BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1560 (Quirk-Silva) - Income Taxes: Credits: California
Competes Tax Credit
Amended: August 27, 2014 Policy Vote: G&F 6-0
Urgency: Yes Mandate: No
Hearing Date: August 29, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 1560, an urgency measure, would authorize the
Director of the Department of Finance (DOF) to increase the
authorized amount for the California Competes Tax Credit by $25
million annually through 2017-18.
Fiscal Impact:
The bill would lower General Fund revenue by up to $25
million annually through 2017-18.
Both the Franchise Tax Board (FTB) and the Governor's
Office of Business and Economic Development (GO-Biz)
indicate that the bill would not result in additional
administrative costs.
Background: The California Competes Tax Credit is an income tax
credit available to businesses that seek either to come to
California or grow existing operations in the State. Tax credit
agreements are negotiated by GO-Biz and approved by a newly
created "California Competes Tax Credit Committee, (CCTCC)"
consisting of the State Treasurer, the Directors of DOF and
GO-Biz, and one appointee each by the Speaker of the Assembly
and Senate Committee on Rules.
As part of the annual budget process in June 2013, the
Legislature reformed California's economic development policies
(AB 93, Committee on Budget) by (1) eliminating enterprise zones
(EZs) and other geographically-targeted economic development
areas, and (2) substituting three new tax benefits:
AB 1560 (Quirk-Silva)
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Tax credits for wages paid by taxpayers to qualified
employees within former EZs, and other areas that suffer
from high levels of poverty and unemployment. The credit
lasts from 2014 until 2019.
A sales and use tax exemption on purchases of
manufacturing equipment made by taxpayers within specific
North American Industrial Classification System (NAICS)
codes, capped at $200 million annually per taxpayer,
effective July 1, 2014, and ending July 1, 2022.
The California Competes Tax Credit, where CCTCC can
award various tax credits up to an annually capped amount
to taxpayers who apply. The legislation authorized CCTCC to
grant $30 million in tax credits in 2013-14, $150 million
in 2014-15, and $200 million each in 2015-16, 2016-17, and
2017-18, subject to specified adjustments, the most notable
of which is intended to produce revenue neutrality.
Specifically, the California Competes Tax Credits, when
added to the wage tax credits and the SUT exemption, cannot
exceed $750 million (the estimated revenue gain from
eliminating EZs) in either 2014-15 or 2015-16.
On August 1st, 2014, DOF updated its budget estimates and
notified the Legislature that it revised the estimate of
available California Competes Tax Credit 2014-15 tax credits to
$151.1 million, reflecting an additional $1.1 million in 2013-14
credit authorization that was not issued.
Proposed Law: This bill would allow the Director of DOF to
increase the amount of tax credits that the California Competes
Tax Credit Committee can allocate by $25 million annually
through 2017-18. The bill states the Legislature's intent that
the Director makes the increase to mitigate the reduction
required by AB 2389.
Staff Comments: In 2013-14, the California Competes Tax Credit
was heavily oversubscribed. A total of 396 companies applied and
requested over $500 million in total credits. GO-Biz evaluated
the most competitive applications based on factors required by
statute, including total jobs created, total investment, average
wage, economic impact, and strategic importance.
AB 1560 (Quirk-Silva)
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In July 2014, the Legislature enacted AB 2389 (Fox), which
provides a $420 million tax credit over 15 years (between $25
million and $31 million annually) for firms performing contracts
for the advanced strategic aircraft program for the United
States Department of Defense. As it moved through the
legislative process, the bill was amended to require it be
funded from the existing monies available for the California
Competes Tax Credit, thus making the bill revenue neutral. That
amendment would be unwound by this bill.