BILL ANALYSIS
AB 340
Page A
Date of Hearing: May 4, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 340 (Knight) - As Amended: March 24, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income taxes: credits: hiring credit
SUMMARY : Allows a tax credit, under both the Personal Income
Tax Law and the Corporation Tax Law, for each "qualified
employee" employed by a "qualified employer", as specified.
Specifically, this bill :
1)Allows, for each taxable year beginning on or after January 1,
2009, a credit for each "qualified employee" employed during
the taxable year by a "qualified employer".
2)Provides that the per employee credit shall be:
a) $3,000; or,
b) $5,000, if the qualified employee's wage is 200% or more
than the "average wage in the county in which the qualified
employee is located".
3)Defines "qualified employee" as an employee who is a
California resident employed by the "qualified employer" on a
"qualified job".
4)Defines "qualified employer" as "a taxpayer that is a person
engaged in a trade or business within California that has
either established a headquarters within California or
relocated a headquarters to California".
5)Defines "headquarters" as "the principal central
administrative office in California of a qualified employer
that employs 30 or more qualified employees at that office".
6)Defines "qualified job" as "employment located at the
qualified employer's headquarters that is full-time
employment, as defined by law and regulation, and that pays
wages that equal or exceed the average wage in the county in
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which the headquarters are located".
7)Provides that an employee of a corporation that is a member of
a controlled group of corporations, as defined, shall be
treated as employed by a single taxpayer.
8)Authorizes the Franchise Tax Board (FTB) to prescribe
appropriate regulations to administer the credit.
9)Provides that the credit shall be available to a qualified
employer for the first taxable year in which the qualified
employer's headquarters are established within, or relocated
to, California, and the succeeding taxable year.
10)Provides that, in cases where the credit allowed exceeds a
taxpayer's tax liability, the excess may be carried over to
reduce the taxpayer's liability in the following year, and the
succeeding 10 years if necessary, until the credit has been
exhausted.
11)Provides that any deduction otherwise allowed for qualified
wages shall not be reduced by the amount of the credit.
12)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Allows various tax credits designed to provide tax relief for
taxpayers who incur certain expenses or to influence behavior,
including business practices.
2)Provides for the following geographically targeted economic
development areas (G-TEDAs): Enterprise Zones, Manufacturing
Enhancement Areas, Targeted Tax Areas, and Local Agency
Military Base Recovery Areas. Special tax incentives are
provided to taxpayers conducting business activities within a
G-TEDA. These incentives include a hiring credit equal to a
percentage of wages paid to qualified employees.
3)Allows a credit for taxable years beginning on or after
January 1, 2009, to qualified employers equal to $3,000 for
each net increase in qualified full-time employee hired during
the taxable year, determined on an annual full-time equivalent
basis. The credit is allocated by FTB and is capped at $400
million for all taxable years.
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FISCAL EFFECT : FTB estimates that this bill would reduce state
revenues by $150 million in fiscal year (FY) 2009-10, $230
million in FY 2010-11, and $250 million in FY 2011-12.
COMMENTS :
1)The author states:
"The Arizona Chamber of Commerce in a recent newsletter
discusses that they intend to capitalize upon California's
anti-business climate. 'While it is glamorous to lure
companies from Germany and other countries to Arizona, our
golden opportunity is right next door. Although California
is home to beautiful beaches and temperate weather, people
- and companies - are fleeing the state.' And Arizona
isn't the only one that is profiting from California's
anti-business climate. Recently California lost a Toyota
Prius plant to Mississippi due to their lower business
costs, while California consumers make up more than 26% of
the Prius market. When the cost of shipping vehicles
across the nation outweighs the costs of doing business in
California it is time for us to rethink our tax policy."
"So, to that end, we must stop spending. We must stop
taxing. We must stop forcing businesses and jobs out, with
higher taxes driving higher unemployment rates. This
vicious cycle must end now. The place to start is with job
creation. The private sector is where we will fix our
struggling economy, it is where we will begin to alleviate
our hefty unemployment rates by lowering the tax burden on
Californians. This starts with the tax credits offered in
AB 340."
