Taxation-State and Local Commons^™

Analysis Of The Impacts Of Propositions 41 And 42 On California Public Finance, David Gamage, Brian D. Galle, Darien Shanske

Faculty Publications

This memorandum discusses the possible collateral damage that Propositions 41 and 42 (on the ballot in California on November 3, 2026) might cause.  The two propositions were concocted very quickly by billionaires in order to trick voters that will vote for Proposition 40 (the billionaire tax) also to vote for these propositions that are designed to undermine the billionaire tax.

The basic trick is that these propositions have plausible seeming veneers but hide a poison pill that aims to frustrate the functioning of the billionaire tax.  The veneers are “plausible seeming” because they address problems that are not problems.  For …

Expert Report On Valuation Of Controlling Shares Of Publicly Traded Companies Under The California Billionaire Tax Act (Cbta), David Gamage, Brian D. Galle, Emmanuel Saez, Darien Shanske

Faculty Publications

This short memo addresses concerns that have been raised under the proposed California Billionaire Tax Act (CBTA or Act) about the valuation of "voting" or "special control" shares, particularly with regard to shares held in publicly traded companies. A misreading of the CBTA is circulating that claims that voting shares of all assets will be taxed in full regardless of their actual value. This is false, as shown by a straightforward reading about the provision relating to voting and special control shares in context.

Correcting The Record: Responding To Some Legal Arguments About The 2026 Billionaire Tax Act, David Gamage, Brian D. Galle, Darien Shanske

Faculty Publications

If adopted by California voters in November of 2026, the 2026 California Billionaire Tax Act (CBTA) would impose a one-time 5% tax on the net worth of California billionaires, payable in five annual installments of 1% over 5 years (plus a small deferral charge). Critics have raised several arguments suggesting that the Act would not bring in the expected $100 billion in projected revenues because, the critics say, key parts of the Act are unconstitutional and would be subject to legal challenge. In fact, the supposed new legal challenges critics identify are mostly just very old arguments that courts have …

Expert Report On The California 2026 Billionaire Tax: Revenue, Economic, And Constitutional Analysis, David Gamage, Brian D. Galle, Emmanuel Saez, Darien Shanske

Faculty Publications

This report summarizes key provisions of the California Billionaire Tax Act. It also answers some frequently asked questions.

Profit Shifting And The States: A Short Primer, David Gamage

Faculty Publications

This essay argues that corporate profit shifting remains one of the most significant challenges for U.S. state tax systems. Multinational enterprises continue to shift billions in profits to offshore tax havens, eroding state tax bases, distorting market competition, and forcing a greater reliance on more regressive taxes. We contend that the dominant "water's-edge" combined reporting method used by most states is structurally inadequate to combat modern profit-shifting techniques, which primarily involve the manipulation of intangible assets. The recent transformation of federal tax law (from GILTI to NCTI) and the global adoption of the OECD's Pillar 2 minimum tax framework create …

Assessing The Tax Communications Of E-Commerce Vendors, Part Ii, David Gamage

Faculty Publications

This article presents the second part of a research project on the tax communications of e-commerce vendors. It details the results of a behavioral experiment designed to test how different representations of sales and use tax obligations influence consumer purchasing decisions. The study finds that potentially misleading indicators, such as "No Tax" or "$0 of Tax," significantly increase the likelihood that consumers will purchase from vendors who do not collect sales tax. Compared to vendors who provide accurate information about potential use tax liabilities, consumers were substantially more likely to choose a vendor displaying a "No Tax" message. These findings …

Winter Is Coming: What States Should Do Now, Part I, David Gamage, Darien Shanske

Faculty Publications

This Article addresses the unprecedented fiscal challenges facing state governments as federal policy shifts threaten to create a perfect storm of revenue losses and increased service demands. As states confront potential federal cuts to essential services like Medicaid, reduced tax enforcement capacity, and possible tariff-driven economic disruption, we argue that piecemeal responses will prove insufficient.

