BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1216|
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THIRD READING
Bill No: SB 1216
Author: Hueso (D)
Amended: 5/4/16
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/27/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
NO VOTE RECORDED: Moorlach
SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16
AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen
SUBJECT: Income taxes: credits: qualified employees
SOURCE: Author
DIGEST: This bill establishes a tax credit for employers that
hire certain ex-offenders who have completed a work readiness
program.
ANALYSIS:
Existing law:
1) 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.
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2) Allows a New Employment Tax Credit, available to a qualified
taxpayer that hires a qualified full-time employee (CalWORKs
recipient, ex-offender convicted of a felony, veteran, or an
individual unemployed for six months) has an overall net
increase in employment, and pays or incurs qualified wages
attributable to work performed by the qualified full-time
employee in a designated census tract or former enterprise
zone. The credit is 35 percent of wages between 150 percent
and 350 percent of minimum wage, or $10 for a designated
pilot area. In order to obtain the credit, the qualified
taxpayer must have a net increase in its total number of
full-time employees working in California, when compared to
its base year both based on annual full-time equivalents.
The qualified taxpayer must receive a tentative credit
reservation from the Franchise Tax Board (FTB) for that
qualified full-time employee.
This bill:
1) Establishes a credit to a "qualified taxpayer" equal to 20
percent of the "qualified wages" paid or incurred to a
"qualified full-time employee." The credit cannot exceed
$15,000 per qualified taxpayer per taxable year and the
employee must be employed full-time for at least 36 months.
2) Defines a "qualified taxpayer" as a person or entity engaged
in a trade or business within the state that, during the
taxable year, pays or incurs qualified wages. If the
taxpayer is a pass-thru entity, the determination of whether
a taxpayer is a qualified taxpayer would be made at the
entity level and any credit would be allowed to pass through
to the partners and shareholders. This bill defines
"pass-thru entity" to mean any partnership or "S"
corporation.
3) Specifies that a "qualified taxpayer" does not include any
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of the following types of employers:
Employers that provide temporary help services.
Employers that provide retail trade services.
Employers that are primarily engaged in providing food
services.
Employers that are primarily engaged in services in
casinos, casino hotels, or drinking places.
Employers that are a "sexually oriented business" as
defined.
1) Defines "qualified wages" as wages that meet all of the
following requirements:
Wages that exceeds 150 percent of minimum wage, but
does not exceed 350 percent of minimum wage, unless the
employer is in a designated pilot area, then the allowable
wage is $10 an hour.
Wages paid between January 1, 2017, and January 1,
2022. In the case of any employee who is reemployed,
including a regularly occurring seasonal increase, in the
trade or business operations of the qualified taxpayer,
this reemployment would not be treated as constituting
commencement of employment.
1) Defines a "qualified full-time employee" as an individual
who meets all of the following requirements:
Receives starting wages that are at least 150 percent
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of the minimum wage, unless the employer is in a
designated pilot area, then the credit is allowed for
wages of $10 an hour.
Is an ex-offender previously convicted of a felony
who:
o Is at the time of hiring between 18 and 25 years
of age, and
o Demonstrates completion of a work readiness
program.
Hired by the qualified taxpayer on or after January 1,
2017, and
Satisfies either of the following conditions:
o Is paid qualified wage by the qualified taxpayer
for services not less than an average of 35 hours per
week.
o Is a salaried employee and was paid compensation
during the taxable year for full-time employment by the
qualified taxpayer.
1) Defines "work readiness program" as a program offered by a
job training provider that provides vocational job training,
education opportunities, and life skills. A work readiness
program must include all of the following:
Paid or unpaid on-the-job training opportunities,
pre-apprenticeship programs, vocational instruction or
internship placement.
The opportunity for academic advancement.
The opportunity to earn at least one industry
recognized certification.
A life-skills training component.
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1) States if employment of a qualified full-time employee is
terminated by a qualified taxpayer at any time during the
first 36 months after commencing employment with the
qualified taxpayer, whether or not consecutive, the tax for
the taxable year in which that employment is terminated would
be increased by an amount equal to the credit allowed for
that taxable year and all prior taxable years attributable to
qualified wages paid or incurred with respect to that
employee. This recapture provision would not apply to any of
the following conditions:
Termination of employment of a qualified full-time
employee who voluntarily leaves the employment of the
qualified taxpayer.
Termination of employment of a qualified full-time
employee who, before the close 36 months of employment,
becomes disabled and unable to perform the services of
that employment, unless that disability is removed before
the close of the 36 months and the qualified taxpayer
fails to offer reemployment to that employee.
Termination of employment of a qualified full-time
employee due to the misconduct of that employee.
Termination of employment of a qualified full-time
employee due to a substantial reduction in the trade or
business operations of the qualified taxpayer, including
reductions due to seasonal employment.
Termination of employment of the qualified full-time
employee when that employee is replaced by other qualified
full-time employees so as to create an increase in both
the number of employees and the hours of employment.
Termination of the employment of the qualified
full-time employee when that employment is considered
seasonal employment and the qualified employee is rehired
on a seasonal basis.
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1) States the credit can only be claimed on a timely filed
original return and only with respect to a qualified
full-time employee for whom the qualified taxpayer has
received a tentative credit reservation.
