BILL ANALYSIS Ó
AB 961
Page A
Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 961
(Gallagher) - As Amended March 26, 2015
SUSPENSE
Majority vote. Fiscal committee. Tax levy.
SUBJECT: Income taxation: credits: California competes.
SUMMARY: Temporarily increases the aggregate amount of the
California Competes Tax Credit that may be allocated to
taxpayers by $50 million per fiscal year. Specifically, this
bill:
1)Increases the aggregate amount of the California Competes Tax
Credit, under both the Personal Income Tax (PIT) and the
Corporation Tax (CT) laws, by $50 million for the 2015-16
fiscal year (FY), and each FY thereafter, through the FY
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2017-18.
2)Authorizes the Governor's Office of Business and Economic
Development (GO-Biz) to allocate the additional amount of the
credit to eligible taxpayers located in a county, city and
county, or metropolitan statistical area that has a 10%, or
higher, rate of unemployment. The amount available for this
allocation in any given FY would be adjusted by any
unallocated credit amount from the preceding FY, and the
amount of any previously allocated credits that have been
recaptured.
3)Specifies that both of the following conditions do not apply
to the increased allocation amount of $50 million:
a) The minimum credit reservation applicable to small
businesses, as defined in Revenue and Taxation Code (RT&C)
Section 17053.73 or 23626; and,
b) The limitation on the maximum amount of the California
Competes Tax Credit that may be allocated to any one
taxpayer.
4)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Allows a credit against the taxes imposed under the
Corporation Tax (CT) Law and the Personal Income Tax (PIT) Law
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for each taxable year beginning on or after January 1, 2014,
and before January 1, 2025, in an amount as provided in a
written agreement between GO- Biz and the taxpayer, based on
certain specified factors, including the number of jobs the
taxpayer will create or retain in the state and the amount of
investment in the state by the taxpayer. The credit is
generally referred to as the "California Competes Tax Credit."
2)Authorizes GO-Biz to allocate the California Competes Tax
Credit with respect to the FY 2013-14 and each FY thereafter,
through and including FY 2017-18.
3)Limits the aggregate amount of the California Competes Tax
Credit that may be allocated to taxpayers under both the CT
and PIT laws to a certain specified sum per fiscal year.
4)Authorizes the Director of Finance to increase the aggregate
amount of the economic development credits that may be
allocated to taxpayers each fiscal year by $25 million per
fiscal year through the 2017-18 fiscal year, as specified.
FISCAL EFFECT: Unknown.
COMMENTS:
1)The Author's Statement . The author has provided the
following statement in support of this bill:
"Since the birth of the California Competes, the Governor's
Office of Business and Economic Development (GO-Biz) has
awarded 85 companies approximately $60 million to create an
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estimated 10,000 jobs and generate $3 billion in investment
across the state. In February, 2015, GO-Biz announced it
received a total of 253 applications with a combined tax
credit request of $289 million for the California Competes Tax
Credit period which ended on February 2, 2015. However, in
the 2015-16 fiscal year, GO-Biz is only authorized to award
$151.1 million in tax credits. Unfortunately, the requests for
tax credits from businesses aiding California's economy are
higher than the amount of money allocated for the program.
GO-Biz is over $137 million short of what was requested.
"The lack of funding for businesses applying for the credit is
limiting job growth and investment the state could create if
allowed to increase the budget of the program. This is
especially important for areas that have high unemployment.
Currently, the only funding requirement of the Program is that
25% of the total amount each fiscal year be reserved for small
businesses (those businesses that have gross receipts greater
than $0 but less than $2 million in the prior tax year). In
contrast, unemployment or poverty in an area is only one of
many factors that the California Competes Tax Credit Committee
considers, and there is no requirement in law that funding be
set aside specifically for these areas.
"The legislature must do everything in its power to encourage
economic development and business creation and expansion for
areas that are struggling to recover from the recession.
California Competes is a great start, but unless its efforts
are reinforced and targeted through additional financial
support for needy areas, the program will not be able to
perform to its full potential."
