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California State Assembly. (Photo: Kevin Sanders for California Globe)

California Taxpayer and Shareholder Protection Act

Prohibits a state agency from entering into any contract with an expatriate corporation or its subsidiaries

By Chris Micheli, August 9, 2022 6:27 am

California has numerous formal acts in statute. Public Contract Code Division 2, Part 2, Chapter 1.5 provides the California Taxpayer and Shareholder Protection Act of 2003, which is contained in Sections 10286 to 10286.1. Chapter 1.5 was added in 2003 by Chapter 657. Section 10286 names the act.

Section 10286.1 prohibits a state agency from entering into any contract with an expatriate corporation or its subsidiaries. And “expatriate corporation” is defined as a foreign incorporated entity that is publicly traded in the United States to which specified criteria apply, such as the United States is the principal market for the public trading of the foreign incorporated entity; the foreign incorporated entity has no substantial business activities in the place of incorporation; and, the foreign entity was established in connection with a transaction or series of related transaction to which the foreign entity directly or indirectly acquired substantially all of the properties held by a domestic corporation or all of the properties constituting a trade or business of a domestic partnership or related foreign partnership. In addition, there are specifies instances that are not an “expatriate corporation.”

A state agency may contract with an expatriate corporation, or its subsidiary, if it was an expatriate corporation before January 1, 2004 and specified criteria are met. In addition, the entity has appointed an agent for service of process in the state or states in which the entity has consented to jurisdiction, and the entity meets at least one of the specified conditions.

In addition, the entity must provide a description of the shareholder and any subsequent changes to these rights, on the entity’s Web site or in its 10K filings with the United States Securities and Exchange Commission. The entity uses worldwide combined reporting to calculate the income on which it pays taxes to the state.

The chief executive officer of a state agency or his or her designee may waive the prohibition if the executive officer or his or her designee has made a written finding that the contract is necessary to meet a compelling public interest. A “compelling public interest” includes, but is not limited to, ensuring the provision of essential services, ensuring the public health and safety, or an emergency. If a waiver is granted to a vendor pursuant to this subdivision, the requirement to submit a declaration of compliance does not apply to that vendor.

On or after January 1, 2004, all state agencies, as a condition of the contract, must require any vendor that is offered a contract to do business with the state to submit a declaration stating that the vendor is eligible to contract with the state pursuant to this section. A vendor that declares as true any material matter in a declaration described in this subdivision that he or she knows to be false is guilty of a misdemeanor.

This section applies to contracts that are entered into on or after January 1, 2004. The declaration requirement does not apply to a credit card purchase of goods of $2,500 or less. In addition, the total amount of exemption authorized cannot exceed $7,500 per year for each company from which a state agency is purchasing goods by credit card. It is the responsibility of each state agency to monitor the use of this exemption and adhere to these restrictions on these purchases

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