BILL ANALYSIS �
AB 1560
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Date of Hearing: August 11, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1560 (Quirk-Silva) - As Amended: August 7, 2014
Fiscal Committee. Majority vote. Tax levy.
SUBJECT : Income tax credits: California Competes Tax Credit
Program.
SUMMARY : Increases the total aggregate amount of the
California Competes Tax Credit that may be annually allocated by
the Governor's Office of Business and Economic Development
(GO-Biz) to eligible businesses, as provided. Specifically,
this bill :
1)Authorizes the Director of the Department of Finance (DOF) to
increase the aggregate amount of the California Competes Tax
Credit available for an annual allocation by $25 million per
each fiscal year (FY) through 2019.
2)Specifies legislative intent that the Director of DOF that
increase the aggregate amount of the California Competes Tax
Credit in order to compensate for the decrease in the
California Competes program's funding due to the recently
enacted tax credit program for the aerospace industry.
3)Takes effect immediately as a tax levy.
EXISTING LAW :
1)Allows a credit against the taxes imposed under the
Corporation Tax (CT) Law and the Personal Income Tax (PIT) Law
for each taxable year beginning on or after January 1, 2014,
and before January 1, 2025, in an amount as provided in a
written agreement between GO- Biz and the taxpayer, based on
certain specified factors, including the number of jobs the
taxpayer will create or retain in the state and the amount of
investment in the state by the taxpayer. The credit is
generally referred to as the "California Competes Tax Credit."
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2)Authorizes GO-Biz to allocate the California Competes Tax
Credit with respect to the FY 2013-14 and each FY thereafter,
through and including FY 2017-18.
3)Limits the aggregate amount of the California Competes Tax
Credit that may be allocated to taxpayers under both the CT
and PIT laws to a certain specified sum per fiscal year.
4)Allows a tax credit under the CT Law to a qualified taxpayer
in an amount equal to 17.5% of qualified wages paid by the
qualified taxpayer during the taxable year to qualified
employees ("Advanced Strategic Aircraft Tax Credit"). Defines
a "qualified taxpayer" as any taxpayer that is a major
first-tier subcontractor awarded a subcontract to manufacture
property for ultimate use in, or as a component of, a new
advanced strategic aircraft for the U.S. Air Force. Defines
"major first-tier subcontractor" as a subcontractor that was
awarded a subcontract in an amount of least 35% of the amount
of the initial prime contract awarded for the manufacturing of
a new advanced strategic aircraft for the U.S. Air Force. The
Advanced Strategic Aircraft Tax Credit program is authorized
for each taxable year beginning on or after January 1, 2015,
and before 1, 2030.
5)Reduces the aggregate amount of the California Competes Tax
Credit that may be allocated to taxpayers in the 2015-16 FY
year, and each FY thereafter, by the annual aggregate amount
allowed under the Advanced Strategic Aircraft Tax Credit
program for years one through ten of this credit program.
6)Provides that, if the amount available under the California
Competes Tax Credit program is less than the amount allowed
under the Advanced Strategic Aircraft Tax Credit program, then
the latter will not be decreased. Instead, the California
Competes Tax Credit amount allowed for the next FY shall be
reduced by the amount of that deficit.
7)States legislative intent that the reductions in the aggregate
amount of the California Competes Tax Credit shall continue if
the Advanced Strategic Aircraft Tax Credit program is extended
beyond its existing repeal date.
FISCAL EFFECT : Unknown.
COMMENTS :
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1)The Author's Statement . The author has provided the following
statement in support of this bill:
" AB 1560 authorizes the Director of Finance to increase the
amount of funding available in the California Competes
program. In July the Governor signed AB 2389 (Fox) which
created a tax credit program for the aerospace industry
specifically an "advanced strategic aircraft program."
Provisions in AB 2389 require that the tax credit be funded
from the monies available to the California Competes program.
In order to fund the first five years of AB 2389, the
California Competes Tax Credit program will face a potential
deficit of up to 25 million dollars per year until 2019. It
is important to ensure as much funding as possible remains in
the program in order to have California be a competitive state
to attract business and guarantee small businesses have the
tools to succeed. Therefore, AB 1560 authorizes the Director
of Finance to increase the amount of funding available in the
California Competes program, by up to $25 million per year
through 2019 to help bolster California's business climate and
put Californians to work."
