BILL ANALYSIS
AB 2577
Page 1
Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2577 (Knight) - As Introduced: February 19, 2010
SUBJECT : Employment taxes and contributions: aerospace
industry
SUMMARY : Exempts employers from withholding taxes for
remuneration paid to nonresidents of California who are employed
in the aerospace industry on a temporary basis. Specifically,
this bill :
1)Provides that "employee" does not include an individual if all
of the following conditions exist:
a) the person is a nonresident who is working temporarily
in this state for no more than 120 days in any 12-month
period and is employed in the aerospace industry;
b) substantially all of the remuneration for the services
performed by that person are for services directly related
to the aerospace industry; and
c) the services performed by the person are performed
pursuant to a written employment contract that the person
will not be treated as an employee with respect to those
services for state income tax purposes.
2)Defines "aerospace industry" as businesses primarily engaged
in:
a) manufacturing complete aircraft, missiles, or space
vehicles,
b) manufacturing aerospace engines, propulsion units,
auxiliary equipment, or parts;
c) developing and making prototypes of aerospace products;
d) aircraft conversion, by which major modifications are
made to aircraft systems; and
e) complete aircraft or propulsion systems overhaul and
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rebuilding including periodic restoration of aircraft to
original design specifications.
EXISTING LAW :
1)Defines an "employee" as a resident person who receives
remuneration for services performed within or without this
state or a nonresident person who receives remuneration for
services performed within this state. Employee includes an
officer of a corporation or an officer, employee, or elected
official of the United States, a state, territory, or any of
their political subdivisions.
2)Requires employers to withhold income taxes from the wages of
employees, to pay these taxes on a calendar quarterly basis,
and to quarterly file withholding returns with the Employment
Development Department (EDD).
3)Grants an exemption from withholding income taxes in
connection with the salaries, wages, or fees paid to a
nonresident of California who provides services as a corporate
director.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose. The purpose of this bill is to exempt the aerospace
industry from payroll taxes for non-resident temporary workers
working in the state for no more than 120 days in a 12 month
period.
2)Background. According to the author, existing law requires
employers to make payments and withholdings from wages paid
for employment regardless of the length of stay in California.
These payments and withholdings are then paid to EDD.
Currently, employers must make these payments and withholdings
from wages paid to short-term, temporary non-resident
employees.
The author points out that the aerospace industry is a vital
part of the state's economy. California is the birthplace of
this industry has been home to some of the largest aerospace
companies in the world. It employs thousands of people and
contributes significantly to the state's economy. This
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industry needs the temporary services of uniquely qualified
individuals such as test pilots, expert engineers, and special
project experts. The author also notes that states like New
Mexico and Arizona are offering incentives as a way to lure
the aerospace industry away from California.
3)Arguments in Support. The author states that when other
states are offering incentives while California makes key
temporary employees subject to payroll taxes, this places a
large burden on the aerospace industry in this state. If a
subject matter expert from another state is needed for a
California project, it is going to cost that company a
considerable amount of money. If the aerospace industry is
not allowed to be competitive in California, it will continue
to see an exodus of these companies. Already, Northrop
Grumman, one of California's largest employers decided to move
its corporate headquarters from the Los Angeles area to the
Washington D.C. area.
The author states this bill will simplify the onerous burdens
placed on key employees who travel outside their resident
state for temporary periods, and on the aerospace industry who
presently are subject to withholding and reporting
requirements.
4)Scope of bill is unclear. The bill is not clear on how
extensive its provisions apply. Its provisions would exempt
aerospace companies from withholding contributions toward
income taxes when paying for the services of nonresidents who
work no more than 120 days in any 12 month period. It is not
clear if these companies would also be exempt from paying any
of the other payroll taxes now required of employees such as
unemployment insurance and state disability insurance. It is
also unclear whether defining these workers as not employees
would impact their coverage in the workers' compensation
system. If the bill exempts temporary employees from those
programs that would be inconsistent with current state policy.
State policy provides that employees working in California
should be afforded the protections against unemployment
resulting from a workplace injury or an injury away from the
job.
It is not clear which employees would be covered by the bill.
The bill defines the conditions that would exempt a person
providing services to an aerospace company from being
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considered an "employee." None of those conditions, however,
specify that the person is performing duties for which
qualified persons are not available in California. Thus,
under the bill, a person working for the aerospace industry
who is performing truck driving duties, routine assembly work,
or other regular job duties would not be considered an
employee if they are considered a nonresident of California
and work on a temporary basis, as defined.
REGISTERED SUPPORT / OPPOSITION :
Support
California Space Authority
Lockheed Martin Aeronautics - Palmdale
Opposition
None received
Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086