BILL ANALYSIS �
AB 886
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Date of Hearing: April 9, 2013
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 886 (Allen) - As Amended: March 21, 2013
SUBJECT : California Transportation Financing Authority: tax credit
certificates for exporters and importers: income tax credit
SUMMARY : Establishes a five-year $500 million tax credit program for
importers and exporters that increase cargo through California air and
sea ports, hire additional staff, or incur capital costs at a
California cargo facility. Specifically, this bill :
1)Makes findings and declarations relative to California's leadership
in international trade, the need to do more in order to ensure the
state's dominant trade position, and the appropriateness of
establishing tax incentives to encourage trade through, and
investment in, California ports.
2)Authorizes the California Transportation Financing Authority
(Authority) to award a tax credit certificate to an importer or
exporter of agricultural or manufacturing goods that demonstrates to
the satisfaction of the Authority that, in a taxable year beginning
in or after January 1, 2014, and before January 1, 2019, they met
any of the following requirements:
a) They increased the cargo value (airports) or cargo tonnage
(all ports) by at least 5% over their cargo tonnage or value
through California ports over the prior year, as specified.
b) For importers or exporters who did not export in California in
the prior year, they shipped cargo through California ports in
excess of 400,000 tons or through airports of at least $250,000
in value.
c) They have a net increase, as specified, in the number of
qualified full-time employees hired in California during the
taxable year.
d) They incurred capital costs, as specified, for a cargo
facility constructed in California during the taxable year.
3)Requires the Authority to develop procedures for awarding credits,
administering the program and charging fees to cover administrative
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costs. Provides that the credit certificates will be awarded on a
first-come-first-severed basis and that the credit certificates are
nontransferable. For the purpose of receiving the fees, an account
is established at the Treasurer's Office. The Authority is
authorized to borrow funds to establish the program and use fee
revenues for repayment.
4)Allows, for taxable years beginning on or after January 1, 2013 and
before January 1, 2018, an import-export cargo tax credit, a hiring
tax credit, and a cargo facility tax credit, under both the Personal
Income Tax and the Corporation Tax Laws, to a taxpayer that has been
awarded a tax credit certificate by the Authority. The carry
forward of the credit value is limited to 10 years.
5)Limits the total amount of tax credit certificates to be awarded in
each of the five calendar years to $100 million, for a total of $500
million. The bill also limits the aggregate amount of credits to
$250,000 to the same taxpayer in the same year. Specifies that any
portion of the authorized amount not awarded in a calendar year may
be awarded in a future calendar year ending before January 1, 2019.
6)Provides a specific formula for determining the allowable tax
credit, based on either tons of exports or imports through a port,
value of exports and imports through an airport, or a number of new
employees.
a) The credit amount certified by the authority would be
calculated as $3.125 per ton of increased cargo flowing through
the state's ports and $1,000 for each $10,000 increase in value
of cargo flowing the state's airports.
b) Increasing the number of qualified full-time employees hired
in California during the taxable year, as specified. The credit
amount certified by the authority would be calculated as $3,000
per additional qualified full-time employee.
c) Capital expenditures to construct a cargo facility in
California during a taxable year. The credit amount certified by
the authority
7)Require the Authority to provide to the Franchise Tax Board (FTB) an
electronic copy of each credit certificate awarded within 30 days of
a certificate's issue date. The certificate would be required to
include the date of issuance, amount of the credit, the type of
credit awarded, and the name and taxpayer identification of the
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exporter or importer awarded the credit.
8)Requires the Authority to establish and implement audit procedures
to verify that tax credit certificates were properly awarded
consistent with the terms of this bill, cancel tax credit amounts
that were erroneously awarded, and notify the FTB of any cancelled
amounts.
9)Takes effect immediately as a tax levy.
EXISTING LAW
1)Allows various tax credits designed to provide tax relief for
taxpayers who incur certain expenses or to influence behavior,
including business practices and decisions.
