Peering Over the Water’s Edge: A CA Legislative Informational Hearing on Taxing Foreign Subsidiary Income

SACRAMENTO – The Senate and Assembly Committees on Revenue and Taxation will hold a joint informational hearing on Wednesday, Feb. 11, in the State Capitol. The hearing, Peering Over the Water’s Edge: State Taxation of Foreign Subsidiary Income, will begin at 9:30 a.m. in Room 112.

The hearing will provide an overview of the “Water’s Edge” tax election, which is often referred to as a “loophole” and can lead to large corporations excluding profits of offshore subsidiaries from tax to avoid paying their full share. A recent report estimated that closing the Water’s Edge loophole in California could increase state revenues by $3 billion annually.

In addition to providing an overview, the joint informational hearing will explore legal and policy implications of eliminating the Water’s Edge tax election, along with countering viewpoints on the benefits and risks of doing so.

The joint hearing will be co-chaired by Sen. Jerry McNerney, chair of the Senate Revenue and Taxation Committee, and Asm. Mike Gipson, chair of the Assembly Revenue and Taxation Committee. The hearing will also include experts from the Legislative Analyst’s Office and the state Franchise Tax Board, along with academics and representatives from business and labor.

The hearing will also include public comment and will be livestreamed on the Senate website.

Sen. Jerry McNerney is chair of the Senate Revenue and Taxation Committee, and his 5th Senate District includes all of San Joaquin County and Alameda County’s Tri-Valley.