BILL ANALYSIS Ó
SB 1216
Page 1
SENATE THIRD READING
SB
1216 (Hueso)
As Amended June 29, 2016
Majority vote. Tax Levy
SENATE VOTE: 39-0
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |14-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Chang, Eggman, | |
| | |Eduardo Garcia, | |
| | |Jones, Quirk, | |
| | |Santiago, Weber, | |
| | |Wood, McCarty | |
| | | | |
| | | | |
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SB 1216
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SUMMARY: Establishes an income tax credit, under both the
Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law,
for employers that hire certain young individuals who are
ex-offenders convicted of a felony, as defined. Specifically,
this bill:
1)Allows an income tax credit, for taxable years beginning on or
after January 1, 2017, and before January 1, 2022, to a
"qualified taxpayer" equal to 23.5% of the "qualified wages"
paid to a "qualified full-time employee."
2)Provides that the amount of credit may not exceed $15,000 per
qualified taxpayer per taxable year.
3)Defines a "qualified taxpayer" as a person or entity engaged
in a trade or business within California that, during the
taxable year, pays or incurs qualified wages.
4)Specifies that a "qualified taxpayer" does not include any
employers that:
a) Provide temporary help services, as described in the
North American Industry Classification System (NAICS) Code
561320 published by the United States Office of Management
and Budget, 2012 edition;
b) Provide retail trade services, as described in NAICS
Sector 44-55;
c) Are primarily engaged in providing food services, as
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described in NAICS Code 711110, 722511, 722513, 722514, or
722515;
d) Are primarily engaged in services in casinos, casino
hotels, or drinking places, as described in NAICS Code
713210, 721120, or 722410; or,
e) Are "sexually oriented businesses," as defined.
5)Defines "qualified wages" as wages that meet all of the
following requirements:
a) That portion of the wages paid or incurred by the
qualified taxpayer that exceeds 150% of minimum wage, but
does not exceed 350% of minimum wage. However, if a
qualified full-time employee provides services exclusively
in a designated pilot area, as defined, qualified wages
must exceed $10 per hour or an equivalent amount for
salaried employees, instead of the 150% minimum wage
requirement.
b) Paid or incurred during the 60-month period beginning
with the first day the qualified full-time employee
commences employment with the qualified taxpayer. 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.
6)Defines a "qualified full-time employee" as an individual who
meets all of the following requirements:
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a) Receives starting wages that are at least 150% of the
minimum wage;
b) Is an ex-offender previously convicted of a felony who
is, at the time of hiring, between 18 and 25 years of age,
and who demonstrates completion of a work readiness
program;
c) Performs at least 50% of his or her services for the
qualified taxpayer during the taxable year in California;
d) Is hired by the qualified taxpayer on or after January
1, 2017; and,
e) Satisfies either of the following conditions:
i) Is paid qualified wages by the qualified taxpayer
for services not less than an average of 35 hours per
week.
ii) Is a salaried employee and was paid compensation
during the taxable year for full-time employment by the
qualified taxpayer.
7)Defines a "work readiness program" as a program offered by a
job training provider that offers vocational job training,
education opportunities, and life skills.
8)Requires a work readiness program to include all of the
following:
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a) Paid or unpaid on-the-job training opportunities,
pre-apprenticeship programs, vocational instruction, or
internship placement;
b) The opportunity for academic advancement;
c) The opportunity to earn at least one industry recognized
certification; and,
d) A life-skills training component.
9)Requires a qualified taxpayer to claim the credit only on a
timely filed original return of the qualified taxpayer.
10)Requires a qualified taxpayer to receive a tentative credit
reservation from the Franchise Tax Board (FTB) for each
qualified full-time employee, as specified.
11)Requires the FTB to do all of the following:
a) Approve a tentative credit reservation with respect to a
qualified full-time employee hired during a calendar year;
b) Determine the aggregate tentative reservation amount;
and,
c) Provide as a searchable database on its Internet Web
site, for each taxable year beginning on or after January
1, 2017, and before January 1, 2022, the employer names,
amounts of tax credit claimed, and number of new jobs
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created for each taxable year, as provided.
12)Provides that no deduction shall be allowed for wages paid or
incurred to the extent those wages are qualified wages with
respect to calculating a credit under this bill.
13)Contains findings and declarations for purposes of complying
with Revenue and Taxation Code Section 41.
14)Takes immediate effect as a tax levy.
EXISTING LAW:
1)Allows, under the CT Law and the PIT Law, an income tax credit
to qualified taxpayers that hire a qualified full-time
employee, have an overall net increase in employment, and pay
or incur qualified wages attributable to work performed by a
qualified full-time employee in a designated census tract or
former Enterprise Zone (the New Employment Credit).
2)Provides that a qualified full-time employee must meet at
least one of the following conditions upon commencement of
employment:
a) Be unemployed for six months immediately preceding
employment;
b) Be a veteran separated from the Armed Forces in the
preceding 12 months;
SB 1216
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c) Be a recipient of the Earned Income Tax Credit in the
previous taxable year;
d) Be an ex-offender convicted of a felony; or,
e) Be a current recipient of California Work Opportunity
and Responsibilities to Kids (CalWORKS) or general
assistance.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)One-time administrative costs to the FTB of approximately
$750,000 to implement the proposed tax credit and ongoing
administrative costs of approximately $150,000 to maintain the
program and searchable database. (General Fund)
2)Annual revenue loss of $0.3 million, $1.0 million, and $1.7
million in fiscal years 2016-17, 2017-18, and 2018-19,
respectively. (General Fund)
COMMENTS:
1)Author's Statement: The author has provided the following
statement in support of this bill:
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
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criminal history file.
Upon release, many Californians have found it increasingly
difficult to find employment. As these Californians 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 [of] the chance to develop
the job skills and social capital necessary for success in
the labor market later in life.
Statistics 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%.
[...]
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.
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2)What Does this Bill Do? This bill would create a new income
tax credit for employers who hire an ex-offender previously
convicted of a felony, who at the time of hiring is between 18
and 25 years of age, and who demonstrates documented
completion of a work readiness program. The worker must be
paid at least 150% of the state minimum wage during the
taxable year. The proposed credit amount would equal 23.5% of
the difference between 150% and 350% of minimum wage.
However, in the case of a qualified employee employed in a
pilot area the credit would be allowed for wages that exceed
$10 per hour or an equivalent amount for salaried employees.
The 350% of minimum wage cap would still apply.
3)How Different Is the Proposed Hiring Credit? The New
Employment Credit already provides a hiring tax credit to
employers who employ ex-offenders convicted of a felony, among
others. However, the proposed credit program is targeted
towards hiring only young ex-offenders convicted of a felony
who have completed a work readiness program. Furthermore,
this bill would make the credit available to qualified
employers on a statewide basis, instead of limiting it only to
former enterprise zones, local agency military bases,
designated pilot areas, and designated census tracts. Both
credit programs require a qualified employee to work full time
and require a qualified employer to pay wages between 150% and
350% of minimum wage, unless the qualified employee is working
in a designated pilot area. The existing credit percentage is
35% of qualified wages in contrast to 23.5% proposed by this
bill. Finally, unlike the New Employment Credit, the new tax
incentive would target individuals between 18 and 25 years of
age and does not require qualified employers to show a net
increase in employment.
Analysis Prepared by:
SB 1216
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M. David Ruff & Oksana Jaffe / REV. & TAX. / (916) 319-2098
FN: 0004016