds and 22 similar requests for another $77 million are pending.

The California Board of Equalization, a group of elected officials who oversee state tax policy, may consider more corporate requests as early as Jan. 25. But opposition is already rising amid a continuing state budget deficit.

Critics are fuming over the board’s Dec. 15 decision to award $4.1 million in tax refunds to Conexant Systems, Inc., of Newport Beach, which bills itself as “a worldwide leader in semiconductor solutions for broadband communications, enterprise networks and the digital home.” The board also voted to award $624,450 to Grundfos U.S. Holding Corp., which has a pump manufacturing facility in Fresno, and $163,155 to Lightwave Electronics Corp., a Mountain View-based laser technology company, said agency spokeswoman Anita Gore.

In each case, the agency’s staff recommended against providing the refunds, Gore said.

A taxpayer group has also cried foul.

“To actually be giving a gift to companies that paid no taxes is a slap in the face of every taxpaying citizen in the state,” said Doug Heller, an advocate for the Santa Monica-based Foundation for Taxpayer and Consumer Rights.

The three companies were among 25 that applied for the tax refunds last year before the Legislature passed a bill ending the practice. A majority of board members in each vote said it was fair to award the refunds because last-minute amendments in the bill allowed consideration for companies that had already applied.

William Leonard, a board member and former Republican state lawmaker, added Monday that companies were also allowed under the original law to receive dual tax credits – on both their state income and sales taxes. He said companies understood that “I should never lose one because I’ve taken advantage of the other.”

He said the law “was designed to give a tax break for a public purpose.”

State Controller Steve Westly, who also voted for the refunds, received 14 letters from Democrats and Republicans in the state Assembly, urging support for the companies’ requests.

In one, Assemblyman Guy Houston, R-San Ramon, said “it would be unfair – and damaging to the state’s reputation as a hospitable location to do business – if a credit that was on the books was subsequently denied to companies who had followed the rules and relied upon it.”

Of the letters, Heller said, “It just baffles me how quick the politicians are to give away taxpayer dollars to campaign contributors.”

Offices at Lightwave and Grundfos were closed for the holidays. A spokeswoman for Conexant declined comment until studying the issue. The tax agency initially declined to reveal the other 22 applicants.

Leonard said he also has asked for a legal opinion on the issue, which could be ready by Jan. 25 and guide the board on the pending requests.

California began providing the so-called manufacturers investment credit during the state’s 1991 economic downturn. The refund reimbursed companies for new equipment purchases in hopes it would stimulate more than 100,000 jobs across 10 years. But it has failed to live up to its promise, and the nonpartisan Legislative Analyst’s Office found little evidence the tax break spurred economic growth.

Lawmakers ended the program last year after controversy greeted a similar tax board decision to pay $6.3 million to two San Jose-based companies, chip-maker LSI Logic and Cypress Semiconductor Corp., although neither paid any state income tax.

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