2)Allows a depreciation deduction for the obsolescence or wear and
tear of property used in the production of income or property used
in a trade or business. The amount of the deduction is determined,
in part, by the cost (or basis) of the property. Depreciable
property includes equipment, machinery, vehicles, and buildings, but
excludes land.
3)Allows a New Jobs Tax Credit for taxable years beginning on or after
January 1, 2009, to qualified employers equal to $3,000 for each net
increase in qualified full-time employees hired during the taxable
year. The credit is limited to small businesses (i.e., taxpayers
with 20 or fewer employees as of the last day of the preceding
taxable year). The credit is capped at roughly $400 million for all
taxable years.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the Author, "Due to the number of
critical jobs tied to our ports, it is imperative that California
position itself to compete with other states and countries as the
global economy recovers and international trade begins to escalate.
Jobs that may be lost to competitors will not easily be regained
because of the impermeable nature of the infrastructure industry.
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California ports are the busiest seaports in the nation, handling
approximately 45 percent of all the waterborne containerized cargo
coming into the United States. California, however, must do more to
ensure that California ports remain competitive, as the Gulf, East
Coast, and Mexican ports work to attract business away from
California seaports and competition intensifies after the expansion
of the Panama Canal in 2015.
This bill will stimulate the use of California ports by providing
tax credits for exporters and importers who increase their cargo
through California ports and airports, have a net increase in
full-time employees hired in California or incur capital costs for a
cargo facility in California. These tax credits will provide an
increased incentive for port importation and exportation of goods
which will stimulate the economy, create jobs, and keep California
internationally competitive."
2)Framing the Policy Issue : This measure proposes a tax credit
program for importers and exporters that increase their flow of
products through California's ports, hire additional staff, or make
capital improvements to port facilities. Given the importance of
trade to California's economy, initiatives that support the
continuing flow of agriculture and manufacturing products are
useful.
A policy question arises as to the fundamental role of the tax
credits to businesses. Some have argued that tax expenditures
should incent activities that would not otherwise occur, while
others believe that credits allow businesses to retain cash, which
can be reinvested in the business. Implementation of this bill
advances the state through increased tax revenues, while helping
importers and exporters to be able to retain revenues. The analysis
provides additional information on California's trade economy, the
challenges facing California's ports to remain competitive, and
suggestions on improving the implementation of the program.
3)California's Trade Economy : California's $1.9 trillion economy
naturally functions as an independent nation and is highly dependent
on industry sectors that participate within the larger global
economy. In fact, compared to other nations, California has one of
the 10 largest economies in the world, due to it being a top-tier
trade partner, a best-in-class investment location, a high quality
producer of goods and services, and the home and key access point
for a massive consumer-base. In 2012, California exported $161
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billion in products to over 220 foreign countries. While California
has been significantly impacted by the recession, exports continued
to increase in almost every quarter from 2010 through 2012.
It is estimated that one in five manufacturing jobs in California is
related to trade. Goods movement supports employment, business
profit, and state and local tax revenue. The logistics industry is
responsible for hiring 73,000 workers. California businesses rely
heavily on the state's ports and their related transportation
systems to move manufactured goods. Firms rely on fast, flexible,
and reliable shipping to link national and global supply chains and
bring products to the retail market. Transportation breakdowns and
congestion can idle entire global production networks.
Changes in U.S. and global trade patterns since the enactment of the
North American Free Trade Agreement and the continuing development
of foreign markets place challenges on California's goods movement
logistic network. These challenges are only expected to become
greater as the rate of innovation within manufacturing,
transportation, the communication technologies gets faster and the
ability of multiple geographic locations to successfully use these
technologies expands. California's historic and singular dominance
is diminishing as the state's infrastructure, particularly as our
port of entries fail to keep pace.
4)Doubling exports in five years : In January 2010, the President
announced a national goal of doubling U.S. exports within five
years, setting a 2015 target for U.S. exports of $3.14 trillion.
