BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 434                      HEARING:  5/1/13
          AUTHOR:  Hill & Wolk                  FISCAL:  Yes 
          VERSION:  4/24/13                     TAX LEVY:  No
          CONSULTANT:  Miller                   

              PERSONAL INCOME & CORPORATION TAXES: HIRING CREDITS:  
          ENTERPRISE ZONES, LAMBRAs, MANUFACTURING ENHANCEMENT AREAS,  
                                & TARGETED AREAS
          

          Makes substantial changes to the Enterprise Zone hiring  
          credits, vouchers, and disclosure requirements.


                           Background and Existing Law  

           Enterprise Zones  . California's 40 enterprise zones are  
          located in areas as diverse as the state itself.  From  
          Siskiyou County to Compton, and from San Francisco to  
          Calexico, this program provides generous tax incentives for  
          firms that do business in these zones.  Cities and Counties  
          apply to the Department of Housing and Community  
          Development (HCD) to designate geographic areas in their  
          jurisdictions as enterprise zones.  HCD reviews  
          applications, and may designate up to 42 zones statewide  
          for 15 year periods.  Geographic areas are eligible based  
          on its unemployment rates, free lunch program  
          participation, median income, plant closures, or history of  
          gang-related activity.  

          Taxpayers located in enterprise zones may claim income and  
          corporation tax credits for hiring qualified individuals,  
          sales tax paid on equipment purchases, and can qualify  
          banks for a net interest deduction for loans made to a zone  
          business.  Firms may also accelerate depreciation of  
          equipment, and carry over 100% of losses; however, these  
          incentives are largely irrelevant today because the  
          Legislature has since enacted similar or superior benefits  
          for nearly all taxpayers regardless of location. 

          The most significant incentive is the hiring credit.   
          Employers inside an enterprise zone 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,  





          SB 434 -- 4/24/13 -- PageB

          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.  The firm then  
          claims the credit on its tax return.  Qualified employees  
          include individuals: 

                           Eligible for job training programs
                           Eligible for most social welfare programs
                           Economically disadvantaged
                           A "dislocated worker," as defined.
                           A disabled individual who is eligible or  
                    enrolled in a state rehabilitation plan
                           Service connected veteran
                           Ex-offender
                           Member of a federally recognized Indian  
                    tribe

          Employers may also claim the hiring credit for residents of  
          Targeted Employment Areas (TEAs), in addition to the  
          criteria listed above.  Cities and counties managing  
          enterprise zones may draw TEAs to contain census tracts  
          where 51% or more of the individuals are low or moderate  
          income, meaning 80% of the area wide, or countywide,  
          median.  In other words, local agencies draw TEAs to  
          include communities where only half of the residents are  
          actually or somewhat low-income, but anyone living in one  
          qualifies his or her employers for the hiring credit  
          regardless of their own economic status or employability.   
          TEAs need not be contiguous to, or drawn within the borders  
          of the Enterprise Zone.

          Taxpayers can also receive a certification qualifying an  
          employee for an enterprise zone hiring credit at any time.   
          Taxpayers may certify employees who worked for them in past  
          years, then submit claims for refunds for previous taxes  
          paid to FTB based on those certifications under  
          California's general four year statute of limitations for  
          amending past returns, a practice known as  
          "retro-vouchering."  In general, tax law allows taxpayers  
          to amend their returns for four years.  SB 974 (Steinberg,  
          2010) and AB 1139 (Perez, 2009) proposed to repeal the TEA  
          criterion and "retro vouchering," although neither bill  
          advanced to the Governor's Desk.

          In his 2011-12 Budget, Governor Brown proposed to repeal  






          SB 434 -- 4/24/13 -- PageC

          all EZ tax credits, citing the Legislative Analyst's Office  
          long-standing recommendation to reform or repeal the  
          program, and the PPIC Study noted below, among others.  The  
          proposal-at the time-would have increased revenue $343  
          million (2010-11), $583 million (2011-12), according to the  
          Department of Finance.  The Governor states that zones  
          would continue to provide local incentives, but zone  
          taxpayers could no longer receive state tax benefits.  The  
          Legislature did not act on the Governor's proposal at that  
          time.  

          In his 2013-14 Budget, Governor Brown proposes the EZ  
          regulatory reform at the department of Housing and  
          Community Development (HCD) be largely adopted.  The  
          comments from round one of comment period are being  
          compiled by HCD staff; the second notice and comment period  
          will be in May of this year.  HCD will publish the final  
          package at the end of May/ beginning of June.  The Budget  
          includes savings that assumes their adoption as follows:
                 Limit retro vouchering by requiring all voucher  
               applications to be made within one year of the date of  
               hire
                 Require third party verification of employee  
               residence within a Targeted Employment Area.
                 Streamline the vouchering process for hiring  
               veterans and recipients of public assistance.
                 Create stricter zone audit procedures and audit  
               failure procedures.

