November 24, 2003

Should California continue to grant tax exemptions to purported public-benefit corporations that do not really benefit the public?

As many of you know, I live in California.  And as you also probably know, we Californians' have not only a new governor but also a state budget that is out of balance (in the bad direction) by many billions of dollars.

Today I sent the following letter to our new governor suggesting that he inquire into certain tax exemptions granted to corporations that claim, without meaningful foundation for that claim, to exist for the purpose of benefiting the public.

November 24, 2003

The Honorable Arnold Schwarzenegger
Governor of California
State Capitol Building
Sacramento, CA 95814

Congratulations on your recent election and inauguration.

I have no doubt that the matter of California's fiscal situation is occupying much of your time.

I would like to bring to your attention a means through which California could, to a degree, improve the financial situation.  This is not something that would bring in a large number of dollars. But when we are forced to borrow it does seem that we ought to look to the pennies as well as to the dollars.

The situation is this: California grants privileges, such as exemption from taxes, to certain types of non-profit/public-benefit corporations.  For the most part these privileges are well deserved and form an important part of the vitality of our state.

However, there are some non-profit/public-benefit corporations in California that have that status, and obtain those privileges, even though there is little, if any public-benefit.

One example will illustrate:

The Internet Corporation for Assigned Names and Numbers (ICANN)
California Corporation number C2121683

ICANN is a California non-profit/public-benefit corporation with an annual budget reaching towards $10,000,000 per year.  Its headquarters are in Marina del Rey, California.

ICANN has no public membership; in fact it has worked hard to insulate itself from meaningful contact with the public and, as a practical matter, is accountable to no one.  ICANN has not held a meeting within the United States, much less within California, since year 2001. Since then it has held many meetings, all outside California, and all outside the US. A partial list includes Shanghai, Rio de Janeiro, Carthage, Montevideo, Bucharest, Accra, Amsterdam, and Montreal.  ICANN acts primarily as a forum for commercial interests to regulate the business practices of those who sell names in the internet's domain name system.  The public, whose pocketbooks, privacy, and activities on the internet are clearly affected by ICANN's policies, is denied effective access to the forums in which ICANN enacts those policies.  In addition ICANN is far from a model of corporate governance - ICANN has even tried to deny its own Directors the right to inspect its financial records.

Is this the kind of entity that deserves to be exempt from California taxes?  That exemption is unfair to those of us who do pay California taxes and who are going to have to repay the loans that you are asking California to undertake.

California should require that non-profit/public-benefit corporations actually benefit the public.  Those, such as ICANN, that serve mainly as industry forums should not be granted this privileged status and should not be subsidized by the State of California and its citizens.

I ask you as our new Governor to make an inquiry into this matter and, if appropriate, to take steps to eliminate the gifts that California makes to those corporations that claim to benefit the public but that, in reality, are really nothing more than facades for for-profit industries who use the State of California as a nothing more than flag of convenience.

Karl Auerbach
Santa Cruz, California 95060

Posted by karl at November 24, 2003 11:02 PM