BILL ANALYSIS �
AB 93
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CONCURRENCE IN SENATE AMENDMENTS
AB 93 (Budget Committee)
As Amended June 25, 2013
2/3 vote. Urgency
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|ASSEMBLY: | |(May 13, 2013) |SENATE: |30-9 |(June 25, |
| | | | | |2013) |
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(vote not relevant)
Original Committee Reference: BUDGET
SUMMARY : Institutes two new tax programs - a Sales and Use Tax
(SUT) exemption for manufacturing and bio-tech equipment and
similar purchases, and a hiring credit under the Personal Income
Tax (PIT) and Corporation Tax (CT) for employment in specified
geographic areas. Additionally, this bill would result in
phasing-out and ending certain tax provisions related Enterprise
Zones (EZs) and similar tax incentive areas, and ending the
current New Jobs Credit tax incentive program. The bill also
provides for allocating income tax credits through the
Governor's Office of Business and Economic Development (GO-Biz)
to assist in retaining existing and attracting new business
activity in the state. Specifically, this bill :
1)SUT Exemption:
a) Allows for a new exemption from the state portion of the
SUT, for manufacturing and bio-tech equipment, including
research and development equipment.
i) For those in current EZs and designated census tract
boundaries, the credit would apply for 6.5 years, and,
ii) For those outside the boundaries, the credit would
apply for 4.5 years.
b) Includes a cap of $200 million in aggregate purchases
annually per business.
c) Provides an exemption at the time of purchase consistent
with current Board of Equalization exemption process.
d) Contains no cap on the total amount of the credit.
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e) Includes an operative date of July 1, 2014, and a sunset
date of July 1, 2021.
f) Includes provisions that if qualifying purchases are
removed from the state, or used for unqualified activities,
within one year of the purchase would be subject to a
claw-back equal to the value of the SUT exemption.
2)Hiring Credit:
a) Initiates a new hiring credit under the PIT and CT
beginning July 1, 2014, to July 1, 2021 for additional
hiring of employees in defined geographic areas of the
state.
b) Includes credit percentages for all hiring credits at
35% per year for wages at 1.5 times minimum wage up to 3.5
times minimum wage.
c) Makes credit available to full-time employees who
perform 50% of their activities in designated areas and
generally excludes retail, casinos, temp agencies, etc.;
these provisions do not apply to small businesses.
d) Makes the hiring credit available in EZs that existed as
of 2011, in addition adds back Watsonville and Antelope
Valley, and includes certain census tracts with low
unemployment and high wealth; and makes the hiring credit
available statewide in those census tracts with the highest
unemployment and high poverty rates.
e) Includes a requirement that the credit is available only
for "hard to hires" including:
i) Long Term Unemployed (six months);
ii) Veterans;
iii) Those on Federal Earned Income Tax Credit (EITC);
and,
iv) Was an ex-offender under Revenue and Taxation Code
Section 17035.74.
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f) States that 25% of credit is available for small
businesses and defines small business as having gross
receipts of less than $2 million at owner level.
g) Requires that business be in a specific North American
Industry Classification System (NAICS) code and excludes
retail or food.
h) Requires businesses to reserve a credit with Franchise
Tax Board (FTB) ahead of time.
i) Requires net new jobs, which is defined to mean that in
order to qualify for any new credit, the taxpayer must have
experienced an increase in the total jobs throughout the
state from one year to the next.
j) Requires an employee to stay with an employer for three
years or credits must be returned, unless specified
circumstances are made.
aa) Requires program evaluations from FTB for the Hiring
Credit, Board of Equalization (BOE) for the SUT Exemption,
and GO-Biz for the California Competes Credit, to be
submitted to the Joint Legislative Budget Committee
annually, including discrepancies between initial estimates
and actual credit or exemption usage under the programs and
identify options for program changes in the event usage is
below expectations.
bb) Creates an expedited process of reserving a tax credit
for a taxpayer who hires an employee that meets one of the
hard to hire categories and lives in a Targeted Employment
Area (TEA).
cc) Contains a severability clause that would allow for the
continued operation of other provisions of the statute in
the event that the establishment of the GO-Biz California
Competes credit is found to be unlawful delegation of
legislative authority.
dd) Contains language that would preclude the operation of
the SUT exemption and the Hiring Credit in the event the
repeal of the EZ program and the New Jobs Credit are
overturned and instead remain operative.
