BILL ANALYSIS �
AB 1560
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( Without Reference to File )
CONCURRENCE IN SENATE AMENDMENTS
AB 1560 (Quirk-Silva)
As Amended August 27, 2014
2/3 vote. Urgency
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|ASSEMBLY: |74-2 |(August 19, |SENATE: | | |
| | |2014) | | | |
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(vote not available)
Original Committee Reference: HEALTH
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.
The Senate amendments delete the tax levy provision and add an
urgency clause.
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."
2)Authorizes GO-Biz to allocate the California Competes Tax Credit
with respect to the fiscal year (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
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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 United States (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.
AS PASSED BY THE ASSEMBLY , this bill:
1)Authorized 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
FY through FY 2017-18.
2)Specified legislative intent that the Director of DOF 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.
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3)Takes effect immediately as a tax levy.
FISCAL EFFECT : According to the Senate Appropriations Committee:
1)This bill would lower General Fund (GF) revenue by up to $25
million annually through 2017-18.
2)Both the FTB and GO-Biz indicate that the bill would not result
in additional administrative costs.
COMMENTS : 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) [Chapter 116, Statutes of 2014] 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.
Assembly Revenue and Taxation Committee Comments:
The "California Competes" Tax Credit Program. Last year, Governor
Brown signed legislation that reformed California's economic
development policies. [AB 93 (Budget Committee), 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
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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 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.
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]
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
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aircraft - Northrop Grumman and a team comprised of Boeing (as a
prime contractor) and Lockheed Martin (as major first-tier
subcontractor).
Restoring the Funding. As originally drafted, the Advanced
Strategic Aircraft Tax Credit program would have resulted in a 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 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 2017-18, 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.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0005595
AB 1560
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