          The budget notes that these regulatory reforms will  
          primarily affect Corporation Tax revenue, but will also  
          have an impact on Personal Income Tax revenue.  The  
          regulations, in total, are expected to increase General  
          Fund revenue by $10 million in 2012-13 and $50 million in  
          2013-14.

          The Budget also states that the "Administration will be  
          pursuing further Enterprise Zone reform through  
          legislation."

          Currently, HCD has designated 40 zones.  Two zones, the  
          City of Watsonville and the Antelope Valley Zone, expired  
          in 2012, having reached the end of their 15 year  
          designation period.  HCD has stated that it "will use its  
          authorized discretion to not open up applications for new  
          zones until the program is sufficiently reformed to  
          strengthen its effectiveness to incentivize job creation."






          SB 434 -- 4/24/13 -- PageD


           Contingency fees.   Federal law allows the Secretary of the  
          Treasury to regulate practitioners with cases before the  
          Internal Revenue Service (IRS).  IRS Circular 230 generally  
          spells out requirements for these practitioners, and also  
          regulates the conduct of anyone providing tax advice or  
          preparing tax returns for compensation, including  
          attorneys, certified public accountants, and enrolled  
          agents.  In 2009, IRS revised Circular 230 to bar  
          individuals practicing before the IRS from charging clients  
          contingency fees, with specified exceptions, because of the  
          potential to exploit the audit selection process and  
          compromise a practitioner's duty of independent judgment.   
          Federal law also applies an erroneous claim for refund  
          penalty equal to 20% of the amount of the claim that lacks  
          a reasonable basis for the refund.  California does not  
          conform to this penalty.  Additionally, the American  
          Institute of Certified Public Accountants Code of  
          Professional Conduct precludes accountants from charging  
          contingency fees for preparing an original or amended tax  
          return, with specified exceptions.

          State law restricts commissions charged by certified public  
          accountants in specified circumstances (SB 1289, Calderon,  
          1998).  However, sophisticated cottage industries of  
          non-accountant tax consultants have grown considerably in  
          recent years, offering to amend a taxpayer's previous state  
          income tax returns seeking refunds of previous taxes paid  
          by claiming tax credits not included on the taxpayer's  
          original return.  The taxpayer compensates the consultant  
          as a percentage of the refund, providing a significant  
          incentive to file aggressive claims with questionable  
          justification.  As many of these consultants are neither  
          accountants subject to state law or codes of ethics, nor  
          practitioners covered by Circular 230, they may charge  
          taxpayers contingency fees without any limitation.

           Disclosure  .  State law also requires the Franchise Tax  
          Board to "recapture" or "claw back" tax credits from  
          taxpayers under specified circumstances to ensure that  
          taxpayers do not financially benefit when acting opposite  
          to the intent of a tax credit.  Taxpayers who claim an  
          enterprise zone hiring credit then terminate an employee  
          within 270 days must repay the credit, and a low-income  
          housing developer must sacrifice tax credits if he or she  
          raises rents at the project to the extent that they're no  
          longer affordable.  Additionally, tax law specifies  






          SB 434 -- 4/24/13 -- PageE

          penalties for understating liability, failing to file  
          returns, engaging in transactions that lack economic  
          substance, and engaging in fraud, among others.  

          Existing state and federal laws generally prohibit unlawful  
          disclosure or inspection of any income tax return  
          information.  Existing state law allows a committee of  
          either house of the Legislature to examine confidential  
          taxpayer information.  Criminal sanctions, including  
          imprisonment, apply to FTB personnel convicted of unlawful  
          disclosure or inspection of tax records.  The Franchise Tax  
          Board (FTB) must notify a taxpayer if criminal charges have  
          been filed for willful unauthorized inspection or  
          disclosure of their tax data.  However, FTB may publish  
          statistical data related to taxpayer information so long as  
          nothing specific to a single taxpayer is disclosed.   
          Notwithstanding these provisions, the Legislature directed  
          FTB to publish a list of the top 500 tax delinquencies over  
          $100,000 (AB 1418, Horton, 2006 and AB 1424, Perea, 2011).   


          Existing law also requires the Department of Finance to  
          annually publish a report detailing tax expenditures, and  
          relevant costs.


          A Form 10-K is an annual report required by the U.S.  
          Securities and Exchange Commission (SEC), that gives a  
          comprehensive summary of a public company's performance.   
          Although similarly named, the annual report on Form 10-K is  
          distinct from the often glossy "annual report to  
          shareholders," which a company must send to its  
          shareholders when it holds an annual meeting to elect  
          directors (though some companies combine the annual report  
          and the 10-K into one document).  The 10-K includes  
          information such as company history, organizational  
          structure, executive compensation, equity, subsidiaries,  
          and audited financial statements, among other information.


