BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1973 (Swanson)
Hearing Date: 08/12/2010 Amended: 06/28/2010
Consultant: Mark McKenzie Policy Vote: Rev&Tax 5-0
_________________________________________________________________
____
BILL SUMMARY: This bill would expand the existing Jobs Tax
Credit by authorizing a $5,000 credit for each "qualified
full-time employee" hired by a small business, as specified, for
tax years on or after January 1, 2011. For purposes of this
credit, a "qualified full-time employee" is defined as an
ex-offender convicted of a felony, except for a sex-offender or
person convicted of a serious or violent felony, or a person who
has been unemployed for at least 12 consecutive months.
_________________________________________________________________
____
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Tax credit expansion Tens of millions in cost pressuresGeneral
----------see staff comments----------
_________________________________________________________________
____
STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED.
Existing law provides hiring tax credits for employers operating
in enterprise zones, manufacturing enhancement areas, targeted
tax areas, and local agency military base recovery areas. ABx3
15 (Krekorian), Chapter 10 of 2009, enacted as part of the
2009-10 special session budget package, also provides for a
$3,000 per full-time employee hiring credit against the Personal
Income Tax and Corporation Tax for small business that has 20 or
fewer employees (Jobs Tax Credit). The increase in full-time
employees is calculated for a taxable year by comparing the
number of employees employed in the current year with the number
employed in the previous year on a full-time equivalent basis,
as specified. The credit is applicable for taxable years
beginning on or after January 1, 2009 and is allowed only for
credits claimed on timely filed returns until the last day of a
calendar quarter in which the Franchise Tax Board (FTB)
estimates that the cumulative credits claimed has reached $400
million for all taxable years.
AB 1973 would expand the existing Jobs Tax Credit by authorizing
a $5,000 credit against the Personal Income Tax and Corporation
Tax for each qualified full-time employee hired by a small
business that has 20 or fewer employees, for taxable years
beginning on or after January 1, 2011. A qualified employee is
defined as an individual who is either an ex-offender convicted
of a felony, except for a sex-offender or a person convicted of
a serious or violent felony, as specified, or a person who has
been unemployed for 12 consecutive months. This new criteria
for the Jobs Tax Credit for unemployed persons and ex-offenders
is subject to the same cumulative cap of $400 million for all
taxable years.
FTB reports that a total of $30.3 million in hiring credits have
been claimed on personal income tax and business entity returns
as of July 17, 2010. Claims related to the expanded credit
provided by this bill would not begin until the 2012 calendar
year since
Page 2
AB 1973 (Swanson)
the return on which the credits are claimed are for tax years
beginning on or after January 1, 2011. Staff notes that FTB
anticipates that, accounting for returns filed under an
extension and those filed on a fiscal year basis for the 2009
and 2010 tax years, the cumulative cap of $400 million will have
been reached prior to any filings based on the 2011 tax year.
To the extent that the cap has not been reached by 2012,
however, this bill would create significant cost pressures since
the bill would increase the demand on a limited pool of funds,
accelerating the depletion of the $400 million tax credit pool.
The accelerated depletion of the tax credit pool would result in
a corresponding tax revenue loss in earlier fiscal years than
would otherwise occur.
Notwithstanding the potential that the Jobs Tax Credit cap may
be reached prior to the filing of any claims based on the hiring
of ex-offenders or chronically unemployed persons, staff notes
that this bill has other technical implementation issues that
should be addressed, including the following: (1) the bill does
not specify who is to certify eligibility for credits based on
ex-offenders or those who have been unemployed for at least 12
consecutive months, or the criteria for determining eligibility;
(2) the existing $3,000 Jobs Tax Credit is based upon a "net
increase in full-time employees" determined on a full-time
equivalent basis, as specified, but the expanded $5,000 credit
is based upon the hiring of individuals on a per-employee basis,
which could create computational issues for FTB; and (3) the
bill changes the methodology in which the "net increase in
full-time employees" is calculated that could create distortions
in the credit formula when a business acquires an existing
business with employees, which could be counted as a net
increase in employees who may be eligible for the credit without
an new jobs being created.
Proposed amendments would:
Specify that employers are responsible for acquiring and
retaining records that would serve as evidence of
eligibility for claiming the credit.
Apply the general structure of the existing Jobs Tax
Credit to the expanded credit.
Specify that the credit would apply to ex-offenders and
chronically unemployed who are hired on or after the
enactment date.
Require calculations to be based upon "net increase in
full-time employees" rather than on a per-employee basis,
pursuant to the existing credit.
Allow credit for an ex-offender regardless of how long
ago they received a felony.