BILL ANALYSIS
SB 483
Page 1
Date of Hearing: January 11, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
SB 483 (Corbett) - As Amended: September 10, 2009
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE : Not relevant.
SUBJECT : Corporation Tax Law: credit: automobile
manufacturing
SUMMARY : Provides a tax credit under the Corporation Tax (CT)
Law for specified automobile manufacturing activities in
California. Specifically, this bill :
1)Allows, for each taxable year beginning on or after January 1,
2010, a specified credit under the CT Law to a "qualified
taxpayer."
2)Limits the amount of the credit allowed per "qualified
taxpayer" for a taxable year to $10,000,000.
3)Provides that, for taxable years beginning on or after January
1, 2010, and before January 1, 2013, the credit shall be
claimed on an amended return filed with the Franchise Tax
Board (FTB) on or after January 1, 2013. No credit, however,
shall be allowed unless the "qualified taxpayer" is a
"qualified taxpayer" for the taxable year beginning on or
after January 1, 2013.
4)Provides that the credit amount shall be:
a) 30% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of 4,000 or more "qualified employees" during the
taxable year;
b) 25% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of at least 3,900 but not more than 3,999
"qualified employees" during the taxable year;
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c) 20% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of at least 3,800 but not more than 3,899
"qualified employees" during the taxable year;
d) 15% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of at least 3,700 but not more than 3,799
"qualified employees" during the taxable year;
e) 10% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of at least 3,600 but not more than 3,699
"qualified employees" during the taxable year; and,
f) 5% of "qualified expenditures" incurred during the
taxable year by a "qualified taxpayer" that employs an
average of at least 3,500 but not more than 3,599
"qualified employees" during the taxable year.
5)Defines a "qualified taxpayer" as a taxpayer engaged in
automobile manufacturing in California that employs an average
of 3,500 or more "qualified employees" as determined on an
annual basis.
6)Specifies that the average number of "qualified employees"
employed during a taxable year shall be determined by dividing
the total number of hours for which "qualified employees" were
paid "qualified wages" by 2,000. For purposes of this
calculation, a full-time salaried "qualified employee" shall
be treated as being paid for 40 hours per week.
7)Defines "qualified expenditures" as:
a) Amounts paid to purchase or lease "qualified property"
used in California for automobile manufacturing; and,
b) Amounts paid as "qualified wages" for services performed
in California for automobile manufacturing.
8)Defines "qualified property" as:
a) Tangible personal property (TPP) used by a "qualified
taxpayer" engaged in automobile manufacturing within
California that is primarily used for any of the following:
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i) Automobile manufacturing;
ii) Maintaining, repairing, measuring, or testing
specified property;
iii) Pollution control that meets or exceeds standards
established by the state or any local or regional
governmental agency within the state; and,
iv) Recycling.
b) The value of any capitalized labor costs that are
directly allocable to the construction or modification of
property and that are not "qualified wages."
c) Special purpose buildings and foundations, as defined,
that are constructed or modified for use by the "qualified
taxpayer" primarily in automobile manufacturing.
9)Provides that "qualified property" also includes computer
software that is primarily used to operate TPP as defined
above.
10)Provides that "qualified property" does not include any of
the following:
a) Furniture;
b) Facilities used for warehousing purposes after
completion of the manufacturing process;
c) Inventory;
d) Equipment used to store finished products; and,
e) Any TPP used in administration, general management, or
marketing.
11)Defines "qualified wages" as any wages required to be
reported under Unemployment Insurance Code (UIC) Section 13050
that were paid by a qualified taxpayer with respect to a
qualified employee. "Qualified wages" shall not include wages
related to financing, overhead, marketing, distribution, or
sales of completed automobiles.
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12)Defines a "qualified employee" as any individual employed by
the qualified taxpayer who performs services for the qualified
taxpayer at an automobile manufacturing plant during the
taxable year, and whose wages are required to be reported
under UIC Section 13050.
13)Defines "automobile manufacturing" as the manufacture of new
vehicles as defined in Vehicle Code (VC) Section 430 that are
passenger vehicles as defined in VC Section 465.
14)Provides that no credit shall be allowed for the purchase of
qualified property if the qualified property is removed from
the state, is disposed of, or is used for any purpose other
than automobile manufacturing in the same taxable year in
which the qualified property is first placed in service within
the state.
15)Provides that, in cases where the credit allowed exceeds the
taxpayers' tax liability, the excess may be carried over and
added to the credit, if any, in the following year, and
succeeding years if necessary, until the credit is exhausted.