          Companies with more than $10 million in assets and a class  
          of equity securities that is held by more than 500 owners  
          must file annual and other periodic reports, regardless of  
          whether the securities are publicly or privately traded.   
          In addition to the 10-K, which is filed annually, a company  
          is also required to file quarterly reports on Form 10-Q.   
          In the period between these filings, and in case of a  






          SB 434 -- 4/24/13 -- PageF

          significant event, such as a CEO departing or bankruptcy, a  
          Form 8-K must be filed in order to provide up to date  
          information.



                                   Proposed Law 

           EZ Hiring credit  .  Senate Bill 434 makes significant  
          changes to the hiring credit within the enterprise zone  
          program, while maintaining the 40 designated zones,  
          beginning on January 1, 2014 as follows:

                  Net new jobs requirement  .   SB 434 requires that in  
               order to qualify for any credit the taxpayer must have  
               experienced an increase in total jobs throughout the  
               state from one year to the next.  While the credit may  
               be spread across all new employees in the "hard to  
               hire" categories under existing law, taxpayers are  
               only allowed the credit for the number of new jobs in  
               the state.  For example, if ABC Inc. shows it has  
               hired 100 employees statewide, the company may receive  
               total credits for up to 100 employees.  Alternatively,  
               if a taxpayer hires 50 new employees (qualified or  
               not) in the Compton EZ but laid off 25 employees in  
               Napa, the taxpayer would only be eligible for credits  
               of 25 "qualified employees."

                  Credit percentages  .  The credit percentages in the  
               bill will change to 10% in the first year; 30% in the  
               second year; 50% in the third year; 30% in the fourth  
               year and 10% in the fifth year.

                  Taxpayer restrictions .  Prohibits taxpayers from a  
               temporary agency, as defined by the National  
               Association of Industry Classification Codes (NAICS)  
               from receiving the hiring credit.

                  Offer of transfer  .  Requires taxpayers that move  
               into an Enterprise Zone to provide an "offer of  
               transfer" to its employees with comparable  
               compensation.

                  Voucher requirements .  Taxpayers must provide the  
               hiring credit voucher certification annually.

                  Public database  .  SB 434 requires the FTB to  






          SB 434 -- 4/24/13 -- PageG

               compile a list of the hiring credit vouchers claimed  
               and number of new jobs created for each taxable year.   


                  Retro-vouchering  .  Beginning on January 1, 2014,  
               taxpayers may only amend a return to claim the hiring  
               credit for one year.

           LAMBRA's, Manufacturing Enhancement Areas, Hiring Credit  :   
          SB 434 requires a net new jobs calculation and changes the  
          credit percentages; all other provisions remain the same.

                  Credit percentages  .  The percentages are: 10% in  
               the first year, 10% in the second year, 30% in the  
               third year, 40% in the fourth year and 50% in the  
               fifth year.

           Sunset  .  Sunsets the hiring credit for LAMBRA's,  
          Manufacturing Enhancement Areas, Targeted Areas and  
          Enterprise Zones on January 1, 2019.

           Contingency fees.   Senate Bill 434 prohibits a person from  
          charging a contingency fee for services charge a contingent  
          fee for services rendered in connection with a tax credit  
          relating to an enterprise zone, a LAMBRA, a manufacturing  
          enhancement area, or a targeted tax.  The bill defines a  
          contingency fee as any fee

          The bill defines "contingent fee" identically to Circular  
          230, but without the exceptions, as any fee that is:
                 A fee that is based on the percentage of the refund  
               reported on a return, a fee that is based on a  
               percentage of the taxes saved, or a fee that depends  
               on the specific tax result attained.  
                 Any fee arrangement in which the party to whom  
               services are rendered, or a designee of the party to  
               whom services are rendered, is reimbursed or credited  
               for all or a portion of the fee paid or agreed to be  
               paid if a position taken on a tax return or other  
               filing is challenged or is not sustained, whether  
               pursuant to an indemnity agreement, a guarantee, a  
               right of rescission, or any other arrangement with  
               similar effect.

          The governmental entity responsible for administering the  
          tax shall impose a penalty equal to the amount of the  
          contingency fee or $5,000, whichever is greater, for  






          SB 434 -- 4/24/13 -- PageH

          persons who fail to comply.


                               State Revenue Impact
           
          The revenue estimate is still pending from the FTB.  


