The California Senate Bill 37 (the “Bill”), which may potentially increase Corporate tax rate from current 8.84% to a range of 10.84% to 14.84, has been proposed. The Bill will be enacted if approved by a 2/3 vote in each house of the California Legislature.
The Bill, if enacted, would subject the corporations with taxable income of $10,000,000 or more for taxable years beginning on or after January 1, 2020 to an increased rate ranging from 8.84% to 10.84%. The tax increase would be based on the corporation’s compensation ratio, which is determined by taking the greater of the compensation of the CEO, COO, or highest paid employee divided by the median compensation of all employees of the corporation. Note that for combined reporting filers, the compensation ratio would be determined as if the taxpayers were a single taxpayer.
The higher the disparity between the highest paid individual and the median work is, the higher corporate tax rate the corporation would be subject to. The applicable tax rate would be determined as follows:
| Compensation Disparity Ratio | Applicable Tax Rate |
| 0 ≥ 50 | 10.84% |
| 50 ≥ 100 | 11.84% |
| 100 ≥ 200 | 12.84% |
| 200 ≥ 300 | 13.84% |
| 300 ≥ | 14.84% |
Furthermore, the Bill would increase those new applicable tax rates by a factor of 1.5 for those taxpayers that have a more than 10% decrease in full-time employees employed in the United States as compared to an increase in contracted employees or foreign full-time employees.
To view the actual text of the Bill, please click the link below.
https://leginfo.legislature.ca.gov/faces/billTextClient.xhtml?bill_id=201920200SB37