BILL ANALYSIS �
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THIRD READING
Bill No: SB 365
Author: Wolk (D)
Amended: As introduced
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-2, 4/10/13
AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu
NOES: Knight, Emmerson
SUBJECT : Income and corporation taxes: credits: information
and operative
time period
SOURCE : Author
DIGEST : This bill provides that any bill that enacts a credit
against the Personal Income Tax Law or Corporation Tax Law for
taxable years beginning January 1, 2014, apply specified
performance measurement standards, and a 10 year sunset.
ANALYSIS : California law allows various income tax credits,
deductions, and sales and use tax exemptions to provide
incentives to compensate taxpayers that 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 credits. The Department of Finance is required
to annually publish a list of tax expenditures.
This bill provides that any bill that enacts a credit against
CONTINUED
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the Personal Income Tax Law or Corporation Tax Law for taxable
years beginning on or after January 1, 2014, contain:
1.Specific goals, purposes, and objectives that the tax credit
will achieve.
2.Detailed performance indicators for the Legislature to use
when measuring whether the tax credit met its specific goals,
purposes, and objectives.
3.Data collection requirements to enable the Legislature to
determine whether the tax credit is meeting, failing to meet,
or exceeding its goals, purposes, and objectives. The
requirements shall include specific data and baseline data to
be collected and remitted in each year the credit is
effective, and the specific taxpayers, state agencies, or
other entities required to collect and remit data.
4.A 10-year sunset.
The bill also makes findings regarding tax preferences generally
and their current fiscal impact on federal and state
governments.
Prior Legislation
This bill is almost identical to SB 1272 (Wolk, 2010) which
Governor Schwarzenegger vetoed, stating:
I am returning Senate Bill 1272 without my signature.
While the sponsors seem intent on eliminating measures that
will generate jobs and stimulate the economy, the average
California taxpayer would probably be better served if the
Legislature were willing to automatically sunset every new
spending entitlement, program expansion and business
mandate after 7 years.
This bill is also almost identical to SB 508 (Wolk, 2012), which
Governor Brown vetoed, stating:
I am returning Senate Bill 508 without my signature. While
I agree that we should consider sunset clauses for personal
income and corporate tax credits, one size does not fit
all. The legislature should examine all its bills to
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determine how long they should exist or, indeed, whether
they should exist at all.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 4/11/13)
American Federation of State, County, and Municipal Employees
California Labor Federation
California Tax Reform Association
SEIU California
OPPOSITION : (Verified 4/11/13)
California Taxpayers' Association
California Chamber of Commerce
California Grocers Association
California Manufacturers and Technology Association
TechAmerica
ARGUMENTS IN SUPPORT : According to the author, "Today's
public finance system in California requires major reform.
While I have pursued changing our budgeting system to apply
performance measurements for spending programs, I am trying to
do the same with SB 365, which applies a performance-based
methodology to future tax expenditures enacted by the state.
There is no good reason not to evaluate tax expenditure programs
with the same rigor that we use when judging spending decisions,
especially when California's tax preference portfolio now
exceeds $47 billion, equal to half of our total revenue. While
we cannot change existing tax preferences, we can at least start
keeping better track of future ones."
ARGUMENTS IN OPPOSITION : Opponents argue that establishing a
10-year sunset puts the long-term viability of any credit in
jeopardy and, in many cases, could ultimately render the
credit's value useless in a company's final location
determination. They further state that when businesses choose
to locate in a state, factors such as the availability of a
skilled workforce, infrastructure, regulatory environment and
tax structure all play a significant role and businesses
evaluate whether they can rely on these factors to remain
relatively stable and consistent in the long term. For capital
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intensive industries like manufacturing and research and
development, investment decisions are made many years into the
future. The ability for corporate decision-makers in these
industries to plan anticipated costs over a span of many years
is an important factor when determining locations for these
investments.
AGB:nl 4/15/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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