                                     Comments  

          1.   Purpose of the bill  .  According to the author, SB 434  
          reforms the California Enterprise Zone program to make sure  
          taxpayer dollars are being spent on true job creation  
          instead of job transferring.  The California Enterprise  
          Zone program has cost the state over $4 billion dollars  
          since its creation in the 1980s.  It began as a way to help  
          struggling companies create jobs in disadvantaged  
          communities but it's evolved into a handout for large  
          corporations.  Nearly all of the tax credits (91 percent)  
          were claimed by corporations with assets of $10 million or  
          more.  Corporations with less than $1 million in assets  
          claimed only 1 percent of Enterprise Zone tax credits.  The  
          largest EZ tax break is the hiring credit that gives  
          employers up to $37,440 for each qualified hire over a five  
          year period. The EZ program costs the state $700 million a  
          year, and the cost is growing by more than 30 percent  
          annually. The Public Policy Institute of California found  
          that "on average, enterprise zones have no effect on  
          business creation or job growth."  The Legislative  
          Analysts' Office said "most research indicates that  
          programs [such as the Enterprise Zone Program] have little  
          if any impact on the creation of new employment"  In a  
          survey conducted by the California Department of Housing  
          and Community Development, nearly half of businesses report  
          that the Enterprise Zone hiring credit "never" or "rarely"  
          influenced their hiring decisions.  61 percent of companies  
          report that it "never" or "rarely" played a role in  
          deciding whether or not to retain workers.  SB 434  
          continues to allow local governments and employers to  
          utilize the Enterprise Zone program, but enacts common  
          sense reforms to focus incentives on true job creation that  
          will benefit the state. 

          2.   Economic development  .  The opponents of SB 434 state  
          that it would seriously harm California's only remaining  
          economic development program and particularly impact small  
          businesses, impoverished areas of the state and primarily  






          SB 434 -- 4/24/13 -- PageI

          low-income and minority communities.  The coalition  
          opposition letter points to several provisions that it  
          finds objectionable including the elimination of  
          retroactive credits, the net increase in headcount  
          requirement, no hiring for temp jobs, cap, sunset and  
          review, transparency and the regulation of tax consultants.  
           All of these reforms will preclude small businesses from  
          claiming the credit, have a chilling effect on business  
          climate and lose much of its incentive effect.

          3.   Hiring credits  .  Economists generally favor broad based  
          levies that which spread the costs of providing public  
          services broadly throughout the economy with rates that are  
          as low as possible.  A hiring credit is counter to the  
          economic theory and is therefore by its nature inefficient.  
           The EZ hiring credit does focus on the hardest to hire  
          individuals but only in specific areas and may reward  
          taxpayers for employees that would have been hired without  
          the credit.  Economists agree that if the state does have a  
          hiring credit, it makes sense to focus on the hard to hire  
          categories in the EZ program but that it should also be  
          applied on a statewide basis.  The committee may wish to  
          consider amending the bill to apply statewide instead of  
          only in the 40 zones.   

          4.   Assessing performance  .  California's enterprise zone  
          program, the result of collaboration between former  
          Assembly members Pat Nolan and Maxine Waters (AB 40 and  
          514, 1984, respectively), has  evolved from a  
          well-intentioned legislative effort to use tax credits to  
          draw investment into economically depressed rural and urban  
          areas into an almost half-billion tax credit program  
          referred to as California's best economic development  
          program.  HCD administers the program, taking over from the  
          now-defunct Trade and Commerce Agency in 2003. 

          Program defenders say the program is the state's best tool  
          for economic development, citing accounts from taxpayers  
          who state that they locate in California largely because of  
          enterprise zone program incentives, which overcome stated  
          disadvantages posed by California's tax and regulatory  
          system.  Supporters state that the incentives draw  
          investment into economically distressed communities and  
          provide avenues for hard-to-hire individuals to find  
          employment.  However, detractors argue that the program  
          offers a poor return on the state's investment, and  
          criticize individual parts such as TEA criterion, the  






          SB 434 -- 4/24/13 -- PageJ

          practice of "retro vouchering," and the sliding scale  
          structure of the hiring credit.

          At the Senate Revenue and Taxation Committee's Enterprise  
          Zone Oversight Hearing on March 10, 2010, the Committee  
          took testimony from experts, including:
                           Dr. Charles Swenson, whose work shows  
                    that enterprise zones have decreased unemployment  
                    and poverty rates in California census tracts  
                    within zones. <1>
                           David Neumark, whose paper states that  
                    California's enterprise zones have no effect upon  
                    employment and business formation in zones,<2>   
                    and zones which have lower share of manufacturing  
                    and where managers perform more marketing  
                    activities have more favorable effects on  
                    employment, and zones that devote more time to  
                    helping firms claim tax credits, eliminate any  
                    positive benefit.<3>
                           Eileen Norcross of the Mercatus Center at  
                    George Mason University, whose written testimony  
                    stated that enterprise zones failed to produce  
                    the hoped for benefits of economic revitalization  
                    and robust economic growth because the policy is  
                    discriminatory and introduces complexity and  
                    gamesmanship into the tax code and business  
                    decisions.  Norcross recommended that the state  
                    should instead set rules that encourage  
                    entrepreneurship without regard to firm size or  
                    business activity.
                           LAO, which recommends that the program be  
                    eliminated or restructured.

