BILL ANALYSIS �
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THIRD READING
Bill No: SB 434
Author: Hill (D), et al.
Amended: 5/24/13
Vote: 27
SENATE GOVERNANCE & FINANCE COMMITTEE : 5-2, 5/1/13
AYES: Wolk, Beall, DeSaulnier, Hernandez, Liu
NOES: Knight, Emmerson
SENATE APPROPRIATIONS COMMITTEE : 4-2, 5/20/13
AYES: De Le�n, Hill, Padilla, Steinberg
NOES: Walters, Gaines
NO VOTE RECORDED: Lara
SUBJECT : Personal income and corporation taxes: hiring
credits
SOURCE : Author
DIGEST : This bill makes substantial changes to the Enterprise
Zone (EZ) hiring credits, a request for certifications, and
disclosure requirements.
Senate Floor Amendments of 5/24/13 (1) strike-out all the
sections related to Local Military Base Recovery Act,
manufacturing enhancement areas, and targeted tax areas; (2)
make technical/non-substantive changes to the EZ hiring credit
sections; and (3) make technical corrections changing the
reference from "voucher" to "a request for certification."
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ANALYSIS : The Personal Income Tax Law and the Corporation Tax
Law allow credits for hiring employees, based on qualified
wages, in an EZ.
This bill:
1. EZ Hiring credit . Makes significant changes to the hiring
credit within the EZ program, while maintaining the 40
designated zones, beginning on January 1, 2014 as follows:
A. Net new jobs requirement . 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.
B. Credit percentages . The credit percentages in this
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.
C. Taxpayer restrictions . Prohibits taxpayers from a
temporary agency, as defined by the National
Association of Industry Classification Codes (NAICS),
from receiving the hiring credit.
D. Offer of transfer . Requires taxpayers that move
into an EZ to provide an "offer of transfer" to its
employees with comparable compensation. The California
Workforce Investment Board shall certify the notice and
provide a copy to the taxpayer.
E. Certification requirements . Taxpayers must provide
the hiring credit certification annually.
F. Public database . Requires the Franchise Tax Board
(FTB) to compile a list of the hiring credit
certifications claimed and number of new jobs created
for each taxable year.
G. Retro-certifying . Beginning on January 1, 2014,
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taxpayers may only amend a return to claim the hiring
credit for one year.
2. Sunset . Sunsets the hiring credit for LAMBRA's,
Manufacturing Enhancement Areas, Targeted Areas and EZs on
January 1, 2019.
3. Contingency fees . 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 EZ, a LAMBRA, a manufacturing enhancement area, or a
targeted tax. This bill defines a contingency fee as any
fee.
This bill defines "contingent fee" identically to Circular
230, but without the exceptions, as any fee that is:
A. 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.
B. 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 persons who fail to
comply.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee, the FTB
estimates that implementing this bill leads to increased General
Fund revenues of $120 million in 2013-14, $220 million in
2014-15, and $260 million in 2015-16.
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FTB anticipates that the deterrents in this bill with respect to
the new penalty for violating the prohibition on charging
contingency fees would likely result in minor penalty revenue
increases (General Fund). Some penalties will be assessed after
enactment, but declines in subsequent years as taxpayers and tax
preparers become aware of the new law.
FTB incurs implementation costs related to changes to the
department's forms, the creation of a searchable database, and
staff training. The additional costs are unknown (pending the
resolution of FTB implementation concerns), but likely exceed
$50,000 annually (General Fund).
Related legislation
SB 133 (DeSaulnier, 2013) limits the size of a specified
enterprise zone.
AB 28 (V. Perez, 2013) makes various six programmatic/fiscal
changes improvements to geographically-targeted economic
development area programs, relating to cost, transparency and
accountability.
SUPPORT : (Verified 5/25/13)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Conference Board of the Amalgamated Transit Union
California Teamsters Public Affairs Council
California Conference of Machinists
California Federation of Teachers
California Labor Federation
California Nurses Association
California Professional Firefighters
California Public Interest Research Group
California School Employees Association
Engineers and Scientists of California
International Longshore & Warehouse Union
Professional & Technical Engineers, Local 21
San Mateo County Central Labor Council
UNITE HERE!
United Food and Commercial Workers Union
Utility Workers Union of America, Local 132
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Western Center on Law and Poverty
Western States Council
OPPOSITION : (Verified 5/25/13)
California Asian Pacific Chamber of Commerce
California Association for Local Economic Development
California Association of EZs
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
City of San Jose
League of California Cities
National Federation of Independent Business
ARGUMENTS IN SUPPORT : According to the author's office, this
bill reforms the EZ program to make sure taxpayer dollars are
being spent on true job creation instead of job transferring.
The EZ 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%) were claimed by corporations with assets
of $10 million or more. Corporations with less than $1 million
in assets claimed only 1% of EZ 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% annually. The Public Policy Institute of
California found that "on average, EZs have no effect on
business creation or job growth." The Legislative Analysts'
Office said "most research indicates that programs [such as the
EZ 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 EZ hiring credit "never" or "rarely" influenced
their hiring decisions. 61% of companies report that it "never"
or "rarely" played a role in deciding whether or not to retain
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workers. This bill continues to allow local governments and
employers to utilize the EZ program, but enacts common sense
reforms to focus incentives on true job creation that will
benefit the state.
ARGUMENTS IN OPPOSITION : The opponents of this bill state
that it seriously harms California's only remaining economic
development program and particularly impact small businesses,
impoverished areas of the state and primarily 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.
AB:d 5/28/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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