BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1179 (Walters) - Income taxes: disabled veteran hiring
credit.
Amended: May 15, 2012 Policy Vote: G&F 8-0
Urgency: No Mandate: No
Hearing Date: May 24, 2012 Consultant: Mark McKenzie
SUSPENSE FILE.
Bill Summary: SB 1179 would provide a $3,000 tax credit for each
disabled veteran hired in the surgical appliance and supplies
manufacturing sectors.
Fiscal Impact:
The Franchise Tax Board (FTB) estimates tax revenue losses
of $200,000 in 2012-13, $600,000 in 2013-14, and $800,000 in
2014-15 (General Fund).
Unknown FTB administrative costs, likely in the range of
$300,000 in 2013-14 and $100,000 to $150,000 annually
thereafter (General Fund), until the credit is exhausted.
Background: Existing state law provides certain tax credits that
are designed to provide incentives to influence taxpayer
behavior, including business practices and decisions. Examples
of these credits include research and development credits and
hiring credits for taxpayers conducting business in
geographically targeted economic development areas, such as
enterprise zones and manufacturing enhancement areas.
Existing law, ABx3 15 (Krekorian) Chap 10/2009 and SBx3 15
(Calderon) Chap 17/2009, 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. This New Jobs Tax 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. Demand for this credit has been low;
FTB reports that $98 million in cumulative credits had been
SB 1179 (Walters)
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claimed by April 7, 2012.
Proposed Law: SB 1179 would allow a tax credit of $3,000 for
each full-time disabled veteran hired by an employer engaged
primarily in the business of surgical appliance and supplies
manufacturing, beginning in the 2013 taxable year. The credit
would be allocated by FTB on a first-come, first-served basis,
and allocations would end during the quarter in which FTB
determines that the cumulative credit limit of $25 million is
reached. FTB would provide period notices on its website on the
amount of credits claimed to date. Any credits not used in the
taxable year may be carried forward for eight years. These
provisions would sunset the year after the credit limit is
reached.
Related Legislation: SB 1197 (Calderon) would establish a tax
credit for wages paid to a qualified veteran that is based upon
an existing federal credit for that same purpose. That bill was
scheduled for hearing in the Senate Governance and Finance
Committee on May 9, 2012, but was pulled from the agenda without
hearing at author request.
Staff Comments: The structure of the disabled veterans hiring
credit in SB 1179 is modeled after the 2009 New Jobs Credit,
including the definition of wages, the method for determining an
eligible full-time equivalent employee, anti-abuse requirements,
and FTB's monitoring and administration of the credit. While
the existing jobs tax credit would apply to specified small
businesses that hire full-time equivalent employees, the scope
of the hiring credit authorized by SB 1179 is limited
specifically to disabled veterans hired by surgical appliance
and supplies manufacturers. 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, there were 296 businesses in that category that
employed 22,145 persons.
FTB estimates that SB 1179 would result in revenue losses of
approximately $200,000 in 2012-13, $600,000 in 2013-14, and
$800,000 in 2014-15, or the equivalent of hiring approximately
67, 200, and 267 full-time employees in those years,
respectively. Revenue losses would likely remain in the
$800,000 range annually ongoing until credits are exhausted.
SB 1179 (Walters)
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FTB is currently unable to determine specific costs related to
implementation and administration of this new credit. For
illustrative purposes, staff notes that FTB requested
approximately $300,000 for startup costs and 1-2 PY of ongoing
staff time in a Budget Change Proposal related to the
implementation and administration of the New Jobs Tax Credit.
Staff assumes that FTB would incur similar costs to administer
the disabled veterans hiring credit.