          5.   Who wins  ?  Committee staff asked the FTB to provide a  
          breakdown of 2010 hiring credits by industry and net  
          income.  In 2010, taxpayers claimed almost $402 million in  
          credits but 94.62% of the firms had over $1 million in net  
          -------------------------
           <1>
             Government Programs Can Improve Local Labor Markets:  
          Evidence from State Enterprise Zones, Federal Empowerment  
                                                                 Zones, and Federal Enterprise Communities," by John Ham,  
          Ayse Imrohoroglu, and Charles Swenson, February 2009.
          <2> "Do Enterprise Zones Create Jobs?" by David Neumark and  
          Jed Kolko, Journal of Urban Economics, June 2010
          <3> "Do Some Enterprise Zones Create Jobs?" by Jed Kolko  
          and David Neumark.  Journal of Policy Analysis and  
          Entrepreneurship, Vol 29, No. 1, 5-38 (2010).





          SB 434 -- 4/24/13 -- PageK

          income.  A review of the data illustrated in the data below  
          shows all the industries with credits greater than $3.5  
          million are largely consolidated within a few industries.   
          The Committee may wish to consider if the program is  
          intended for small companies, should there be an income  
          limitation?  Furthermore, is the program growing in  
          appropriate industries and could all these industries be  
          better served with a statewide credit?  

          The appended table shows the results of a public records  
          act request for individual companies in Sacramento  
          receiving vouchers for the hiring credit.









































          SB 434 -- 4/24/13 -- PageL


          Credit amounts by industry in 2010:

           ------------------------------------------------- 
          |Industry                 |S&UT/Hiring     |PBA   |
          |                         |Credit in 2010  |Code  |
          |-------------------------+----------------+------|
          |Other General Merch      |$22,115,745     |452900|
          |Stores                   |                |      |
          |-------------------------+----------------+------|
          |Holding Companies        |$20,378,245     |551112|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Telecommunication        |$19,250,261     |517000|
          |Distribution             |                |      |
          |-------------------------+----------------+------|
          |Wineries                 |$13,392,749     |312130|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Ship and Boat Building   |$12,898,706     |336610|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Aerospace Mfg            |$11,538,092     |336410|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Supermarkets & Other     |$11,212,139     |445110|
          |Grocery                  |                |      |
          |-------------------------+----------------+------|
          |Home Centers             |$9,451,486      |444110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Department Stores        |$8,304,146      |452110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Pharmacies/Drug Stores   |$6,627,821      |446110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Pharma/Medicine Mfg      |$6,538,856      |325410|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Other Food Mfg           |$6,379,676      |311900|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Investment Banking       |$6,078,391      |523110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |News Syndicates          |$5,970,656      |519100|






          SB 434 -- 4/24/13 -- PageM

          |                         |                |      |
          |-------------------------+----------------+------|
          |Education Services       |$5,771,763      |611000|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Grocery Wholesale        |$5,731,095      |424400|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Soft Drink Mfg           |$5,598,381      |312110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Auto Parts and Tire      |$5,567,572      |441300|
          |Stores                   |                |      |
          |-------------------------+----------------+------|
          |Electrical Power Gen     |$5,512,978      |221100|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Long Distance Trucking   |$5,276,313      |484120|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Specialty Foods          |$5,162,469      |445299|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Fruit, Veg Preserve Mfg. |$5,003,546      |311400|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Bank Holding Companies   |$4,802,774      |551111|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Electrical Lighting      |$4,652,252      |335100|
          |Equip Mfg.               |                |      |
          |-------------------------+----------------+------|
          |Other Misc. Mfg.         |$4,224,855      |339900|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Portfolio                |$4,121,487      |523900|
          |Management/Investment.   |                |      |
          |Advice                   |                |      |
          |-------------------------+----------------+------|
          |Iron and Steel Mills     |$3,906,607      |331110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Dairies                  |$3,609,411      |311500|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Hotels                   |$3,581,090      |721110|
          |                         |                |      |






          SB 434 -- 4/24/13 -- PageN

          |-------------------------+----------------+------|
          |Advertising              |$3,540,109      |541800|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Other Depository Credit  |$3,519,956      |522190|
          |Intermediation           |                |      |
          |-------------------------+----------------+------|
          |Waste Management         |$3,449,681      |562000|
          |                         |                |      |
          |-------------------------+----------------+------|
          |HMOs                     |$3,435,873      |621491|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Engineers                |$3,409,482      |541330|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Other Professional,      |$3,370,641      |541990|
          |Scientific Tech          |                |      |
          |-------------------------+----------------+------|
          |Other Fabricated Product |$3,360,768      |332900|
          |Mfg.                     |                |      |
          |-------------------------+----------------+------|
          |Other Misc. Retailers    |$3,265,254      |453990|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Machinery Equip &        |$3,124,972      |423800|
          |Supplies                 |                |      |
          |-------------------------+----------------+------|
          |Apparel Accessory Mfg.   |$2,994,565      |315990|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Fast Food                |$2,867,673      |722210|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Oil Refineries           |$2,848,027      |324110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Misc. Wholesale          |$2,822,827      |424990|
          |Nondurable               |                |      |
          |-------------------------+----------------+------|
          |Transpiration Support    |$2,771,545      |488990|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Apparel Wholesale        |$2,742,946      |424300|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Software Publishing      |$2,710,993      |511210|






