California Tax Update Silicon Valley Leadership Group Tax Policy Group Meeting February 15,

PwC Top Legislative Developments - Tax Implications for the technology and internet industry Agenda Welcome and Introduction 2012 Election Overview -Proposition 30 -Proposition 39 February 15,

PwC 2012 Election Results – California Ballot Propositions California Ballot Propositions Proposition 30 - PASSED -Personal Income and Sales Tax Increase Proposition 39 – PASSED -Multistate Businesses – Single Sales Factor Democrats Gain Supermajority in Both Houses 3 February 15, 2013

PwC 2012 Election Results – California Ballot Propositions Proposition 30 – Gov. Brown’s Temporary Tax Increases -Increases personal income tax on annual earnings for seven years, applies retroactively to all income earned or received on or after January 1, * 1% additional mental health services tax for income in excess of $1 million 4 Income - Single Filer Income - Head-of-Household Income - Joint Filers Current Marginal Rate Prop 30 Marginal Rate $0 - $250,000$0 - $340,000$0 - $500,0001% - 9.3% $250,001 - $300,000 $340,001 - $408,000 $500,001 - $600, %10.3% $300,001 - $500,000 $408,001 - $680,000 $600,001 - $1,000, %11.3% $500,001 - $1,000,000 $680,001 - $1,000, %12.3% Over $1,000, %13.3%* February 15, 2013

PwC 2012 Election Results – California Ballot Propositions Proposition 39 – Mandatory Single Sales Factor (“SSF”) CRTC Section – Mandatory Singles Sales Factor -The SSF method must be used to apportion “all business income of an apportioning trade or business, other than an apportioning trade or business described in subdivision (b) of Section ” -An apportioning trade or business described in CRTC Section 25128(b) includes “banking or financial business activity,” “savings and loan activity,” “extractive”, and “agricultural” businesses that derives more than 50% of its “gross business receipts” predominantly from such qualified activities. -Such businesses will continue to use an equally weighted three- factor formula. 5 February 15, 2013

PwC 2012 Election Results – California Ballot Propositions Proposition 39 – Mandatory Market Based Sourcing -Require mandatory market sourcing, even for businesses not eligible for single sales factor. -Effective for tax years beginning on or after 1/1/ SSF election still applies for tax years beginning on or after January 1, 2011 and before January 1, Approximately $1 billion in additional state revenues annually – growing over time – from eliminating the ability of multistate businesses to choose how their California taxable income is determined. -About half the savings directed for investment in green energy. -Bill sponsored by Green Energy businesses. 6 February 15, 2013

PwC 2012 Election Results – California Ballot Propositions Impact of Proposition 39- Mandatory Market Based Sourcing CRTC Section has been modified. COP provisions no longer apply. Effective January 1, 2013, sales, other than sales of tangible personal property, are in this state if: (1) Sales from services are in this state to the extent the purchaser of the service received the benefit of the services in this state. (2) Sales from intangible property are in this state to the extent the property is used in this state. In the case of marketable securities, sales are in this state if the customer is in this state. (3) Sales from the sale, lease, rental, or licensing of real property are in this state if the real property is located in this state. (4) Sales from the rental, lease, or licensing of tangible personal property are in this state if the property is located in this state. 7 February 15, 2013

PwC California Tax Developments Current California Filing Options for Tax Year 2012 Double-Weighted Taxpayers: -Double-Weighted Sales Method (former default): Three- factor, double-weighted sales factor, with cost-of-performance (“COP”) sourcing for sales other than sales of tangible personal property. -SSF Method: Sales factor only, with market-based sourcing for sales of services and intangibles. Single-Weighted Taxpayers: -Three-factor, single-weighted sales factor : Continue to use single-weighted sales factor, with COP sourcing for sales other than sales of tangible personal property. 8 February 15, 2013

PwC California Tax Developments California Filing Options Beginning 1/1/2013 Double-Weighted Taxpayers: -SSF Method: Sales factor only, with market-based sourcing for sales of services and intangibles. Single-Weighted Taxpayers: -Three-factor, single-weighted sales factor : Continue to use single-weighted sales factor, with market-based sourcing for sales of services and intangibles. Industry Carve-Out for Cable Companies: 50% of gross receipts excluded from the sales factor numerator under certain criteria. 9 February 15, 2013

PwC California Tax Developments Possible Multistate Tax Compact (“MTC”) Method Possibility for three-factor, single-weighted sales factor, with cost-of- performance sourcing for sales other than sales of tangible personal property. California Supreme Court granted petition for review of the appellate court’s decision in Gillette v. FTB on January 16, Senate Bill (“SB”) 1015: SB 1015 sought to withdraw CA from the MTC. It is, however, unclear whether the withdrawal was actually accomplished since the legislation was passed with only majority vote. A two-thirds supermajority vote is required for tax increases under Proposition February 15, 2013

PwC California Tax Developments California Enterprise Zones- Proposed Regulations Hiring Credits can generate approximately $1 million for every 25 employees New Regulations will make it significant harder to document credits -Addresses will have to be verified (as opposed to w-4s/I-9s) -Eligibility for other areas will require additional documentation -Applications will have to be made within 1 year of hire New Regulations may be effective as early as this Spring 2013 Limited window to maximize past credits Other California Tax Developments Please refer to handout for more information. 11 February 15, 2013

PwC Changing Tax Landscape in California Topics for Discussion The State of the California Budget? How does Single Sales Factor and Market Based Sourcing Impact Technology and Internet Companies? Issues arising from mandatory SSF Trapped attributes Establishing “methods” Retaining/maximizing use of attributes 12 February 15, 2013

Q&A Thank you for joining us. © 2012 PwC. All rights reserved. In this document, "PwC" refers to PricewaterhouseCoopers LLP, a Delaware limited liability partnership, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. This document is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.