BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1391|
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THIRD READING
Bill No: SB 1391
Author: Yee (D)
Amended: 5/19/10
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 3-1, 5/12/10
AYES: Wolk, Alquist, Padilla
NOES: Ashburn
NO VOTE RECORDED: Walters
SENATE APPROPRIATIONS COMMITTEE : 6-3, 5/24/10
AYES: Kehoe, Alquist, Corbett, Leno, Wolk, Yee
NOES: Cox, Walters, Wyland
NO VOTE RECORDED: Denham, Price
SUBJECT : Tax credits: reporting information and
recapture
SOURCE : California Nurses Association
DIGEST : This bill requires a taxpayer doing business in
California that claims a tax credit to submit to the
Franchise Tax Board on the original return specified
information, including the number of employees employed by
the taxpayer in the state and the number of jobs created by
the tax credit. This bill also requires, in cases in which
a taxpayer subject to the provisions of the bill has a net
decrease in the number of full-time employees for a credit
added by statute on or after January 1, 2011, the credit to
be disallowed and the entire amount of any credit
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previously allowed to be recaptured and the taxpayer to be
liable for any credits on previous tax returns, as
specified.
ANALYSIS : 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.
This bill disallows certain credits that reduce taxes if
the taxpayer fails to achieve specified employment
requirements.
This bill requires a taxpayer doing business in the state
under personal income tax statutes or corporation tax
statutes to submit to the Franchise Tax Board (FTB) on a
timely-filed original return the following information:
1. The number of full time, part time, and temporary
employees employed by the taxpayer in the state.
2. The amount of tax credits claimed by the taxpayer on the
return for each tax credit.
This bill provides that for any tax credits added into law
on or after
January 1, 2011, the credit will be disallowed and any
credits previously allowed will be recaptured and the
taxpayer will be liable for any credits on previous tax
returns if the taxpayer has a net decrease in the number of
full-time employees according to the information submitted
to FTB.
The net decrease in qualified full time employees would be
determined on an annual full-time equivalent basis by
subtracting the total number of qualified full time
employees employed in the preceding taxable year by the
taxpayer and by any trade or business acquired by the
taxpayer during the current taxable year from the total
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number of full-time employees employed in the current
taxable year by the taxpayer and by any trade or business
acquired during the current taxable year.
This bill defines "full-time equivalent" to mean either of
the following:
1. In the case of a full-time employee paid hourly wages,
the total number of hours worked for the taxpayer by the
employee (not to exceed 2,000 hours per employee)
divided by 2,000.
2. In the case of a salaried full-time employee, the total
number of weeks worked for the taxpayer by the employee
divided by 52.
A part-time employee means an employee who works less than
an average of 35 hours in a week, calculated monthly. A
temporary employee means an employee who works less than
120 days annually.
The Legislative Counsel identifies a bill that imposes,
repeals, or materially alters a state tax as a tax levy.
According to FTB, this bill does not have any revenue
effect because it does not alter any provisions of current
tax law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
The revision of forms and instructions needed to permit the
filing of the necessary information would result in minor,
absorbable costs to FTB.
SUPPORT : (Verified 5/24/10)
California Nurses Association (source)
Alliance of Californians for Community Empowerment
American Federation of State, County and Municipal
Employees, AFL-CIO
American Federation of Teachers Local 1521
California Alliance for Retired Americans
California Church Impact
California Conference Board of the Amalgamated Transit
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Union
California Conference of Machinists
California Federation of Teachers
California Hunger Action Coalition
California Labor Federation
California Professional Firefighters
California Public Interest Research Group
California Tax Reform Association
California Teamsters Public Affairs Council
Health Access California
International Association of Theatrical and Stage
Employees
International Longshore and Warehouse Union Local 6 and
Local 94
Ironworkers Local 118, Local 155, and Local 377
Napa Solano Building Trades Council
Northern California District Council - International
Longshore and Warehouse Union
Plumbers and Steamfitters Local 159
San Mateo Building Trades Council, Plumbers and
Steamfitters Local 159
Service Employees International Union
Sierra Club California
United Food and Commercial Workers Union Local 1428
United Food and Commercial Workers Western States Council
Unite-HERE International Union
Western Center on Law and Poverty
Western States Council
OPPOSITION : (Verified 5/25/10)
BIOCOM
California Aerospace and Technology Association
California Bankers Association
California Chamber of Commerce
California Grocers Association
California Manufacturers and Technology Association
California Taxpayers Association
Irvine Chamber of Commerce
TechAmerica
ARGUMENTS IN SUPPORT : According to the author, "SB 1391
brings much needed transparency and accountability to
corporate tax expenditures. This bill will allow the state
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to recoup, or 'clawback,' any future tax expenditures given
to a corporation that fails to meet employment or
investment commitments. Specifically, this bill would
require corporations to annually submit to the Franchise
Tax Board specified information relating to how they used
the tax credits they received to retain or create jobs.
Corporations receiving tax expenditures will be required to
payback the entire amount of any assistance to the state if
the corporation has a net decrease in the number of
full-time employees. Clawback provisions make tax
expenditures more effective, transparent, and accountable.
This bill will set clear expectations for corporations and
guarantee that the state's investment will yield measurable
results in the form of job retention and creation."
ARGUMENTS IN OPPOSITION : The opponents believe the
reclamation provision of the bill is "problematic because
it creates uncertainty for employees, and the reliability
of the investment credits is what allows employers to make
decisions that help the state in the long run. For
example, an employer might decide to employ someone in a
growing department, anticipating that this job would
qualify for a relevant credit. If later in the year the
employer decides that another department is over-staffed
based on its current needs, this bill would consider that
cut to nullify the value of the earlier hire, and would
require the employer to return the other investment credit
- nevermind that such a cut might enable the employer to
hire someone new in another department next year.
Investment incentives are not beneficial to the state only
if they result in a net increase in jobs. In addition,
hiring decisions are made based on long-term goals, not
strictly within the fiscal tax cycle."
DLW:mw 5/26/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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