          SB 434 -- 4/24/13 -- PageO

          |                         |                |      |
          |-------------------------+----------------+------|
          |Commercial Banks         |$2,641,893      |522110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Restaurants              |$2,599,672      |722110|
          |                         |                |      |
          |-------------------------+----------------+------|
          |Radio, TV, and           |$2,530,395      |443112|
          |Electronics Stores       |                |      |
          |-------------------------+----------------+------|
          |Motion Pictures          |$2,413,621      |512100|
          |                         |                |      |
           ------------------------------------------------- 

          6.  The right percent  .  SB 434 proposes changing the  
          percentages of the hiring credit to provide an incentive to  
          retain qualified employees once hired.  Instead of starting  
          at 50% in the first year, the credit grows to 50% by the  
          third year.  Opponents to this proposal point out that  
          "hard to hire" employees are the most expensive in the  
          first year they are hired due to the high training costs.   
          The research indicates, however, that the high first year  
          credit encourages churning of employees to maintain the 50%  
          credit.  What is the right balance of acknowledging the  
          costs versus retaining the employees?  The Committee may  
          wish to consider a higher percentage that includes a claw  
          back provision whereby if an employee is not retained for  
          more than one year, the taxpayers loses the credit.   

          7.   Deluxe and Dicon  .  HCD released new regulations to the  
          program which, among other things, only allows one year of  
          "retro vouchering."  Past regulations have been litigated  
          by tax credit consultants, who unsuccessfully brought suit  
          to enjoin HCD's 2007 regulations in  Cyntron v. HCD et al  ,  
          and also failed to disqualify the Franchise Tax Board from  
          auditing enterprise zone tax credits at all first through  
          the BOE, then in the courts.  The BOE affirmed FTB's  
          authority in  The Appeal of Deluxe  (Case No. 297128).   
          However, tax credit consultants appealed to the courts, and  
          the California Court of Appeal weakened FTB's authority in  
           Dicon Fiberoptics v. Franchise Tax Board  (Case B202997,  
          2009), holding  that while FTB is legally authorized to  
          audit EZ credits, the voucher constitutes prima facie  
          evidence that the taxpayer is entitled to the credit.  FTB  
          appealed this case to the California Supreme Court, which  
          unanimously reversed the Court of Appeal's decision in  






          SB 434 -- 4/24/13 -- PageP

          April, 2012, thereby allowing FTB to continue to audit  
          documentation of enterprise zone tax credits.  

          8.  Taxpayer confidentiality  .  SB 434 poses a clear tradeoff  
          in tax policy: are taxpayer privacy protections more  
          important than making public information necessary to  
          determine how much certain corporations pay in tax?  While  
          taxpayer privacy is the cornerstone of a self-assessed  
          income tax system, how can the Legislature evaluate if the  
          tax system is equitable when it doesn't know who pays what  
          and what tax breaks are worth?  Financial information is  
          highly sensitive to both individuals and business -  
          allowing friends and neighbors to know your financial  
          investments or personal spending, or to disclose vital data  
          in a tax return to a competitor, is a violation of privacy.  
           For these reasons, state law allows felony prosecution for  
          unlawful inspection and disclosure to enforce these  
          safeguards, and FTB must notify any taxpayers if criminal  
          charges are filed.  Conversely, the proponents of the  
          measure state that during this difficult budget climate, it  
          is imperative to enact the bill to ensure that state  
          policymakers have the information necessary to determine  
          the impact of the elective single sales factor on the state  
          budget.  The Committee may wish to consider whether  
          breaching the veil of taxpayer confidentially is worth the  
          tradeoff for additional information.  Is the information as  
          important as sound tax policy that makes sense on a  
          statewide basis?

          9.   Contingency fees  .  SB 434 limits contingency fees;  
          these fees have shown to make taxpayers overly aggressive  
          with little to no documentation; these fees have created a  
          cottage industry of consultants that mine the tax code  
          which is counter to the intent of the program.  For some  
          small businesses, the fees can be very high which  
          contradicts the program's intent of helping small  
          businesses.  On the other hand, many taxpayers prepare  
          their tax returns unaware of many benefits to which they're  
          lawfully entitled because documenting eligibility, filing  
          amended returns, can be time consuming and costly, often  
          too much so for smaller businesses and individuals, who can  
          only afford to pursue these benefits using a consultant  
          willing to work on contingency.  The Committee may wish to  
          consider whether the self-certification process in this  
          bill will result in the desired behavior suggested by this  
          change.







          SB 434 -- 4/24/13 -- PageQ

          10.  "  Offer of transfer  ."  This bill seeks to address a  
          perceived abuse in the EZ system whereby an employer leaves  
          one area outside of a zone, relieves its employees and  
          moves to a zone just for the purpose of receiving the  
          credit.  The bill's terms are vague, not defined anywhere  
          in the Revenue & Taxation code and the certification by the  
          FTB cannot be administered.  The Committee may wish to  
          consider amending the bill to have a more appropriate  
          department or agency that understands "transfer offers"  
          administer this provision in the bill. 

