BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1391|
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UNFINISHED BUSINESS
Bill No: SB 1391
Author: Yee (D)
Amended: 8/20/10
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
SENATE FLOOR : 22-11, 6/3/10
AYES: Alquist, Calderon, Cedillo, Corbett, DeSaulnier,
Ducheny, Florez, Hancock, Kehoe, Leno, Liu, Lowenthal,
Negrete McLeod, Padilla, Pavley, Price, Romero, Simitian,
Steinberg, Wolk, Wright, Yee
NOES: Aanestad, Ashburn, Cogdill, Correa, Denham, Dutton,
Harman, Hollingsworth, Strickland, Walters, Wyland
NO VOTE RECORDED: Cox, Huff, Oropeza, Runner, Wiggins,
Vacancy, Vacancy
ASSEMBLY FLOOR : 46-28, 8/25/10 - See last page for vote
SUBJECT : Income tax: business tax incentives
SOURCE : California Nurses Association
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DIGEST : This bill requires a taxpayer claiming a new
business tax incentive to report annually, for taxable
years beginning on or after
January 1, 2011, the number of employees employed by the
taxpayer in the state for the current and preceding taxable
years. Provides that the new business tax incentive may be
recaptured by the state if the taxpayer has a "net
decrease" in the number of full-time equivalent employees,
as specified.
Assembly Amendments delete from the Senate version of the
bill provisions which made Legislative Counsel key the bill
as a tax levy.
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:
1. Requires a taxpayer doing business in the state claiming
any new business tax incentive, as specified, under
either the Personal Income Tax Law or the Corporation
Tax Law to include annually, for tax years beginning on
or after January 1, 2011, on the timely filed original
return, in the form and manner prescribed by the
Franchise Tax Board (FTB), the number of full-time
employees, part-time employees, and temporary employees,
as defined, employed by the taxpayer in the state for
the current and preceding taxable years.
2. Exempts from these reporting requirements taxpayers with
25 or fewer employees that have net business income, as
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defined, of less than $500,000 for the taxable year.
3. Applies only to a business tax incentive that is allowed
by an act that takes effect beginning on or after
January 1, 2011, and is enacted with the purpose of
creating new jobs in the state.
4. Provides that, if a "disqualifying event" occurs before
the close of the "recapture period," the business tax
incentive claimed by the taxpayer will be subject to
recapture and the "recapture amount" will be added to
the taxpayer's taxable income or tax, as specified, with
interest.
5. Defines "disqualifying event" as a net decrease in the
number of full-time equivalent employees, calculated as
of the last day of the current taxable year.
6. Defines" recapture period" as the first full taxable
year beginning after the close of the taxable year in
which the business tax incentive reduces either the
taxpayer's taxable income or tax, plus four succeeding
taxable years.
7. Defines "recapture amount" as an amount computed by
multiplying the amount of business tax incentive allowed
to the taxpayer in the current tax year, plus any amount
previously allowed in prior taxable years, by a
fraction, the numerator of which is the net decrease in
full-time equivalent employees and the denominator of
which is the cumulative increase in the full-time
equivalent employees, as specified. Excludes from the
calculations any previously recaptured amounts.
8. Specifies that the "net decrease" in full-time
equivalent employees shall be determined, on and after
January 1, 2014, by subtracting the total number of
full-time equivalent employees employed by the taxpayer
in the current taxable year from the average number of
full-time equivalent employees employed by the taxpayer
during the three preceding taxable years. The average
number is calculated by dividing the total number of
full-time equivalent employees in the three preceding
taxable years by three. Excludes from these
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calculations employees who were employed in any trade or
business sold by a taxpayer.
9. Defines "full-time equivalent" as either of the
following:
A. In the case of a full-time employee paid hourly
qualified wages, "full-time equivalent" means the
total number of hours worked for the taxpayer by the
employee (not to exceed 2,000 hours per employee)
divided by 2,000.
B. In the case of a salaried full-time employee,
"full-time equivalent" means the total number of
weeks worked for the taxpayer by the employee divided
by 52.
10.Specifies that all employees of the trades or businesses
that are treated as related under either Internal
Revenue Code Section 267, 318, or 707 shall be treated
as employed by a single taxpayer.
11.Provides that the amount of business tax credits
recaptured shall include the credits reported by the
taxpayer on previous tax returns and interest computed
using the adjusted annual rate, as specified.
12.Defines "business tax incentive" as a credit, deduction,
exclusion, exemption, or any other tax benefit, added to
either Part 10 or Part 11 of the Revenue and Taxation
Code (RTC) by an act that takes effect beginning on or
after January 1, 2011, and allowed to taxpayers engaged
in or carrying on any trade, business, profession,
vocation or calling, or commercial activity in the
state.
13.Defines "full-time employee" as an employee who works an
average of 35 hours in a week, calculated monthly.
14.Defines "part-time employee" as an employee who works
less than an average of 35 hours in a week, calculated
monthly.
15.Defines "temporary employee" as an employee who works
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less than 120 days per year.
16.Specifies that, in the case of any business tax
incentive that is allowed to be sold or transferred
under the provisions of RTC Part 11, the seller must
expressly agree to provide to the buyer and the FTB any
necessary information to calculate whether a
disqualifying event has occurred with respect to the
seller. Provides that, if a disqualifying event has
occurred, then the buyer is required to include in its
net income or tax the amount of any required recapture.
17.Declares that this bill does not limit FTB's authority
to audit the information reported by taxpayers on their
tax returns.
18.Provides that Chapter 3.5 (commencing with Section
11340) of Part 1 of Division 3 of Title 2 of the
Government Code does not apply to any standard,
criterion, procedure, determination, rule, notice, or
guideline established or issued by the FTB pursuant to
the provisions of this bill.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Assembly Appropriations Committee,
unknown, potentially significant increase in future
revenues to the extent that business tax incentives are
disallowed due to job losses.
SUPPORT : (Verified 8/25/10)
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
California Conference of Machinists
California Federation of Teachers
California Hunger Action Coalition
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California Labor Federation, UFCW 1428
California Nurses Association
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
Ironworkers Local 118, Local 155, and Local 377 Longshore
and Warehouse Union
Napa Solano Building Trades Council
Northern California District Council - International
San Mateo Building Trades Council, Plumbers and
Service Employees International Union
Sierra Club California
Steamfitters Local 159, Local 6 and Local 94
Transit Union
United Food and Commercial Workers
Unite-HERE International Union
Western Center on Law and Poverty
Western States Council
OPPOSITION : (Verified 8/25/10)
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
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.
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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."
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Charles Calderon, Carter, Chesbro,
Coto, Davis, De La Torre, De Leon, Eng, Evans, Feuer,
Fong, Fuentes, Furutani, Gatto, Hall, Hayashi, Hernandez,
Hill, Huffman, Jones, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, Portantino, Ruskin, Salas,
Saldana, Skinner, Solorio, Swanson, Torlakson, Torres,
Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Caballero, Conway, Cook, DeVore, Fletcher, Fuller,
Gaines, Garrick, Gilmore, Hagman, Harkey, Jeffries,
Knight, Logue, Miller, Nestande, Niello, Nielsen, Norby,
Silva, Smyth, Audra Strickland, Tran, Villines
NO VOTE RECORDED: Buchanan, Galgiani, Huber, V. Manuel
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Perez, Vacancy, Vacancy
DLW:mw 8/31/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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