16)Provides that Revenue and Taxation Code (R&TC) Section 23663,
which allows the assignment of eligible credits to affiliated
corporations, shall not apply to the credit allowed by this
bill.
17)Provides that no deduction or other credit shall be allowed
under the CT Law or the Personal Income Tax Law to the extent
of any qualified expenditures that are taken into account in
computing the credit allowed under this bill.
18)Provides that a qualified taxpayer may make an irrevocable
election to have this credit not apply for any taxable year.
For taxable years beginning on or after January 1, 2013, this
election shall be made on a timely filed original return.
19)Provides that, for taxable years beginning on or after
January 1, 2010, and before January 1, 2013, a qualified
taxpayer shall be deemed to have made an election to have this
credit not apply by failing to file an amended return on or
after January 1, 2013.
20)Takes immediate effect as a tax levy.
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EXISTING FEDERAL LAW : Allows, under Internal Revenue Code
Section 48C, a credit for qualified investments, as specified,
in qualifying advanced energy projects. The credit is equal to
30% of the qualified investment, as specified, during the
taxable year. For purposes of the credit, qualifying projects
include projects that re-equip, expand, or establish a
manufacturing facility for the production of new qualified
plug-in electric drive motor vehicles, qualified plug-in
electric vehicles, or components designed specifically for use
with these vehicles. The total amount of credits that may be
allocated under the credit program is limited to $2.3 billion.
EXISTING STATE LAW :
1)Allows various tax credits designed to provide tax relief to
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)Defines, under VC Section 430, a "new vehicle" as a vehicle
constructed entirely from new parts that has never been the
subject of a retail sale or registered.
4)Defines, under VC Section 465, a "passenger vehicle" as any
motor vehicle, other than a motortruck, truck tractor, or a
bus, that is used or maintained for the transportation of
persons.
5)Allows, under R&TC Section 23663, the assignment of eligible
credits to an affiliated corporation that is a member of the
same combined reporting group.
FISCAL EFFECT : Unknown. FTB notes that, because the number of
affected taxpayers is so small, the department's disclosure
rules prohibit the presentation of an estimated revenue impact
for this bill.
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COMMENTS :
1)The author provides the following statement in support of this
bill:
SB 483 would provide a significant tax credit (up to $10
million a year) to NUMMI/Toyota if they stay open for three
years and keep up the level of employment at the plant. We
hope this incentive along with other efforts will cause
Toyota to reverse its decision.
If another car manufacturer purchases the NUMMI plant to
manufacture cars they would also be eligible for the state
tax credit if they employ more than 3,500 Californians.
This state tax credit will protect workers, tax payers and
provide an incentive to continue operating the plant by
reducing the owner's corporate income tax obligation.
2)The California Labor Federation, which supports an automobile
manufacturing tax credit, notes the following:
NUMMI employs nearly 4,700 workers the majority [of whom]
are represented by the United Auto Workers Union, Local
2244. UAW members and the management have worked together
to make NUMMI one of the most productive factories in the
United States. NUMMI provides union jobs with good wages,
benefits and security so that workers can afford to raise
families in the San Francisco Bay Area.
NUMMI also creates an additional 15,000 jobs through
purchasing of supplies, transporting vehicles and shipping
at the ports. The closure of NUMMI would have a
devastating impact on working people and there would be
ripple effects throughout the state and the economy. In
these tough economic times, we cannot afford to lose a
union employer.
3)FTB has identified the following implementation concerns with
this bill:
a) This bill does not limit the number of years for the
credit carryover period. As a result, FTB would have to
retain the carryover on the tax forms indefinitely. Recent
credits have been enacted with a carryover period
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limitation since most credits are exhausted within eight
years of being earned.
b) The definition of "qualified taxpayer" is unclear and
could include manufacturers of component parts and
assemblies used in the assembly of completed automobiles.
If it is the author's intent to limit the credit to
manufacturers of completed automobiles, FTB suggests that
the bill be amended to make this intent clear.
c) This bill is silent on the deadline for a taxpayer to
file an amended return claiming the credit. Assuming that
an amended return claiming the credit is considered a claim
for refund or credit, the standard statute of limitations
barring refunds or credits would apply. If it is the
author's intent to specify a different filing deadline for
amended returns, FTB suggests that the bill be amended.
4)Committee Staff Comments:
a) The New United Motor Manufacturing, Inc. (NUMMI) Plant :
i) Following the 1982 closure of the General Motors
(GM) manufacturing plant in Freemont, California, GM and
Toyota Motor Corporation (Toyota) began discussions about
forming a joint venture in the United States. In 1983,
the parties signed a Memorandum of Understanding, and in
the following year, NUMMI was established as an
independent California corporation located in Freemont.