          11.   Technical amendment  .  In order to receive the credit,  
          the taxpayer must be in the zone; to qualify for the credit  
          the taxpayer must experience an increase in statewide jobs.  
           The author will take amendments in committee to clarify  
          the enterprise zone specific provisions in all parts of the  
          bill. 
                                         

                        Support and Opposition  (4/25/13)

           Support  :  California Labor Federation; California Nurses  
          Association; California Public Interest Research Group; CA  
          Teamsters Public Affairs Council; CA Conference Board of  
          the Amalgamated Transit Union; United Food and Commercial  
          Workers Union, Western States Council; Engineers and  
          Scientists of CA; UNITE HERE!; California Conference of  
          Machinists; American Federation of State, County and  
          Municipal Employees, AFL-CIO; Professional & Technical  
          Engineers, Local 21; International Longshore & Warehouse  
          Union; Utility Workers Union of America, Local 132; San  
          Mateo County Central Labor Council; Western Center on Law  
          and Poverty; California School Employees Association.


           Opposition  :  California Asian Pacific Chamber of Commerce;  
          California Association for Local Economic Development;  
          California Bankers Association; California Business  
          Properties Association; California Chamber of Commerce;  
          California Employment Opportunity Network; California  
          Hispanic Chamber of Commerce; California League of Cities;  
          California Manufacturing and Technology Association;  
          California Retailers Association; City of Sacramento;  
          National Federation of Independent Business; League of  
          California Cities; California Association of Enterprise  
          Zones.







          SB 434 -- 4/24/13 -- PageR






















































          SB 434 -- 4/24/13 -- PageS







          Appendix:
          Public records act request finding for one month.

          Sacramento Enterprise Zone Monthly Report October 2012 


           --------------------------------------------------------------------- 
          | Business    |City         |Address      |Zip          |Vouchers     |
          |             |             |             |             |Received     |
          |-------------+-------------+-------------+-------------+-------------|
          |99 Cents     |Rancho       |2868         |95670        |1            |
          |Only Stores  |Cordova      |Zinfandel Dr |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |99 Cents     |Sacramento   |5924         |95824        |1            |
          |Only Stores  |             |Stockton     |             |             |
          |             |             |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Acuity       |Sacramento   |6201 27th St |95822        |1            |
          |Brands LL069 |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |AMPAC        |Sacramento   |8388 Rovana  |95828        |1            |
          |Services,    |             |Circle       |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |A-Z Bus      |Sacramento   |3418 52nd    |95823        |7            |
          |Sales, Inc   |             |Ave          |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Bank of      |Rancho       |2882         |95670        |2            |
          |America      |Cordova      |Prospect     |             |             |
          |             |             |Park Dr Ste  |             |             |
          |             |             |240          |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Capital      |Sacramento   |5657         |95824        |1            |
          |Force        |             |Stockton     |             |             |
          |Protective   |             |Blvd         |             |             |
          |Services,    |             |             |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Checksmart   |Sacramento   |2815 Florin  |95822        |1            |
          |Financial    |             |Rd           |             |             |
          |Holding      |             |             |             |             |






          SB 434 -- 4/24/13 -- PageT

          |Corporation  |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Chemical     |Rancho       |3765 Omec    |95742        |2            |
          |Technologies |Cordova      |Circle #2    |             |             |
          |International|             |             |             |             |
          |             |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Chevron      |Sacramento   |2700 Del     |95815        |1            |
          |Stations,    |             |Paso Rd      |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Controlled   |Sacramento   |5701-C 88th  |95828        |5            |
          |Access       |             |St           |             |             |
          |Consultants, |             |             |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Costco       |Rancho       |11260 White  |95742        |1            |
          |Wholesale    |Cordova      |Rock Rd      |             |             |
          |Corporation  |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Crusader     |Rancho       |3115 B Gold  |95742        |5            |
          |Fence Co,    |Cordova      |Valley Dr    |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |CTI II LLC   |Rancho       |10860 Gold   |95670        |6            |
          |             |Cordova      |Ctr Dr Ste   |             |             |
          |             |             |255          |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Dish Network |Sacramento   |5601         |95826        |1            |
          |SA2          |             |Warehouse    |             |             |
          |             |             |Way          |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |ECOM         |Sacramento   |1796 Tribute |95815        |1            |
          |Engineering, |             |Rd Ste 100   |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |E-filliate,  |Rancho       |11321 White  |95742        |1            |
          |Inc          |Cordova      |Rock Rd      |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Fastenal     |Sacramento   |5005 Raley   |95838        |1            |
          |Company      |             |Blvd Unit H  |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |FedEx Ground |Sacramento   |8200 Elder   |95824        |19           |
          |Package      |             |Creek Rd     |             |             |
          |Systems      |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |FedEx        |Sacramento   |8371 Rovana  |95828        |1            |






