The provision, which took effect last week, involves a $1 billion corporate tax break intended to spur job growth. However, a report from the non-partisan state Legislative Analyst's Office says the law includes a clause giving those companies an even bigger enticement to create those jobs out of state.
It is that clause the governor and other legislators oppose, the Los Angeles Times reported Friday.
"It's a perverse incentive for homegrown California companies to create new jobs outside of California," said state Sen. Kevin De Leon, D-Los Angeles, who asked the analyst's office to conduct the study. "We have rigged our tax system for California companies to hire in other states."
While the California Chamber of Commerce lauds the provision and opposes its repeal, the Times reports this law was passed in 2009 during a middle-of-the-night budget session with scant debate and almost no public notice or chance to question any possible side effects.
Previously, the state's corporate tax formula was based on the company's California workforce, the amount of property owned in the state and total California sales.
The new formula would cut taxes for some businesses but raise taxes for others. Comcast, Microsoft and others making extremely large sales in California but maintaining the majority of their workforces elsewhere liked the old formula, which kept their California taxes low.
The analyst's office said Brown's plan would bring in an additional $1 billion a year while keeping the changes some economists say help businesses locate their operations in the state, possibly helping to create tens of thousands of jobs, the Times said.