2)The "California Competes" Tax Credit Program . Last year,
Governor Brown signed legislation that reformed California's
economic development policies. [AB 93 (Committee on Budget)
Chapter 69, Statutes of 2014.]. The new law eliminated
enterprise zones and other geographically targeted economic
development areas and, instead, created three new tax
benefits: (a) a temporary tax credit for wages paid by
taxpayers to qualified employees within former enterprise
zones, and other areas that suffer from high levels of poverty
and unemployment; (b) a temporary sales and use tax exemption
on purchases of manufacturing equipment made by qualified
taxpayers, capped at $200 million annually per taxpayer; and
(c) the California Competes Tax Credit program. Existing law
limits the total annual amount of these three tax incentives -
the wage credit, the sales and use tax exemption, and the
California Competes Tax Credit - to $750 million.
While the California Competes Tax Credit program is scheduled to
sunset on January 1, 2025, Go-Biz is only authorized to award
this credit to qualified taxpayers until FY 2018-19 up to an
annually capped amount. The amount equals $30 million for the
FY 2013-14, $150 million for the FY 2014-15, and $200 million
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for the FY 2015-16, FY 2016-17, and FY 2017-18, plus certain
statutorily prescribed adjustments. Out of the $30 million
available for allocation in FY 2013-14, $28.9 million was
awarded. Due to the unallocated credit adjustment, the
Director of DOF has estimated the annual allocation of the
California Competes Tax Credit for FY 2014-15 to be $151.1
million.
In FY 2013-14, the California Competes tax credit was granted
to 30 companies (out of 390 companies that applied), including
11 small businesses. According to the information submitted
by the companies that received the credit, approximately 6,000
jobs and more than $2 billion in investment across California
will be created as a result of the credit award. The
companies represent various industries, including
manufacturing, biotech, agriculture, food processing, high
tech, etc.
3)The Advanced Strategic Aircraft Tax Credit Program . On July
10, 2014, Governor Brown signed legislation that, among other
things, created a CT credit program for the aerospace
industry. [AB 2389 (Fox), Chapter 116, Statutes of 2014.]
The credit amount is equal to 17.5% of the wages paid to
employees of a qualified taxpayer engaged in manufacturing of
property for ultimate use in, or as a component of, a new
advanced strategic aircraft for the U.S. Air Force. The
credit program includes a 15-year sunset provision, and the
credit is allowed only for wages paid to individuals employed
in California. The annual amount of the Advanced Strategic
Aircraft Tax Credit is limited to $25 million for the first
five years, $28 million during the next five years and $31
million for the remaining five years, totaling $420 million
over the life of the program. It appears that only two
parties are competing for the prime contract to manufacture
such aircraft - Northrop Grumman and a team comprised of
Boeing (as a prime contractor) and Lockheed Martin (as major
first-tier subcontractor).
4)Restoring the Funding . As originally drafted, the Advanced
Strategic Aircraft Tax Credit program would have resulted in a
General Fund (GF) revenue loss. However, the Senate voted to
limit the GF revenue loss and reduced the funding for the
California Competes Tax Credit program as a way to compensate
for the projected loss. It was argued that firms eligible for
Advanced Strategic Aircraft Tax Credit may also apply for the
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California Competes Tax Credit, since both tax credit programs
seek to increase employment in the state. Thus, the
California Competes Committee could have simply awarded
Lockheed Martin a California Competes Tax Credit, since the
credit was specifically meant for this type of negotiation
between the Governor's office and individual companies.
But, the author of this bill argues that in order for the state
to remain competitive and attract new businesses, the
Legislature needs to increase the amount of funding available
for the California Competes Tax Credit program. According to
the author, the program was oversubscribed by $470 million in
its first year and, thus, a reduction in the program's funding
would have a negative impact on California's ability to
compete with other states for jobs. This bill would restore
funding for the California Competes Tax Credit Program by
expressly authorizing the Director of DOF to increase the
annual amount of the credit available for allocation under the
program for every fiscal year through FY 2019, by up to $25
million per year. This amount is identical to the aggregate
annual amount of the credit allowed under the Advanced
Strategic Aircraft Tax Credit program for the first five
calendar years.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098