2) The "California Competes" Tax Credit (CCTC) Program . Last
year, Governor Brown signed legislation that reformed
California's economic development policies. [AB 93 (Committee
on Budget) Chapter 69, Statutes of 2014.] The new law
eliminated enterprise zones and other geographically targeted
economic development areas and, instead, created three new tax
benefits: (a) a temporary tax credit for wages paid by
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taxpayers to qualified employees within former enterprise
zones, and other areas that suffer from high levels of poverty
and unemployment; (b) a temporary sales and use tax exemption
on purchases of manufacturing equipment made by qualified
taxpayers, capped at $200 million annually per taxpayer; and,
(c) the California Competes Tax Credit program. Existing law
limits the total annual amount of these three tax incentives -
the wage credit, the sales and use tax exemption, and the
California Competes Tax Credit - to $750 million.
While the CCTC program is scheduled to sunset on January 1,
2025, GO-Biz is only authorized to award this credit to
qualified taxpayers until FY 2018-19, up to an annually capped
amount. The amount equals $30 million for the FY 2013-14,
$150 million for the FY 2014-15, and $200 million for the FY
2015-16, FY 2016-17, and FY 2017-18, plus certain statutorily
prescribed adjustments.
Out of the $30 million available for allocation in FY 2013-14,
$28.9 million was awarded.
The CCTC was granted to 30 companies (out of 390 companies
that applied), including 11 small businesses. According to
the information submitted by the companies that received the
credit, approximately 6,000 jobs and more than $2 billion in
investment across California will be created as a result of
the credit award. The companies represent various industries,
including manufacturing, biotech, agriculture, food
processing, high tech, etc. In FY 2014-15, the total
allocation amount is $151.1 million, of which a total of over
$100.3 million (after adjusting for S-corporation tax law)<1>
has been awarded so far to 146 companies, including Northrop
--------------------------
<1> One-third of the California Competes Tax Credit may be
utilized by an S-Corporation to offset the tax on net income at
the S-Corporation level (R&TC §23803(a)(1).) The remaining
two-thirds is disregarded and may not be used as a carryover for
the S-Corporation (R&TC §23803(a)(2)(A).) However, the full
amount of the California Competes Tax Credit is also passed
through to the S-Corporation's shareholders (R&TC
§23803(a)(2)(F).)
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Grumman, Macy's.com, Inc., Alibaba.com, and Honeywell
International, Inc.
3)Too Soon ? The CCTC program was designed to retain businesses
in California, as well as encourage businesses to move to
California or expand their current in-state operations.
Taxpayers must commit to create a certain number of jobs, make
a specified investment in California, and enter into a Tax
Credit Agreement with the GO-Biz. The award and the agreement
must be approved by the California Competes Tax Credit
Committee. The agreement to award credits takes into
consideration the number of jobs created, the compensation
paid to employees, amount of investment by the taxpayer in
California, the amount of unemployment or poverty in the area
according to the U.S. census, the overall economic impact of
the project, and the extent to which state benefits exceed
state costs, among other criteria. In the event that a
taxpayer fails to perform under the written agreement, the
credit is recaptured.
The original legislation that created that CCTC program requires
GO-Biz to provide information to FTB regarding the terms and
conditions of the written agreements and of any recapture, in
whole or in part, of a previously allocated credit. In turn,
the FTB must provide to the Joint Legislative Budget
Committee, by no later than March 1, a report of the total
dollar amount of the credits claimed with respect to the
relevant fiscal year. This exchange of information is needed
to facilitate the implementation of the CCTC program as well
as to evaluate its effectiveness.
The first round of allocations of the CCTC was done on June
19, 2014, when GO-Biz awarded $28.9 million to eligible
taxpayers. The amounts of credit available for allocation in
the current fiscal year and the following years, however, are
much higher: $150 million in FY 2014-15 and $200 million in
each of the FYs 2015-16, 2016-17, and 2017-18. Given that the
first credit award took place less than one year ago, the
Committee may wish to consider whether a modification of the
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program is warranted in the absence of data necessary to
evaluate the needs of the program or its effectiveness.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098