BILL ANALYSIS �
AB 825
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Date of Hearing: May 24, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 825 (Medina) - As Introduced: February 21, 2013
Policy Committee: Revenue and
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill modifies the existing hiring credit for small
businesses. Specifically, this bill:
1)Expands the existing definition of a "qualified employer" to
include taxpayers that, as of the last day of the preceding
taxable year, employed 50 or fewer employees (instead of 20 or
fewer employees per current law).
2)Provides that the above modification shall apply to taxable
years beginning on or after January 1, 2013.
FISCAL EFFECT
The Franchise Tax Board (FTB) estimates that this bill would
result in an annual General Fund (GF) revenue loss of $50
million in fiscal year (FY) 2013-14, $7.1 million in FY 2014-15,
and $4.5 million in FY 2015-16.
COMMENTS
1)Purpose . The author states that this bill will ensure the
money allocated for the hiring credit will be easier for
businesses to use while adhering to the spirit of the original
bill. The author argues this bill is geared towards helping
small businesses in California create new positions and fill
them with qualified employees.
2)Opposition . The California Tax Reform Association states
there is little point in broadening the employee tax credit to
larger employers because it will have no measurable impact on
AB 825
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employment but will lose scarce revenue for vital public
services. They argue that hiring occurs when the employee
adds value beyond their cost, and the $3000 credit will never
make a difference when hiring a new employee costs tens of
thousands of dollars on an on-going basis. The opponents
conclude the fact the credit is still unused is evidence of
the failure of such tax credits to be meaningful in the hiring
process.
3)Background. Current state law, SBX 3 15 (Calderon, Stats.
2009, Third Extraordinary Session, Ch. 17) 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 basis equivalent. This credit is allocated
by the Franchise Tax Board (FTB) and has a cap of $400 million
for all taxable years. The credit remains in effect until
December 1 of the calendar year after the year in which the
cumulative credit limit has been reached and is repealed after
that date. Any credits not used in the taxable year may be
carried forward up to eight taxable years.
The FTB reports that, as of March 4, 2013, 24,345 PIT and
business entity returns had been filed claiming the New Jobs
Tax Credit, with the cumulative credit amount totaling only
$142.5 million. At this rate, it could take years for the
existing $400 million cap to be reached.
4)Are hiring credits effective? Recently, Daniel Wilson,
assistant director of the Center for the Study of Innovation
and Productivity at the Federal Reserve Bank of San Francisco,
attempted to answer this question. Wilson examined the period
between January 1990 and August 2009, and found that among
states where employers could qualify for credits immediately
after enactment of the credit legislation, there was a slight
employment increase of 0.12%. By contrast, states that
offered the credits retroactively actually saw a slight
decline of 0.06% in employment. These findings would suggest
that hiring credits, at least at the state level, are an
ineffective tool for stimulating job growth.
5)Relevant legislation . AB 305 (V. Manuel Perez), reallocates
$200 million from the New Jobs Tax Credit to establish a state
New Markets Tax Credit program designed to stimulate economic
development. AB 305 is pending in this Committee.
AB 825
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6)Previous legislation. During the 2011-12 session there were
11 bills proposed to modify the New Jobs Hiring Credit. None
of these bills, including several similar to AB 825 were
enacted.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081