BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 640 (Runner)
Hearing Date: 08/25/2011 Amended: 07/12/2011
Consultant: Mark McKenzie Policy Vote: G&F 6-2
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BILL SUMMARY: SB 640 would enact a new employment tax credit of
up to $6,000 per qualified full-time employee hired by a
taxpayer that employ 50 of fewer employees for taxable years on
or after January 1, 2011 until the calendar quarter in which a
cumulative credit amount of $50 million is reached.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
Employment credit $44,000 $18,000 $9,700 General
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STAFF COMMENTS: SUSPENSE FILE.
Existing law, SB x3 15 (Calderon), Chapter 17 of 2009, Third
Extraordinary Session, allows a credit for taxable years
beginning on or after January 1, 2009, for a qualified employer
in the amount of $3,000 for each qualified full-time employee
hired in the taxable year, determined on an annual full-time
equivalent basis (Jobs Tax Credit). This credit is only
available to taxpayers that employ 20 or fewer employees, until
the cumulative credit limit of $400 million has been reached.
Any credits not used in the taxable year may be carried forward
up to eight taxable years. Existing law also allows a hiring
credit for employers located in one of California's 42
enterprise zones. The credit is based on the wages paid to
employees meeting specified criteria or living in a designated
neighborhood. The amount of the credit is equal to 50% of wages
in the first year, up to 150% of the minimum wage, diminishing
by 10% per year until exhausted after the fifth year. Generally
tax credits are allowed in lieu of any other allowable deduction
or credit to eliminate multiple tax benefits.
SB 640 would allow a tax credit for taxpayers that employ 50 or
SB 640 (Runner)
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fewer employees in the amount of $500 per month for each
qualified full-time employee, multiplied by the number of
consecutive months that the employee worked, up to 12
consecutive months for a maximum aggregate amount of $6,000 for
any qualified employee. The qualified employee must have
received unemployment insurance benefits for at least six months
immediately prior to being hired, and the job must pay at least
$1,500 in any month for which the credit is allowed. This
credit is only available until the calendar quarter in which a
cumulative credit limit of $50 million has been reached. Any
credits not used in the taxable year may be carried forward up
to six taxable years. The bill would also require the Franchise
Tax Board (FTB) to periodically provide information on its
website on the amount of credits claimed.
FTB estimates this bill would result in revenue losses of $44
million in 2011-12, $18 million in 2012-13, and $9.7 million in
2013-14. These amounts exceed the cumulative credit limit of
$50 million because the bill requires claims to be accepted
until the end of the calendar quarter in which the $50 million
limit is reached. FTB estimates that credit claims totaling $50
million will be reached during the fourth month of availability,
and that a total of $90 million would be claimed by the end of
that quarter.
Staff notes that the bill would have limited use as a job
creation tool for the following two apparent reasons:
1. The bill would apply retroactively to the beginning of
the 2011 tax year, thereby providing a reward for those who
have already hired previously unemployed persons, rather
than incentivizing businesses to hire those persons.
2. The bill is not limited to businesses that increase
employment, so credits could be claimed for persons hired
to replace existing vacant positions. The existing Jobs
Tax Credit, for example, is only available if a taxpayer
shows an increase in overall employment.
Rather than creating a new tax credit that results in
significant revenue losses, the Committee may wish to consider
whether it would be more fiscally prudent to revise the existing
Jobs Tax Credit to apply only to previously unemployed persons
hired in the taxable year as a way of achieving the same public
policy goals without incurring the additional revenue impacts.
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Staff notes that AB 1195 (Gordon), which is also set for hearing
in this Committee on August 18, 2011, would modify the current
Jobs Tax Credit by expanding the pool of eligible claimants to
taxpayers that employ 50 or fewer employees, rather than those
employing 20 or fewer.