We propose a seven-step framework for state fiscal resilience: (1) pausing automatic conformity to federal tax changes to preserve revenue bases; (2) enhancing state tax enforcement capacity by hiring federal personnel as the IRS sheds expertise; (3) maintaining and expanding taxpayer service innovations like direct …

Beyond Blinders And Boomerangs: Assessing State Business Taxation, David Gamage

Faculty Publications

Karl A. Frieden’s article, “Wearing Blinders in the Debate Over Business’s ‘Fair Share’ of State Taxes” and his subsequent article, “The Boomerang Effect of the Business ‘Fair Share’ Tax Debate,” jointly contend that progressive calls to strengthen state corporate income taxes (CITs) are misguided because businesses allegedly overpay certain other state and local taxes. This essay argues that, while Frieden does raise some valid points about the efficiency of specific tax design choices, his core argument fundamentally misconstrues the central issues: the ultimate incidence of business taxes, the pursuit of equity and efficiency, and the importance of combating harmful tax …

Money Moves: Taxing The Wealthy At The State Level, David Gamage, Brian D. Galle, Darien Shanske

Faculty Publications

It's widely understood today that inequality is a major social problem that in turn contributes to other crises. By most accounts, tax systems are supposed to be our engines of equality. Yet in today’s United States, state and local tax systems mostly do the opposite: they take a greater percentage of the resources of the poor and middle class than of the rich.

Perhaps surprisingly, the traditional view among fiscal policy experts has been that this state of affairs is correct. In this standard account, only national governments should impose progressive or redistributive taxes. While acknowledging that there would be …

State Constitutional Limitations To Cities Taxing The Digital Economy, Lauren Shores Pelikan

Faculty Publications

The digital economy’s rapid evolution, most recently with the rise of artificial intelligence, demands a reevaluation of state constitutional limitations on local taxation of digital transactions. Citizens have long feared excessive or unfair tax burdens, hence the adoption of constitutional amendments that prohibit legislators from increasing taxes or imposing new taxes without a public vote. However, these constitutional limitations are now preventing cities from taxing digital transactions that are taking over the economy. This is a serious financial problem for cities whose traditional sources of tax revenue, such as sales taxes and property taxes, are dwindling due to the digitalizing …

Coping With California’S Deficit, Part 1: Borrowing And Taxes, David Gamage, Darien Shanske

Faculty Publications

In this installment of Academic Perspectives on SALT, Shanske and Gamage examine California’s projected budget deficit and possible solutions. California has a large budget deficit that is predicted to last for several years. In this two-part series, we will place California’s situation in context and propose solutions.

The state should use short-term borrowing to cover at least some of the cyclical shortfall. That the real revenue cycle is unlikely to neatly unfold over one traditional fiscal year should not change this conclusion. To that end, we will show how California can operationalize this simple insight despite the impression some may …

A Comparison Between The U.S. And Japan Concerning The Tax Treatment Of Prepaid Income, Hiroshi Noguchi

The Business, Entrepreneurship & Tax Law Review

This article examines the crucial distinctions of methodology between the U.S. and the Japanese tax laws with respect to the timing for recognizing income. In addition, it studies the advantages and disadvantages of both tax treatment methods concerning prepaid income. As a result, it concludes that the advantages of Japanese tax law concerning prepaid income outweigh those of the American tax law. This article also suggests that U.S. tax law could borrow the Japanese mentality regarding the tax treatment of prepaid income.

Rsp Redux: Is Irc Section 83’S Overreach “In [C]Onnection With The [P]Erformance Of [S]Ervices” The Real “[U]Nwarranted And [U]Nintended” Result?, Charles F. Mccormick

The Business, Entrepreneurship & Tax Law Review

This article analyzes the effects of IRC § 83 from the perspective of those most often subject to it. While § 83 remains a critical tax consideration for entrepreneurs, this article concludes that § 83 has become, in practice, a solution searching for a problem that in fact causes more problems than it solves. Drafters of § 83 believed they were closing a significant loophole regarding the taxation of executive compensation. Looking at the problem legislators believed they were solving in the context of contemporary executive compensation structures, it is hard to understand what the actual problem was. Section 83(b) …

Tax Policy Reform: Issues To Be Addressed To The Benefit Of All Missourians, Joel Walters

The Business, Entrepreneurship & Tax Law Review

Tax policy impacts the everday decisions made by individuals, families, and businesses. Better tax policy can generate economic activity and lower the tax burden on individual taxpayers. Missouri Department of Revenue Director, Joel Walters, believes the current Missouri tax system can be changed in ways that would make it more simple, efficient, and fair. With this article, Director Walters seeks to engage Missourians in a dialogue about the strengths and weaknesses of the current tax policy environment in Missouri. The article comprhensively examines Missouri's tax system by discussing a wide variety of topics including corporate income tax, alternatives such as …