2)Opponents state, "During tough budget times, we do not see the
value of enacting such an extensive wage credit program that
will result in massive revenue losses. We have not been
convinced that more targeted wage credit programs, such as the
state's enterprise zone program, have produced beneficial
results for specific economic regions. Moreover, recent
evidence [has] shown the program to be fraught with waste,
fraud and abuse and in dire need of reform. For example, many
companies claimed the credit retroactively for employees that
they had already hired. We do not believe the state should
subsidize companies for doing something that they are going to
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do in the absence of any tax incentives."
3)FTB has noted a number of implementation concerns with this
bill, including the following:
a) "This bill uses terms that are undefined such as,
'qualified wage' and 'average wage'. The absence of
definitions to clarify these terms could lead to disputes
with taxpayers and would complicate the administration of
this credit."
b) "This bill would allow the qualified employer to receive
a $5,000 credit if the wages paid to the qualified employee
are 200 percent or more than the average wage in the county
in which the qualified employee is located. This bill
fails to specify the source for [determining] the amount of
average county wages. The department lacks the expertise
to determine the source for the amount of average wage of
each county to the extent there are several different wages
published. It is recommended the bill be amended to
identify EDD [the Employment Development Department] as a
source to identify average county wages."
c) "In addition, this bill specifies the 200 percent
average wage would be determined by the county in which the
qualified employee is located. It is unclear what the
author means by 'qualified employee is located'. This
could mean the employee's residence or the location of
employment, including if the employee lives in a county
with a low average wage but works in a county with a higher
average wage. If this is not the author's intent, the
author may wish to amend the bill to clarify the term
'located' in order to ease the administration of this
bill."
d) "This bill would require a qualified employee to be a
resident of California. Because residency examinations are
evasive and complex, the requirement for an employee to be
a resident of California would be a burden to the employer.
If the author's intent was to require an employee to live
in California, the term 'resident' should be replaced with
'live in this state'."
e) "This bill would allow the credit to be available to
qualified employers for the first taxable year and
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succeeding year from the time the qualified employer's
headquarters are established within or relocated to
California. It is unclear what the author means by
'available' for the first taxable year and succeeding
taxable year, although it is assumed that the author
intends the credit to be allowable for the taxable year of
establishment or relocation of the headquarters to
California and the subsequent taxable year. If this is not
the author's intent, the author may wish to amend the bill
to clarify how this provision would operate in order to
ease the administration of this bill."
4)FTB also notes that this bill contains provisions limiting the
credit to taxpayers employing California residents. As such,
this bill may be subject to a challenge under the commerce
clause of the United States Constitution because it appears to
favor employers that hire California residents.
5)Finally, FTB notes, "Because this bill fails to specify
otherwise, a taxpayer could potentially claim the credit
proposed by this bill, the newly enacted Job Tax Credit
(Calderon, Stats. 2009 Third Extraordinary Session, Ch. 17),
the Enterprise Zone Hiring Credit, and the Local Agency
Military Base Recovery Credit using the same employee wages.
Generally, a credit is allowed in lieu of any deduction or
credit already allowable for the same item of expense in order
to eliminate multiple tax benefits."
6)Committee Staff Notes:
a) Committee staff note the following related legislation:
i) SB 508 (Runner) of the current Legislative Session
would provide a tax credit for a qualified taxpayer on
the first $6,000 of wages paid or incurred to a qualified
employee and would be subject to the recently enacted 50%
credit limitation. SB 508 is currently in the Senate
Committee on Revenue and Taxation.
ii) SB 612 (Runner) of the current Legislative Session
would provide a tax credit of $500 per month for each
qualified employee employed by a taxpayer and would be
subject to the recently enacted 50% credit limitation.
SB 612 is currently in the Senate Committee on Revenue
and Taxation.
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b) This bill adds the same Revenue and Taxation Code
Sections - 17053.80 and 23623 - as those used in the
recently enacted Jobs Tax Credit. The author may wish to
use different code sections to avoid complications.
c) This bill does not contain a sunset date to permit
periodic review of the tax credit's efficacy.
d) FTB has recommended a series of technical and
administrative amendments to this bill, which are noted in
FTB's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
California Professional Firefighters
California Tax Reform Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098