BILL ANALYSIS Ó
AB 2055
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Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2055
(Gipson) - As Amended April 26, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Income taxation: credits: California competes
SUMMARY: Requires that 25% of the California Competes Tax
Credit (CCTC) allocation be reserved for taxpayers that make
qualified sustainable freight investments, as defined.
Specifically, this bill:
1)Requires that each fiscal year (FY), beginning with the
2018-19 FY, 25% of the aggregate amount of the CCTC that may
be allocated under the Personal Income Tax (PIT) and the
Corporation Tax (CT) laws be reserved for taxpayers that make
qualified sustainable freight investments.
2)Defines "qualified sustainable freight investment" as the
purchase or installation of zero-emission and
near-zero-emission equipment and support infrastructure in a
trade corridor.
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3)Defines "trade corridor" as a trade corridor that would have
been eligible for allocation from the Trade Corridors
Improvement Fund pursuant to Section 8879.23(c)(1)(A) of the
Government Code.
4)Defines "zero-emission" and "near-zero-emission," consistent
with Section 39719.2 of the Health and Safety Code, as
vehicles, fuels, and related technologies that reduce
greenhouse gas emissions and improve air quality when compared
with conventional or fully commercialized alternatives, as
defined. "Zero- and near-zero emission" may include, but is
not limited to, zero-emission technology, enabling
technologies that provide a pathway to emissions reductions,
advanced or alternative fuel engines for long-haul trucks, and
hybrid or alternative fuel technologies for trucks and
off-road equipment.
5)Requires the Franchise Tax Board (FTB) to review the books and
records of the taxpayer allocated the credit amount for a
qualified sustainable freight investment, as specified, and
notify Governor's Office of Business and Economic Development
(GO-Biz) of a possible breach of the written agreement, as
provided.
6)Requires Go-Biz to use the existing applicable criteria when
allocating this credit and to create equivalent criteria for
jobs a taxpayer will create or retain under a collective
bargaining agreement.
7)Contain legislative findings and declarations regarding
California's trade infrastructure needs and incentives for the
adoption of zero-emission and near-zero-emission technology at
California's public seaports and trade corridors.
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8)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Allows a credit against the taxes imposed under the CT Law and
the PIT Law 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 FY
through the 2017-18 FY, as specified.
FISCAL EFFECT: Unknown
COMMENTS:
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1)The Author's Statement . The author has provided the
following statement in support of this bill:
"AB 2055 seeks to ensure [that] California has viable options
for reducing greenhouse gas emissions in our effort to support
the Governor's plan for long-term, environmental
sustainability. Governor Brown issued Executive Order B-32-15
in 2015, which directed the creation of a sustainable freight
plan with the express goals of transitioning the freight
economy to zero-emissions and near-zero-emissions equipment
and infrastructure. The Administration has identified the
replacement of 100,000 pieces of conventional freight
equipment or vehicles with zero-emissions technology as a
primary goal of the state. This bill works within the current
framework of California Competes Tax Credit, while seeking to
serve as a key tool for California's ports to meet the state's
environmental objectives."
2)Arguments in Support . The proponents state that investments
in California's public ports "will improve our state's
economy, grow jobs, improve standards of living, increase
state and local tax revenues, and result in a cleaner
environment." They assert that, within California's
established Trade Corridors, the business community of
California, including marine terminal operators and ocean
carriers, have made multi-billion dollar investments in
environmental improvements and have achieved tremendous
successes in reducing air quality impacts at our Seaports. The
proponents argue that AB 2055 can help create "win-win
investments in our trade corridors, create cost savings,
improve our competitiveness, and help grow cargo and jobs
while also investing in the environment."
3)The "California Competes" Tax Credit Program . In 2014,
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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
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. Existing
law also requires that each fiscal year at least 25% of the
aggregate credit amount be reserved for small businesses,
i.e., a business with $2 million or less in gross receipts,
minus returns and allowances.
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
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processing, high tech, etc. In FY 2014-15, the aggregate
allocation amount was $151.1 million, of which a total of over
$142 million (after adjusting for S-corporation tax law)<1>
has been awarded to various companies, including Northrop
Grumman, Macy's.com, Inc., Alibaba.com, and Honeywell
International, Inc. Finally, as of November 10, 2015, the
CCTC Committee has approved, for the FY 2015-16, over $43
million in CCTC awards (as adjusted for S-corporation tax law)
to companies such as, for example, IBM Corporation,
NerdWallet, Inc., and Pacific Steel Group.