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3) GO-Biz Incentives:
a) Allows businesses to compete for available funds based
on criteria showing the number of jobs to be created and
retained, wages those jobs pay, and a set job retention
period.
b) Establishes the California Competes Tax Credit Committee
(CCTCC), which membership consists of the Treasurer, the
Director of Finance, the Director of Governor's Office of
Business and Economic Development, and an appointee by the
Assembly and the Senate.
c) Limits the amounts of credits available for GO-Biz not
to exceed $30 million (fiscal year (FY) 2013-14), $150
million (FY 2014-15), and $200 million (each FY 2015-19).
d) States that the amount available is dependent on how
much SUT Credits and Hiring Credits are given out per year;
and the total of all three not to exceed $750 million.
e) Sets 25% aside for small business.
f) Requires the CCTCC to approve or reject written
agreements for the allocation of California Competes tax
credits under the PIT and CT after the receipt of fully
executed written agreements between the taxpayer and
GO-Biz.
g) Includes provisions that written agreements would take
into consideration, but not limited to, the number of jobs
created, the compensation paid to employees, amount of
investment by the taxpayer in the state, and amount of
unemployment in the area.
h) Includes legislative intent to declare the economic
policy in the state should be designed to create good jobs
with middle class wages and benefits, target for assistance
individuals with barriers to employment, and encourage
business to invest in California.
i) Caps GO-Biz credits to no more than 20% of funds
available at GO-Biz for a single taxpayer per year.
j) Includes provisions that approved businesses will
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receive funds via tax credit.
aa) Includes provisions of six years for the carry over on
GO-Biz credits.
4)Repeals the old EZ provisions and the small business hiring
credit program effective January 1, 2014.
5)Ends the programs related to tax incentives for activities in
EZs beginning January 1, 2014. However with respect to the
hiring credit, allows any business that has credits to finish
receiving their remaining credits over the next 10 years. No
new hiring credits will be issued after December 31, 2013.
6)Contains an appropriation of $600,000, for the Department of
Finance to allocate to agencies to fund the bill.
7)Includes an urgency clause allowing this bill to take effect
immediately upon enactment.
EXISTING LAW :
1)Provides for the establishment of Geographically-Targeted
Economic Development Areas
(G-TEDA) programs to stimulate business and industrial growth,
and creates jobs in depressed areas of the state.
Specifically, existing law:
a) Establishes the EZ program with a maximum of 42 EZs,
each designated for an initial 15-year period by the
Department of Housing and Community Development (HCD);
b) Establishes the Local Agency Military Base Realignment
Area (LAMBRA) Program with a maximum of eight LAMBRAs, each
designated for an eight-year period by HCD. Limits
designation to one LAMBRA per geographical region of the
state;
c) Establishes the Manufacturing Enhancement Area (MEA)
Program with a maximum of two MEAs, each designated for a
14-year period by HCD. Limits MEA designation to
impoverished areas along the California-Mexico border; and,
d) Establishes the Targeted Tax Area (TTA) Program,
administered by HCD, within the County of Tulare for a
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15-year period.
2)Provides legislative intent that the "health, safety, and
welfare of the people of California depend upon the
development, stability, and expansion of private business,
industry, and commerce, and there are certain areas within the
state that are economically depressed due to a lack of
investment in the private sector. Therefore, it is declared to
be the purpose of this chapter to stimulate business and
industrial growth in the depressed areas of the state by
relaxing regulatory controls that impede private investment.
Further, that is in the economic interest of the state to have
one strong, combined, and business-friendly incentive program
to help attract business and industry to the state, to help
retain and expand existing state business and industry, and to
create increased job opportunities for all Californians."
3)Provides for the New Jobs Credit, where employers inside an EZ
may claim a tax credit of 50% of the wages paid to a qualified
employee in the first year, 40% in the second year, 30% in the
third year, 20% in the fourth year, and 10% in the fifth year,
up to 150% of the minimum wage. Businesses or consultants
submit applications to qualify employees to zone managers, who
grant the firm or consultant a voucher certifying eligibility
if the employee qualifies and the firm claims the credit on
its next tax return.
FISCAL EFFECT : Preliminary costs from the Department of Finance
suggest that over the next five years, the net benefits can
range from a benefit of $163 million to a cost to the state of
$169 million, changing year to year. Additionally, it includes
costs of $600,000, for the Department of Finance to allocate to
agencies to implement the program.
COMMENTS :
There have been different proposals over the years to reform the
EZ program. The last major reform proposal came in 2011-12.
Governor Brown proposed to repeal all EZ tax credits, citing the
Legislative Analyst's Office long-standing recommendation to
reform or repeal the program. The Department of Finance noted
that the proposal would have increased revenue by $343 million
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(2010-11), and $583 million (2011-12). The Governor proposed
that the zones would continue to provide local incentives, but
zone taxpayers could no longer receive state tax benefit. The
Legislature at that time did not act on his proposal.
This year, the Governor's January budget assumed savings related
to new regulations for the EZ program, which is estimated to
increase General Fund revenues by $10 million in 2012-13 and $50
million in 2013-14. The reforms are projected to save $310
million over the first five years.
This bill goes beyond previous proposals to eliminate enterprise
zones. Instead, this bill allows any business that has hiring
credits to finish receiving the remaining credits over the next
10 years. Additionally this bill creates a new process to
create jobs and stimulate the economy.
Analysis Prepared by : Debbie Michel/ L. GOV. / (916) 319-3958
FN: 0001357