BILL ANALYSIS Ó SENATE COMMITTEE ON BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT Senator Jerry Hill, Chair 2015 - 2016 Regular Bill No: AB 2901 Hearing Date: June 13, 2016 ----------------------------------------------------------------- |Author: |Committee on Jobs, Economic Development, and the | | |Economy | |----------+------------------------------------------------------| |Version: |April 12, 2016 | ----------------------------------------------------------------- ---------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ---------------------------------------------------------------- ----------------------------------------------------------------- |Consultant|Nicole Billington | |: | | ----------------------------------------------------------------- Subject: Income taxation: credits: California Competes Tax Credit Committee: GO-Biz SUMMARY: Creates three additional disclosure requirements for the California Competes Tax Credit Program (Program) under the Governor's Office of Business and Economic Development (GO-Biz). Existing law: 1)Establishes GO-Biz to serve as the lead state entity for economic strategy and marketing of California on issues relating to business development, private sector investment, and economic growth. (Government Code (GC) §§ 12096 - 12098.5) 2)Requires GO-Biz to post information on its website relating to the Program including: (Revenue and Taxation Code (RTC) § 17059.2 and § 23689) a) The name of each taxpayer allocated a credit pursuant to this section; b) The estimated amount of the investment by each taxpayer; c) The estimated number of jobs created or retained; AB 2901 (Committee on Jobs, Economic Development, and the Economy) Page 2 of ? d) The amount of the credit allocated to the taxpayer; and e) The amount of the credit recaptured from the taxpayer, if applicable. 3)Requires that priority for the Program be given to applications from taxpayers with projects or businesses located in high unemployment or high poverty areas. (RTC § 17059.2(c)(1) and § 23689(c)(1)) 4)Requires that at least 25 percent of the Program's tax credits be awarded to small businesses annually. (RTC § 17059.2(g)(2)(3) and § 23689(g)(2)(3)) This bill: 1) Expands the reporting requirements of the Program to include, on its website, the following information: a) The primary location of the facility(s) for which the taxpayer is applying for credits listed by city or, in the case of unincorporated areas, by county; b) Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, as specified; and c) Information that identifies each tax credit award that is being counted toward the requirement that, each fiscal year, 25 percent of the aggregate amount of credits allocated are required to be reserved for small business, as defined. FISCAL EFFECT: According to the Assembly Appropriations Committee analysis dated April 12, 2016, this measure would result in minor and absorbable cost to GO-Biz. AB 2901 (Committee on Jobs, Economic Development, and the Economy) Page 3 of ? COMMENTS: 1. Purpose. The Assembly Committee on Jobs, Economic Development, and the Economy (JEDE) is the Author and sponsor of this bill. According to JEDE, in March 2015, the committee held the first in a series of reviews of GO-Biz programs. The content of this bill was developed as part of the JEDE Committee's research for that hearing. According to the Author, the bill "codifies the reporting of key elements of the tax credit program, including the identification of business or project location, credits awarded to small businesses, and credit awards that received priority consideration. Each of these new reporting requirements represents a key element of the tax credit program and is essential to providing appropriate oversight and program transparency. These elements include information to identify: areas that are not currently being served; whether the requirements of the small business set aside are being met; and which areas of the state are benefiting from the priority application requirements for high unemployment and high poverty." 2. California Competes Tax Credit Program. The Program was established in 2013. It was part of a package of bills that eliminated the California Enterprise Zones Program and its related tax credits, including the New Hire Credit and the Sales and Use Tax Credit, among others. The approximately $750 million in tax incentives associated with those defunct programs was redirected to the California Competes Tax Credit, a more limited New Hire Credit, and a broader Sales and Use Tax-based incentive. The California Competes Tax Credit is a competitive tax credit that rewards companies for job creation and new investments made in the state. This includes conducting outreach workshops statewide to potential applicants, assisting applicants through the application process, analyzing applicant information, and making recommendations to the California Competes Tax Credit Committee on potential awardees. AB 2901 (Committee on Jobs, Economic Development, and the Economy) Page 4 of ? The Program negotiates credits on an individual basis, the value of which is determined by the California Competes Tax Credit Committee. Each award is documented through a written agreement between GO-Biz and the taxpayer; however, no taxpayer may receive more than 20 percent of the total annual allocation. Enforcement of the individual commitments is the responsibility of the Franchise Tax Board (FTB), which is directed to review the books and records of every non-small business taxpayer who receives a credit. FTB has the authority, but is not mandated, to review the books and records of small business tax payers. Program priority is given to taxpayers whose project or business is located or proposed to be located in an area of high unemployment or high poverty. High poverty areas are those that are at or above the federal poverty rate at the time of the tax credit award. High unemployment areas are those that are at or above the state unemployment rate at the time of the tax credit award. At least 25 percent of the tax credits are required to be awarded to small businesses on an annual basis. A small business is defined as having net revenues of less than $5 million in the prior five tax years. The FTB is responsible for providing GO-Biz with confirmation that a taxpayer is a "small business." Since inception, GO-Biz has awarded 24.4 percent of the tax credits to small businesses. Relative to the number of taxpayers receiving credits, 33.7 percent were small businesses. 3. Prior Related Legislation. AB 29 (Pérez, Chapter 475, Statutes of 2011) established GO-Biz within the Governor's Office to serve as the lead entity for economic strategy and marketing of California on issues relating to business development, private sector investment, and economic growth. AB 93 (Assembly Committee on Budget, Chapter 69, Statutes of 2013) instituted three new tax programs including the California Competes Tax Credit through GO-Biz for the purpose of attracting and retaining major employers. Additionally, the bill resulted in the cessation of certain tax provisions AB 2901 (Committee on Jobs, Economic Development, and the Economy) Page 5 of ? related Enterprise Zones and similar tax incentive areas and ending the Small Business New Jobs Credit tax incentive program. SB 90 (Galgiani, Chapter 70, Statutes of 2013) made various technical changes related to the Program. SB 100 (Senate Committee on Budget and Finance, Chapter 360, Statutes of 2013) was a trailer bill that, among other things, made various technical changes related to the Program. SUPPORT AND OPPOSITION: Support: None on file as of June 7, 2016. Opposition: None on file as of June 7, 2016. -- END --