In accomplishing this goal, the federal government will be proposing
new programs, targeting existing trade related activities, and
increasing funding and technical assistance within its current
programs.
Since the announcement of the new national goal at the start of
2010, exports from California were up $41 billion over 2009. For
California, the second largest exporter of products in the U.S. and
the largest receiver of foreign direct investment in the nation,
this federal goal could result in significant new economic
opportunities. California has already received nearly $4 million in
federal funds to administer a state export assistance program for
small businesses. In the President's 2013 State of the Union
address he announced a trade agreement with the European Union. To
the extent the national goal is even partially realized, California
ports could face even greater pressure to perform. AB 886 will
assist California in meeting this national goal.
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5)California Ports : Nationally, the Port of Los Angeles continued to
hold the top rank in terms of two-way trade in 2010 (valued at $237
billion). It is followed by JFK International Airport ($162
billion) and the port of Chicago ($135 billion). Data on
California's other major ports are as follows: Long Beach ($89
billion, ranked 9th); LAX ($77 billion, ranked 12th); San Francisco
International Airport ($50 billion, ranked 18th); Port of Oakland
($40 billion, ranked 25th); Otay Mesa Station ($31 billion); and
Calexico-East ($10 billion).
6)Capped and Allocated Programs : Caped and allocated tax expenditures
can be an effective mechanism for controlling state costs, while
still assisting targeted business development activities. In
implementing a program, however, the state takes on higher level of
responsibility. The bill may benefit from adding additional
direction to the Authority relative to the administration of the
program including, but not limited to, timelines for responding to
credit certificate applications, reporting on outcomes, and the use
of electronic filing certificate applications, and the issuance of
certificates.
7)Related Legislation : Below is a list of related legislation from
the current session:
a) AB 1081 (Medina) Goods Movement-Related Infrastructure : This
bill Requires goods movement-related infrastructure to be
included within the state five-year infrastructure plan and
international trade and foreign investment strategy. Status:
Scheduled to be heard in the Assembly Committee on Jobs, Economic
Development and the Economy on April 9, 2013.
b) AB 1137 (V. Manuel P�rez) Trade Promotion and Export Finance :
This bill makes a number of changes to programs designed to
assist local communities and businesses, enhance the local
business climate, and create jobs by increasing foreign trade and
investment including providing authorizing the establishment of
the California Trade Promotion and Export Finance Program,
codifying the state's role in the EB-5 Program, and making
technical corrections to the international free trade zone
program. Held in the Senate Committee on Appropriations in 2012.
c) AB 2656 (Calderon) Import and Export Tax Credit : This bill
would have authorized the Authority to award $500 million in tax
credit certificates to exporters and importers, as defined, for
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the specified increases in cargo tonnage or value, net increases
in the number of qualified full-time employees hired in
California, or capital investment in a cargo facility. Status:
Held in the Assembly Committee on Appropriations in 2012.
d) AB 2687 (Bradford) Trade and Investment Credit : This bill
would have created a trade infrastructure investment tax credit
and an import-export cargo tax credit for taxpayers that invest
in and use public port facilities in California. Status: Held
in the Assembly Committee on Appropriations in 2010.
e) SB 810 (Price) Trade Tax Credit : This bill This bill would
have authorized the Authority to award $500 million in tax credit
certificates to exporters and importers, as defined, for the
specified increases in cargo tonnage or value, net increases in
the number of qualified full-time employees hired in California,
or capital investment in a cargo facility. Status: Scheduled to
be heard in the Senate Committee on Transportation and Housing on
April 16, 2013.
f) SB 830 (Wright and Bradford) Trade and Investment Credit :
This bill would have created a trade infrastructure tax credit
for taxpayers that invest in and use public port facilities in
California. Status: Head in the Senate Committee on Governance
and Finance in 2011.
1)Double Referral : This measure has been assigned to two policy
committees for review by the Assembly Rules Committee. Should AB
886 pass the JEDE Committee, it will be referred to the Assembly
Committee on Revenue and Taxation for further consideration.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090
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