BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1056 - Denham
Amended: April 21, 2010
Hearing: April 28, 2010 Tax Levy Fiscal: Yes
SUMMARY: Allows a 25%Tax Credit for Wages Paid to
Qualified Veterans.
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
EXISTING FEDERAL LAW, under the Work Opportunity
Credit program, provides that an employer may qualify for a
tax credit of up to $9,000 if the employee is a member of a
designated target group including qualified veterans
receiving Food Stamps or qualified veterans with a service
connected disability, as specified.
EXISTING LAW allows a New Jobs credit enacted in 2009
to qualified employers equal to $3000 for each net increase
in qualified full-time employees hired during the taxable
year. The credit is limited to small businesses, as
defined, and is capped at roughly $400 million for all
taxable years (ABx3 15 Krekorian, SBx3 15 Calderon, 2009).
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THIS BILL provides a tax credit of 25 percent of the
qualified wages, not to exceed $6,000, paid to employees
who are qualified veterans beginning on or after January 1,
2010
Defines "qualified veteran" as an individual who satisfies
all of the following:
1. Is a member of the Armed Forces of the
United States who has been honorably discharged
within the five calendar years prior to
employment?
2. Received unemployment compensation within
California for no less than four weeks during the
12 calendar months before the date of employment,
and
3. Is employed by the taxpayer for not less
than 120 hours during the calendar year in which
the credit is generated.
Specifies that this credit would be reduced by any
other credit or deduction claimed with respect to qualified
wages or qualified employees. And, allows any unused
credits to be carried forward to future taxable years until
the credit is exhausted.
FISCAL EFFECT:
The Franchise Tax Board (FTB) states that SB 1056
would require a calculation for the credit that would
require a new form or worksheet to be developed. As a
result, this bill would impact the FTB's printing,
processing, and storage costs for tax returns. The
additional costs have not been determined at this time.
The FTB estimates that this bill would result in a
revenue loss of $170 million in 2010-11, $190 million in
2011-12, and $200 million in 2012-13.
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COMMENTS:
A. Purpose of the Bill
According to the author, "California faces record
unemployment rates of 12.4 percent. Our veterans are
returning home to tough economic times in California.
California has approximately 30,000 veterans per year
returning home from service, which is more than any other
state. Veterans of the Iraq and Afghanistan wars face tough
unemployment rates of 18.3 percent nationally. Creating
jobs to address our budget crisis and employing our
returning veterans must be a priority in California. With
the high level of unemployment, veterans must decide to
reenlist or move to another state to look for
unemployment."
"SB 1056 would be a strong incentive for businesses to
take the leap of hiring another employee. At the same time,
it opens the doors for veterans who have returned home
after their service. SB 1056 will create jobs which will
put money back into the economy helping to end our state
budget crisis."
B. Background: Tax Expenditures
The Department of Finance defines a tax expenditure as
a "deduction, exclusion, exemption, credit, or any other
tax benefit as provided by the state." When policymakers
institute new tax expenditures, the state agrees to forego
tax revenues in the hopes of providing increased equity in
the tax system or seeking to change private investment
behavior. This bill would enact a tax expenditure in the
form of a hiring credit, designed to encourage the
employment of veterans.
As California faces another fiscal imbalance,
policymakers are increasingly interested in the state's tax
expenditures, their goals and objectives as well as their
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efficacy. California foregoes approximately $50 billion in
revenue each year due to tax expenditures. These range from
the exclusion from income for pension contributions and
social security benefits to subsidies for other types of
economic behavior deemed preferable by the Legislature,
such as the mortgage interest deduction to spur
homeownership, the research and development credit to
stimulate high-paying jobs and new exciting consumer
products and services. Tax expenditures evoke passionate
and complicated debates, chiefly regarding whether state
legislative action to forego tax revenues from specified
taxpayers provides superior benefits than commensurate
direct spending programs or general tax reductions
C. Are Hiring Credits Effective?
SB 1056 seeks to expand opportunities for veterans by
allowing them to qualify their employers for a tax credit.
Federal and state governments already invest in job
training programs generally and veterans' employment
programs specifically. Are these programs effective? Why
or why not? How will SB 1056 complement existing efforts,
or should it supplant these programs because tax credits
will better accomplish the goal of increasing employment
among veterans? The Committee may wish to consider the
efficacy and efficiency of existing efforts of federal,
state, and local agencies to assist the targeted population
obtain employment before further straining its finances by
allowing a credit that may be duplicating current programs,
especially since veterans already qualify Enterprise Zone
employers for a tax credit equal to 50% of wages in the
first year, up to 150% of the minimum wage. Quite
different from direct spending measures, the Legislature
may only limit, reduce, or eliminate tax credits by 2/3
vote of each house of the Legislature, the Committee may
wish to consider a sunset provision for SB 1056, and
subsequently inserting a sunset should the measure advance
from the Committee's suspense file.
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D. Technical Considerations
Should the measure advance from the Committee's
suspense file, the Committee should amend SB 1056 to
address the following technical and implementation
concerns:
This bill does not provide a definition for
"wages." "Wages" are generally defined by reference
to amounts subject to withholding under the California
Unemployment Insurance Code.
This bill states that the credit would be decreased
by the amount of any other credits or deductions with
respect to qualified wages or qualified employees.
The language of this provision would reduce the amount
of any credit to zero because employee wages are
deductible. Often, credits include provisions to
reduce the amount of any deductions otherwise
allowable for the same expense used to calculate the
credit.
Support and Opposition
Support: California Concrete Contractors Association,
American Legion,
AMVETS, California Association of County Veterans Service
Officers, Vietnam Veterans of America, California
State Council, Engineering &
Utility Contractors Association, TXI Riverside Cement,
Associated Builders and Contractors (ABC) of California
Oppose:
American Federation of State, County, and Municipal
Employees, AFL-CIO, California Tax Reform Association
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Consultant: Meg Svoboda