2) States any excess credit may be carried over to reduce the
net tax/tax for the succeeding five years, until the credit
is exhausted.
10) States this credit and the New Employment Tax Credit
may not both be claimed.
11) Applies to taxable years beginning on or after January
1, 2017, and before January 1, 2022
Comments
1)New Employment Credit v. SB 1216. The New Employment Tax
Credit provides a tax credit to employers who employ
ex-offenders convicted of a felony, among others, while this
bill is only available to ex-offenders convicted of a felony
who have completed a work readiness program. The New
Employment Tax Credit only applies to employers located in a
former enterprise zone, a local agency military base, a
designated pilot area, or a designated census tract, whereas
this bill applies to any employer statewide. Both credits
require the employee to work full time, and receive starting
wages between 150 percent and 350 percent of minimum wage,
unless the employer is in a designated pilot area, then both
credits allows an employer to receive the credit for a $10 an
hour wage. The New Employment Credit is 35 percent of wages,
and the SB 1216 credit is 20 percent of wages up to $15,000.
The employer must receive a tentative credit reservation from
FTB under both credits.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
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According to the Senate Appropriations Committee, the Franchise
Tax Board (FTB) estimates that the bill will result in a General
Fund revenue loss of $0.3 million in 2016-17, $1.1 million in
2017-18, and $1.8 million in 2018-19. FTB's implementation
costs have yet to be determined, but would likely reach the
hundreds of thousands of dollars annually (General Fund).
SUPPORT: (Verified5/27/16)
Alliance for Community Empowerment
Anti-Recidivism Coalition
CCEO YouthBuild
California Association of Local Conservation Corps
California Police Chiefs Association
Center for Employment Opportunities
Children's Defense Fund California
City Heights Community Development Corporation
City of Imperial Police Department
Civicorps
Communities United for Restorative Youth Justice
Compton YouthBuild
Conservation Corps of Long Beach
Conservation Corp North Bay
Councilmember Marti Emerald, City of San Diego
County of Imperial Probation Department
Fathers & Families of San Joaquin
Fresno Economic Opportunities Commission
Fresno Local Conservation Corps
Homeboy Industries
Imperial County Public Defender's Office
John Muir Charter Schools
Kids in Common
League of California Cities Latino Caucus
Los Angeles Conservation Corps
Opportunity Youth Initiative
Orange County Conservation Corps
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Reality Changers
Sacramento Regional Conservation Corps
San Diego Youth Development Office
San Francisco Conservation Corps
San Joaquin Regional Conservation Corps
San Jose Conservation Corps
Second Chance
Sequoia Community Corps
South County Economic Development Council
Urban Conservation Corps of the Inland Empire
Urban Corps of San Diego County
Women in Non-Traditional Employment Roles
YouthBuild San Joaquin
OPPOSITION: (Verified5/27/16)
Department of Finance
ARGUMENTS IN SUPPORT: According to the author, "In recent
decades, the number of Americans who have come in contact with
the criminal justice system has increased exponentially.
Between 1980 and 2009, California's prison population increased
583%. As a direct result of the state's increasing
incarceration rate the number of Californians with a criminal
record has soared. Currently, there are nearly eight million
individuals in the state's criminal history file. Upon release,
many California' have found it increasingly difficult to find
employment. As these California's have learned a felony
conviction or a prison or jail term on an individual's record
can have a substantial negative impact on future job procurement
for numerous reasons. Specifically, incarceration or a felony
conviction imparts a negative societal stigma that makes
employers less likely to hire ex-offenders. Overwhelmingly,
ex-offenders have tenuous relationships to the labor market.
Approximately 70% have dropped out of high school, contributing
to their un-employability. Moreover, time spent incarcerated
can make the matter worse by depriving those incarcerated the
chance to develop the job skills and social capital necessary
for success in the labor market later in life. Statistics
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demonstrate that younger felons have a more difficult time
reintegrating into society post incarceration. A recent
California Department of Corrections and Rehabilitation (CDCR)
outcome evaluation report indicated that younger felons
recidivate at the highest rates. Inmates released at age 24 or
younger return to prison at a rate of 67.2 percent. The
Franchise Tax Board has estimated that SB 1216's employer tax
incentive will cost the state $600,000 in lost revenue for the
2016-2017 fiscal year. However, it is important to note that
various analysts estimate that it costs California nearly
$60,000 annually to incarcerate an inmate in California prisons.
If SB 1216's employer tax incentive program keeps 10 high
risk-youth from re-offending then this program will cost the
state nothing in net revenue, (10x$60,000=$600,000).
Additionally, there are a multitude of additional social
benefits associated with an ex-offender successfully
reintegrating back into society ultimately resulting in greater
savings. SB 1216 is a much needed bill that seeks to help a
fragile and disadvantaged demographic group successfully
transition back into society post-incarceration by reducing the
barriers to employment these individuals frequently face."
ARGUMENTS IN OPPOSITION:The Department of Finance argues this
bill has a negative impact on state revenues. To maintain a
structural balance of the State Budget the state must weigh the
additional cost of this tax credit program with other competing
budget priorities. The Department of Finance notes that the New
Employment Tax Credit already provides a hiring credit for
ex-offenders within certain geographical regions.
Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
5/28/16 16:46:03
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