BILL ANALYSIS Ó
AB 931
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GOVERNOR'S VETO
AB
931 (Irwin)
As Enrolled September 9, 2015
2/3 vote
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|ASSEMBLY: |79-0 |(June 1, 2015) |SENATE: |39-0 |(September 3, |
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|ASSEMBLY: |80-0 |(September 4, | | | |
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Original Committee Reference: REV. & TAX.
SUMMARY: Revises, under the Corporation Tax (CT) and the
Personal Income Tax (PIT) Law, the definition of a "qualified
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full-time employee" to include a veteran who separated from
service in the United States Armed Forces within 36 months
preceding commencement of employment with a qualified taxpayer,
for purposes of qualifying for a hiring tax credit.
The Senate amendments:
1)Revise the definition of a "qualified full-time employee," for
taxable years beginning on or after January 1, 2014, and
before January 1, 2016, to include a veteran who separated
from service in the Armed Forces of the United States within
the 12 months preceding commencement of employment with the
qualified taxpayer.
2)Revise the definition of a "qualified full-time employee," for
taxable years beginning on or after January 1, 2016, to
include a veteran who separated from service in the Armed
Forces of the United States within the 36 months preceding
commencement of employment with the qualified taxpayer.
AS PASSED BY THE ASSEMBLY, this bill:
1)Revised, under the CT and the 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
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immediately preceding commencement of employment with the
qualified taxpayer.
2)Took effect immediate as a tax levy.
FISCAL EFFECT: According to the Senate Appropriations
Committee, the Franchise Tax Board (FTB) estimates that this
bill would result in General Fund losses of $20,000 in fiscal
year (FY) 2015-16, $150,000 in FY 2016-17, and $250,000 in FY
2017-18. The bill would not impact FTB's administration costs.
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
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.
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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)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.
3)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
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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.
4)Background: AB 93 (Budget Committee), Chapter 69, Statutes of
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
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<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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months and are unemployed for the six months immediately
preceding commencement of employment with a qualified
taxpayer.
5)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 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.
GOVERNOR'S VETO MESSAGE:
I am returning the following nine bills without my signature:
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Assembly Bill 35
Assembly Bill 88
Assembly Bill 99
Assembly Bill 428
Assembly Bill 437
Assembly Bill 515
Assembly Bill 931
Senate Bill 251
Senate Bill 377
Each of these bills creates a new tax credit or expands an
existing tax credit.
Despite strong revenue performance over the past few years, the
state's budget has remained precariously balanced due to
unexpected costs and the provision of new services. Now,
without the extension of the managed care organization tax that
I called for in special session, next year's budget faces the
prospect of over $1 billion in cuts.
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Given these financial uncertainties, I cannot support providing
additional tax credits that will make balancing the state's
budget even more difficult. Tax credits, like new spending on
programs, need to be considered comprehensively as part of the
budget deliberations.
Analysis Prepared by:
Carlos Anguiano / REV. & TAX. / (916) 319-2098
FN:
0002537