BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1179 HEARING: 5/9/12
AUTHOR: Walters FISCAL: Yes
VERSION: 4/10/12 TAX LEVY: Yes
CONSULTANT: Grinnell
TAX CREDIT FOR HIRING DISABLED VETERANS
Enacts a tax credit of $3,000 for hiring a disabled veteran
in specified industries.
Background and Existing Law
State law allows taxpayers to claim tax credits designed as
incentives for taxpayers to incur certain expenses, such as
child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits and Geographically Targeted Economic
Development Area (GTEDA) credits. The Legislature
typically enacts such tax incentives to encourage taxpayers
to do something but for the tax credit, they would
otherwise not do.
Proposed Law
Commencing in the 2013 taxable year, Senate Bill 1179
allows a taxpayer primarily engaged in the business of
surgical appliance and supplies manufacturing a tax credit
of $3,000 for each net increase in full-time employment of
disabled veterans, as defined. The measure provides that
FTB administers the credit, and caps the total amount of
credit at $100 million. FTB must periodically update its
website with the amount of credits that taxpayers have
claimed.
To qualify, the taxpayer must have either paid wages to the
disabled veteran for not less than an average of 35 hours
per week, or paid the disabled veteran a full-time salary.
The measure does not allow taxpayers to claim both this
credit and any other for the same employee, but does
provide that the credit does not affect any business
expense deduction from income any wages paid to disabled
SB 1179 -- 4/10/12 -- Page 2
veterans. Taxpayers may only claim the credit on
timely-filed original returns, but may carry over the
credit for seven years.
SB 1179 imports the definition of wages, the method of
measuring the credit on a full-time equivalent basis,
anti-abuse requirements, and procedures for FTB to
administer the credit from the New Jobs Credit (ABx3 15
Krekorian, SBx3 15 Calderon, 2009).
State Revenue Impact
According to the Franchise Tax Board, revenue losses
resulting from SB 1179 are estimated to be $200,000 in
2012-13, $600,000 in 2013-14, and $800,000 in 2014-15.
Comments
1. Purpose of the bill . The purpose of the bill is to
increase disabled veterans employment in the surgical
appliance and device manufacturing sector.
2. Sure, but will it work ? The central policy question
posed by SB 1179 is whether a $3,000 tax credit will
increase employment of disabled veterans. While the
Committee is not aware of any research specific to state
tax credits for hiring veterans, Daniel Wilson, assistant
director of the Center for the Study of Innovation and
Productivity at the Federal Reserve Bank of San Francisco
and Robert Chirinko of the University of Illinois examined
state hiring tax credits enacted between January 1990 and
August 2009. The authors found that states where employers
could qualify for credits immediately after enactment had
an employment increase of 0.12%. However, states that
offered the credits retroactively actually saw a slight
decline of 0.06% in employment. These findings suggest
that general hiring credits, at least at the state level,
are not an effective tool for stimulating job growth.
Additionally, California currently invests in job training
programs, affords special treatment for disabled veterans
business enterprises, and GTEDA tax credits in the hopes of
increasing employment for disabled veterans. What evidence
exists that tax credits are superior to current programs
for achieving the stated goals? The Committee may wish to
SB 1179 -- 4/10/12 -- Page 3
consider whether enacting a tax credit with the same target
population as current programs duplicates existing efforts.
3. Breadboxes and Elephants . SB 1179 largely mirrors the
New Jobs Credit enacted by the Legislature as part of the
2009-10 Budget Act, but applies its provisions specifically
to veterans, while not limiting eligible taxpayers to those
with less than 20 employees. Like that credit, the measure
sets a fixed cap on credits, allocates on a first-come,
first-served basis, and awards a $3,000 credit for each
taxpayer's net increase in full-time equivalent units.
ABx3 15/SBx3 15 allocated $400 million in credits; however,
as of April 7th, taxpayers have only claimed $98 million.
To be effective, the Legislature should want to allocate an
amount sufficient to substantively change decision making,
but given the slow rate of participation for the Jobs
credit, and SB 1179's limit to one industry, is allocating
$100 million too much? The Committee may wish to consider
amending SB 1179 to reduce the amount of credit allocated
to ensure that sufficient demand exists. Furthermore, the
Committee may wish to consider a sunset date of 3 to 5
years in which to review the efficacy of the credit.
4. Industry Snapshot . Surgical appliance and device
manufacturing are a significant industry in California.
Examples of products manufactured by such businesses
include orthopedic devices, prosthetic appliances, surgical
dressings, crutches, surgical sutures, hospital beds, and
operating room tables. According to the 2007 Economic
Census, of the 2,219 surgical appliance and device
manufacturing establishments in the United States,
California has 296, or 13.3% of the U.S. total, employing
22,145 people (19%) with an annual payroll of $1.2 billion
(20%). By value, California ships 15.3% of U.S. shipments.
By comparison, California generates 13% of U.S. Gross
Domestic Product, and has 12% of U.S. population.
5. Suggested Amendments . FTB and Committee Staff suggest
the following amendments:
To avoid disputes between taxpayers and the FTB,
add language similar to the language contained in
Revenue and Taxation Code Section 19136.8, which
provides an underpayment of estimated tax penalty
exemption relating to the $400 million cap and cut-off
date for the New Jobs Credit.
Delete lines 10 and 11 on page 2, and lines 18 and
SB 1179 -- 4/10/12 -- Page 4
19 on page 5, as the term "acquire" is already defined
in Revenue and Taxation Sections 17276.20(f)(6) and
24416.20(g)(6).
On page 2, line 22, and page 5, line 30, between
"qualified" and "employee" insert "full-time."
Support and Opposition (5/3/12)
Support : Unknown.
Opposition : Unknown.