In 2002, NUMMI celebrated the production of its five
millionth vehicle, and in 2005, NUMMI produced more
vehicles than it had in any prior year.
ii) Beginning in 2008, GM began to experience
significant financial difficulties. On June 1, 2009,
after receiving billions in assistance from the federal
government, GM filed for Chapter 11 bankruptcy
protection.
iii) On August 27, 2009, Toyota announced its decision to
terminate all automobile production at its NUMMI plant in
Freemont. With the loss of roughly 4,700 jobs, this
closure represents a substantial blow to the regional
economy. Furthermore, it is estimated that the closure
will indirectly impact an additional 19,000 jobs through
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the ripple effect on suppliers, services, and local
businesses.
iv) On the very day Toyota announced its intentions
regarding the NUMMI plant, Governor Schwarzenegger sent a
letter to the leadership of the Legislature. In this
letter, the Governor stated:
Toyota's decision to close operations at the NUMMI
plant does not have to result in the permanent loss of
those high-paying jobs. California is uniquely
positioned to attract other manufacturers -
particularly in the emerging clean technology industry
- to use that facility if we lower the costs for a new
company to move in, retrofit or purchase new equipment
and retrain the local workforce.
The Governor went on to express his support for the
proposal advanced by AB 1111 (Blakeslee). Specifically,
he noted:
By providing a sales tax exemption on the purchase of
manufacturing equipment for advanced transportation,
renewable energy and other clean technology projects,
Assembly Bill 1111 provides critical incentives to
attract a new, clean-tech manufacturer to enter into
the NUMMI facility.
AB 1111 (Blakeslee), however, was held in the
Assembly Appropriations Committee.
b) Policy Questions :
i) Open to all : This bill is designed to save the
roughly 4,700 jobs that have been placed in jeopardy by
NUMMI's planned closure. It should be noted, however,
that this bill's tax credit is not limited to automobile
manufacturers located in Freemont, California. Instead,
this bill proposes to offer the credit to any and all
automobile manufacturers that employ at least 3,500
qualified employees in California. Thus, it is
conceivable that other automobile manufacturers could
move to California to take advantage of this measure.
While this, no doubt, would provide many high paying jobs
for California's struggling economy, it would also
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increase the direct cost of this tax credit, given that
the credit is only limited to $10 million per qualified
taxpayer per year.
ii) Tax Expenditures and Sunset Dates :
(1) The Department of Finance estimates that tax
expenditures (i.e., credits, deductions, exemptions,
etc.) reduced personal income tax revenues by roughly
$36 billion in fiscal year (FY) 2008-09. The Sales
and Use Tax (SUT) Law, in turn, contains identifiable
state tax expenditures worth about $9 billion
annually. For FY 2008-09, corporate tax expenditures
amounted to roughly $4 billion.
(2) It should be noted that, once enacted, it
generally takes a two-thirds vote to rescind an
existing tax expenditure. This effectively results in
a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a
supermajority vote.
(3) This measure currently lacks a sunset date to
allow periodic review of the tax credit's
effectiveness. The author may wish to consider
amendments adding an appropriate sunset date.
c) Related Legislation :
i) AB 31 (Torrico), 4th Extraordinary Session : Would
have provided a SUT exemption for specified TPP purchased
for use by an automobile manufacturer. AB x4 31
(Torrico) was never referred to committee.
ii) AB 394 (Torrico) : Provides a SUT exemption for
specified TPP purchased for use by an automobile
manufacturer located in Freemont, California. AB 394
(Torrico) is currently in the Senate Committee on Revenue
and Taxation.
iii) ACR 85 (Torrico) , Chapter 102, Statutes of 2009:
Makes various statements regarding the importance of
NUMMI to the California economy and declares the
necessity for the Legislature to use its vested powers to
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keep NUMMI in California.
iv) SB 32 (Corbett), 4th Extraordinary Session :
Requires the Department of Community Housing and
Development, upon application by the Freemont City
Council, to designate one enterprise zone within the City
of Freemont. SB x4 32 (Corbett) was reported from the
Senate Committee on Rules without further action.
v) SCR 53 (Corbett) , Chapter 121, Statutes of 2009:
Makes various statements regarding the importance of
NUMMI to the California economy and declares the
necessity for the Legislature to use its vested powers to
keep NUMMI in California.
d) Technical Amendment : On page 4, line 7, strike out "the
automobile manufacturing" and insert, "automobile
manufacturing".
REGISTERED SUPPORT / OPPOSITION :
Support
California Labor Federation
City of Hayward
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098