          SB 434 -- 4/24/13 -- PageU

          |SmartPost    |             |Circle       |             |             |
          |S5958        |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |G4S Secure   |Sacramento   |1565 River   |95815        |4            |
          |Solutions,   |             |Pk Dr Ste A  |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Gold Club,   |Rancho       |11363 Folsom |95742        |3            |
          |Inc          |Cordova      |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Goyette &    |Gold River   |2366 Gold    |95670        |1            |
          |Associates,  |             |Meadow Way   |             |             |
          |Inc          |             |Ste 200      |             |             |
                                                                          |-------------+-------------+-------------+-------------+-------------|
          |Interline    |Sacramento   |5961 Outfall |95828        |1            |
          |Brands Inc   |             |Circle       |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |JRD Holdings |Sacramento   |1275 Vine St |95811        |2            |
          |-------------+-------------+-------------+-------------+-------------|
          |Kroger       |Sacramento   |5330         |95820        |1            |
          |             |             |Stockton     |             |             |
          |             |             |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Maita        |Sacramento   |2820 Auburn  |95821        |6            |
          |Chevrolet    |             |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Maita        |Sacramento   |2820 Auburn  |95821        |25           |
          |Enterprises, |             |Blvd         |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Markstein    |Sacramento   |60 Main Ave  |95838        |2            |
          |Beverage     |             |             |             |             |
          |Company      |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |McGee &      |Sacramento   |3780 Rosin   |95834        |1            |
          |Thielen      |             |Ct #120      |             |             |
          |Insurance    |             |             |             |             |
          |Brokers      |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |OfficeMax    |Sacramento   |2800 Power   |95826        |1            |
          |             |             |Inn Rd       |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |O'Reilly     |Sacramento   |5908         |95824        |1            |
          |Automotive,  |             |Stockton     |             |             |
          |Inc          |             |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Pacific      |Sacramento   |8670 23rd    |95826        |2            |






          SB 434 -- 4/24/13 -- PageV

          |Adhesive     |             |Ave          |             |             |
          |Company      |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Packageone,  |Sacramento   |4225 Pell Dr |95838        |7            |
          |Inc.         |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Performance  |Sacramento   |3131 52nd    |95823        |1            |
          |Swing Stage, |             |Ave          |             |             |
          |Inc          |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Pool Corp    |Rancho       |11285 Sunco  |95742        |2            |
          |             |Cordova      |Dr           |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Pool Corp    |Rancho       |2751         |95742        |1            |
          |             |Cordova      |Mercantile   |             |             |
          |             |             |Dr Ste 400   |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Prenatal     |Sacramento   |1111         |95815        |2            |
          |Diagnosis of |             |Exposition   |             |             |
          |N. CA        |             |Blvd Ste 200 |             |             |
          |Medical      |             |             |             |             |
          |Group, Inc   |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |R & M Oritz, |Rancho       |2801         |95670        |1            |
          |Inc          |Cordova      |Zinfandel Dr |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Recycling    |Sacramento   |3300 Power   |95826        |12           |
          |Industries   |             |Inn Rd       |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |RSM, Inc     |Rancho       |2731 Citrus  |95742        |4            |
          |             |Cordova      |Rd #A        |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Sam's        |Rancho       |11167-G      |95670        |7            |
          |Airpack      |Cordova      |Trade Ctr Dr |             |             |
          |Plus, Inc    |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Save Mart    |Sacramento   |3860 Florin  |95823        |1            |
          |Supermarkets,|             |Rd           |             |             |
          | Inc 464     |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Staples 0887 |Rancho       |2690 Sunrise |95742        |1            |
          |             |Cordova      |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Superior     |Rancho       |11285 Sunco  |95742        |1            |
          |Pool         |Cordova      |Dr           |             |             |
          |Products     |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|






          SB 434 -- 4/24/13 -- PageW

          |Taco Bell    |Rancho       |2891         |95670        |1            |
          |3007         |Cordova      |Zinfandel Dr |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Total Renal  |Sacramento   |4650         |95834        |2            |
          |Care, Inc    |             |Northgate    |             |             |
          |             |             |Blvd Ste 150 |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Touchstone   |Sacramento   |116 N. 16th  |95814        |1            |
          |Climbing,    |             |St           |             |             |
          |Inc 05       |             |             |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Tri Tool Inc |Rancho       |3041 Sunrise |95742        |1            |
          |             |Cordova      |Blvd         |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |TruGreen     |Rancho       |3213         |95742        |2            |
          |LandCare LLC |Cordova      |Fitzgerald   |             |             |
          |             |             |Rd           |             |             |
          |-------------+-------------+-------------+-------------+-------------|
          |Western      |Sacramento   |5501         |95820        |1            |
          |Dental       |             |Stockton     |             |             |
          |Services,    |             |Blvd         |             |             |
          |Inc          |             |             |             |             |
           ---------------------------------------------------------------------