BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 931 |Hearing | 7/8/15 |
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|Author: |Irwin |Tax Levy: |Yes |
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|Version: |6/30/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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TAXATION: CREDIT: HIRING
Allows veterans separated from military service for a longer
period of time to also qualify their employers for the AB 93
hiring credit.
Background and Existing Law
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. The
Legislature typically enacts such tax incentives to encourage
taxpayers to do something that but for the tax credit, they
would not do. The Department of Finance is required to annually
publish a list of tax expenditures, currently totaling around
$51 billion per year.
In 2013, the Legislature enacted AB 93 (Committee on Budget),
which reformed California's economic development policies by
eliminating enterprise zones and other geographically-targeted
economic development areas, and replaced them with three new tax
benefits:
Tax credits for wages paid by taxpayers to qualified
employees within former enterprise zones, and other areas
that suffer from high levels of poverty and unemployment.
AB 931 (Irwin) 6/30/15 Page 2
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The credit lasts from the 2014 taxable year until the 2019
taxable year. For calendar year 2014, there were 8,828
reservations with a tentative credit amount of $14,707,832,
with most reservation claims coming in November and
December.
A sales and use tax exemption on purchases of
manufacturing equipment made by taxpayers within specific
North American Industrial Classification System codes,
capped at $200 million annually per taxpayer, effective
July 1, 2014, and ending July 1, 2022.
The California Competes Tax Credit, where taxpayers
apply to the California Competes Tax Credit Committee, who
can then award various tax credits up to an annually capped
amount. The Committee can grant $30 million in tax credits
in 2013-14, $150 million in 2014-15, and $200 million for
the 2015-16, 2016-17, and 2017-18 fiscal years, plus
unallocated or recaptured credits from previous years.
For the wage credit, taxpayers in specified industries with a
net increase in full-time employment within census areas
designated by the Department of Finance with unemployment and
poverty rates within the top 25% of all census tracts within the
state, or in a former enterprise zone unless its unemployment
and poverty rates are within the bottom quartile statewide, or a
former local agency military base recovery area (LAMBRA), may
claim a tax credit equal to 35% of qualified wages paid to
qualified employees, defined as employees who meets all of the
following criteria:
Performs at least 50% of the work within the census
tract, former enterprise zone, or former LAMBRA,
Is paid wages that exceed 150% of the minimum wage,
Is hired on or after January 1, 2014,
Is hired after the date which the Department of
Finance determines that the census tract in which his or
her work is performed has unemployment and poverty rates
within the top 25% of all census tracts within the state,
or within a former enterprise zone that DOF determines
doesn't have unemployment and poverty rates within the
bottom quartile statewide,
Is either paid wages for at least 35 hours per week,
or is a fulltime salaried employee,
Was either unemployed for the past six months, was a
veteran separated from service in the last twelve months,
was a recipient of the federal earned income tax credit,
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was an ex-offender formerly convicted of a felony, or was
a Cal-Works or general assistance recipient.
Veterans separated from military service within the last twelve
months qualify their employers for the hiring credit, so long as
they meet all the other requirements in the law. Veterans with
longer separation periods are often unemployed or underemployed.
The author wants to allow veterans with 36 month separation
periods to also qualify their employers for the credit.
Proposed Law
Assembly Bill 931 allows veterans separated from military
service within the last 36 months to qualify their employers for
the AB 93 hiring credit, commencing in the 2016 taxable year.
State Revenue Impact
According to Franchise Tax Board, AB 931 results in revenue
losses of $12,000 in 2015-16, $70,000 in 2016-17, and $100,000
in 2017-18.
Comments
1. Purpose of the bill. According to the author, "AB 931 will
expand the timeframe for Veterans who have separated from active
duty to be eligible for a hiring 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
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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. Sure, but will it work ? Tax benefits directed for specific
purposes do two things: First, they reward behavior that would
have occurred without the subsidy, so-called "deadweight loss."
Some firms will hire veterans separated from the military for
more than a year because they're the best candidate for the
position, or because it's the right thing to do. In these
instances, the state receives no marginal benefit, and transfers
wealth from purposes it would otherwise spend money on for
government purposes to the firm. Second, the bill may lead to
more veterans being employed in California that wouldn't have
occurred but for the credit; the financial incentive provides
enough of a marginal benefit for the taxpayer to hire the
veteran. A successful tax credit leads to higher employment
rates for veterans separated from the military for more than a
year at the margin than its deadweight loss, but no tax credit
has yet conclusively demonstrated that its benefits outweigh its
costs. The Committee may wish to consider whether AB 931 will
increase veterans' employment sufficiently to justify its cost.
Assembly Actions
Assembly Floor 79-0
Assembly Appropriations 17-0
Assembly Revenue and Taxation 9-0
Support and
Opposition (7/2/15)
Support : The American Legion - Department of California; AMVETS
- Department of California; California Assessors Association;
California Association of County Veterans' Service Officers;
California Council of Chapters; California State Commanders
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Veterans Council; Military Officers Association of America; VFW
Department of California; Vietnam Veterans of America -
California State Council.
Opposition : None received.
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