BILL ANALYSIS Ó
AB 931
Page A
ASSEMBLY THIRD READING
AB
931 (Irwin)
As Amended May 20, 2015
2/3 vote. Tax levy
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+-----------------------+-------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+-----------------------+-------------------|
|Appropriations |17-0 |Gomez, Bigelow, Bonta, | |
| | |Calderon, Chang, Daly, | |
| | |Eggman, Gallagher, | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, Jones, | |
| | |Quirk, Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Revises the definition of a "qualified full-time
employee" to include a veteran who separated from service in the
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United States Armed Forces within 36 months and was unemployed for
the six months immediately preceding commencement of employment
with a qualified taxpayer, as specified. Specifically, this bill:
1)Revises, under the Corporation Tax (CT) and the Personal Income
Tax (PIT) Law, on or after January 1, 2016, the definition of a
"qualified full-time employee" to include a veteran who
separated from service in the Armed Forces within 36 months and
was unemployed for the six months immediately preceding
commencement of employment with the qualified taxpayer.
2)Takes effect immediate as a tax levy.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)Insignificant costs to Franchise Tax Board (FTB) to administer
the changes to procedures and systems.
2)Estimated General Fund revenue decreases of $12,000, $70,000,
and $100,000 in Fiscal Year (FY) 2015-16, FY 2016-17, and FY
2017-18, respectively.
COMMENTS:
1)Author's Statement: The author has provided the following
statement in support of this bill:
AB 931 will expand the timeframe for veterans who have
separated from active duty to be eligible for a hiring
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tax credit which makes them a more attractive hire for
potential employers. This bill will also increase the
total amount of veterans in California who are
included in this group which will help employers
identify more unemployed veterans.
California is home to a growing population of over 1.8
million veterans. As two overseas operations are
concluding, the employment needs for veterans in
California will continue to increase. According to a
Congressional Joint Economic Committee report, the
unemployment rate for California's veterans continues
to be substantially larger than the national average.
The state's unemployment rate is also higher for
post-9/11 veterans.
There is not yet sufficient tax data on the
effectiveness of the New Employment Credit because it
began on January 1, 2014. However, based on early
project based on tax reservation the hiring tax credit
appears to be going underutilized. Less than 50
employers in the state have applied for tax
reservation for hiring a veteran eligible for the tax
credit.
AB 931 will address this by allowing more veterans to
be hired under the New Employment Credit. This tax
credit also ensures that those hired are paid at least
150% of the minimum wage and for no less than 35 hours
per week. This bill will increase incentives for
employers to connect Veterans with quality,
high-paying jobs.
2)Arguments in Support: According to the Council of California
Goodwill Industries, "[t]he employment needs for veterans will
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continue to increase in California. By increasing, from 12 to
36 months, the allowable timeframe for qualification for the New
Employment Credit, more veterans will be desired candidates for
employers. Veterans hired under this credit will be assured
stability in a job that will pay at least 150% of the minimum
wage and no less than 35 hours per week."
3)Arguments in Opposition: None on file.
4)What is a "tax expenditure": Existing law provides various
credits, deductions, exclusions, and exemptions for particular
taxpayer groups. In the late 1960s, United States Treasury
officials began arguing that these features of the tax law
should be referred to as "expenditures," since they are
generally enacted to accomplish some governmental purpose and
there is a determinable cost associated with each (in the form
of foregone revenues). This bill would modify the existing
hiring tax credit program by expanding eligible veterans that
qualify for the program.
5)How is a tax expenditure different from a direct expenditure?
As the Department of Finance notes in its annual Tax Expenditure
Report, there are several key differences between tax
expenditures and direct expenditures. First, tax expenditures
are reviewed less frequently than direct expenditures once they
are put in place. Second, there is generally no control over
the amount of revenue losses associated with any given tax
expenditure. Finally, it should also be noted that, once
enacted, it generally takes a two-thirds vote to rescind an
existing tax expenditure absent a sunset date. This effectively
results in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority vote.
6)Background: AB 93 (Budget Committee), Chapter 69, Statutes of
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2013, phased out and replaced the California Enterprise Zone tax
credits with three new economic development incentives: a)
hiring tax credit, b) partial sales and use tax exemption, and
c) a negotiated incentive administered by the Governor's Office
of Business and Economic Development (GO-Biz). The new hiring
tax credit incentivizes additional hiring of certain individuals
within specified geographic areas of California. In general, a
business is allowed to claim the hiring tax credit for wages
paid to a qualifying employee performing work in an economic
development area or certified census tract. As a way of
encouraging the hiring of veterans, the hiring tax credit
specifically provides that a taxpayer may claim a credit for
hiring a veteran who has separated from service in the Armed
Forces within the last 12 months. Despite the incentive, only
35 companies have claimed a credit for hiring a veteran<1>. The
author hopes to address the underutilization of the hiring tax
credit by adding veterans who have separated from service in the
Armed Forces within 36 months and are unemployed for the six
months immediately preceding commencement of employment with a
qualified taxpayer.
7)Do Hiring Tax Credits Work? In previous years, some have
advocated job creation tax credits as a means of revitalizing
the struggling economy. The question, however, is whether such
credits actually work, and whether they are an appropriate tool
in light of substantial declines in unemployment over the last
five years. Daniel Wilson, Assistant Director of the Center for
the Study of Innovation and Productivity at the Federal Reserve
----------------------------
<1>
The FTB has provided information indicating that only 35
companies have requested a tentative new employment tax credit
reservation for a veteran. However, FTB's research department
also notes that most of the companies applying for reservations
have been marking all of the categories. As such, the data may
not be representative of the actual number of employees that
qualify as veterans.
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Bank of San Francisco, attempted to answer this question. In a
paper co-authored with Robert Chirinko of the University of
Illinois at Chicago, Wilson examined the period between January
1990 and August 2009 and found that among states where employers
could qualify for credits immediately after enactment of the
credit legislation there was a slight employment increase of
0.12%. These findings suggest that hiring credits, at least at
the state level, have some impact but appear to be very a blunt
tool for stimulating job growth. Additionally, it is unclear if
the hiring tax credit provides an incentive or reward. The
state's unemployment rate has been steadily declining over the
last few years to a rate of 6.5%. An improved economy is more
likely to lead to additional hiring of all individuals in all
industries, irrespective of state incentives such as a hiring
tax credit. As a result, this hiring tax credit could
potentially provide an employer with a windfall for actions that
would have already taken place because of improvements in the
economy and job market.
Analysis Prepared by:
Carlos Anguiano / REV. & TAX. / (916) 319-2098
FN: 0000544