4)A Different Kind of Credit. The CCTC program was designed to
retain businesses in California, as well as to encourage
businesses to move to California or expand their current
in-state operations. Unlike many other existing tax credits,
the CCTC is targeted, capped and allocated. In many respects,
it is similar to a grant program. GO-Biz is required to
allocate and certify the credit, up to a certain prescribed
amount every FY. The credit is non- refundable and may be
recaptured if the taxpayer fails to satisfy the terms and
conditions of a written agreement with Go-Biz. 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
---------------------------
<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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criteria. In the event that a taxpayer fails to perform under
the written agreement, the credit is recaptured.
The original legislation that created the 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, 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.
5)California Global Warming Solutions Act . In 2006, Governor
Schwarzenegger signed into law AB 32 (Nunez), Chapter 488,
Statutes of 2006, which established an air quality improvement
program to help California achieve reductions in greenhouse
gas emissions by 2020 that equal the state's emissions levels
in 1990. Relative to this goal, in 2015, Governor Brown
issued Executive Order B-32-15, which directed the creation of
a sustainable freight plan with the express goals of
transitioning the freight economy to zero-emissions and
near-zero-emissions equipment and infrastructure. Governor
Brown directed various state agencies to initiate work on
corridor-level freight pilot projects with the State's primary
trade corridors that integrate advanced technologies,
alternative fuels, freight and fuel infrastructure, and local
economic development opportunities. The Administration has
identified the replacement of 100,000 pieces of conventional
freight equipment or vehicles with zero-emissions technology
as a primary goal of the state.
6)California's Ports and International Trade: What is the
Problem ? California is a major trade gateway on the Pacific
Rim and is home to three of the world's 50 largest ports.
Local economies surrounding the ports depend on California's
ability to attract and grow its cargo volumes. According to
the author's office, California's major seaports in Long
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Beach, Los Angeles, Oakland, Port Hueneme, Richmond, and San
Diego are either "trust grant" ports, i.e., operating on
state-owned property, or special districts set up under the
California Harbors and Navigation Code. The real property at
these ports is publicly owned; however, the ports are operated
as enterprises with private revenue streams. The primary form
of infrastructure funding comes from revenue bonds secured
against future operations or lease revenues.
The author states that California's maritime industry has made
significant improvements of port infrastructure, upgrading all
ships, trucks, cranes, trains, tugs and cargo handling
equipment to ensure that they are amongst the cleanest in the
word. As a result, the air quality has improved markedly
around California's ports. However, their environmental
efforts have not been replicated by the competitors in other
ports across North America. Many argue that California's
ports and their partners are losing cargo because of higher
costs, which negatively affects the industry's profits needed
to reinvest in newer air quality improvement projects. Some
believe that California can further reduce environmental
impacts and address the ports' competitiveness by helping our
seaports to transition from its more conventional equipment to
the next generation of zero-emissions and near-zero-emissions
infrastructure and equipment, and consequently, improve ports'
emissions profile.
7)What Does This Bill Do ? This bill proposes to reserve 25% of
the aggregate annual amount of CCTC allocation to taxpayers
that make qualified sustainable freight investments, beginning
with the FY 2018-19, and requires the FTB to review the books
and records of those taxpayers to ensure compliance. This
bill would apply prospectively only and would not impact any
of the existing amounts available for allocation through FY
2017-18.
8)Special Treatment ? Taxpayers who would be advantaged by this
bill are already able to compete for the CCTC awards. This
bill would simply prioritize their applications to ensure
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adequate CCTC allocations. The author and the industry
believe that the proposed set aside is critical in meeting the
goal of sustainable freight plan, given the Governor's overall
goal for GHG emission reductions. Although existing law
already reserves 25% of the CCTC allocation to small
businesses, it does so on the basis of the size of the
business rather than its main activity. While cognizant of
the need for the large-scale sustainable freight investments,
Committee staff notes that this bill would favor one industry
over another, thereby establishing a precedent for reserving a
large amount of CCTC funds to one group of taxpayers the state
wishes to subsidize.
9)Related Legislation . AB 961 (Gallagher) would have
temporarily increased the aggregate amount of the California
Competes Tax Credit that may be allocated to taxpayers by $50
million per fiscal year. AB 961 was held on this Committee's
Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
Pacific Merchant and Shipping Association (Sponsor)
Opposition
None on file
AB 2055
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Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098