BILL ANALYSIS �
AB 2517
Page 1
Date of Hearing: May 5, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2517 (Daly) - As Amended: April 1, 2014
Majority vote.
SUBJECT : Economic development: taxation: credits:
certifications
SUMMARY : Allows local entities an indefinite amount of time to
issue Enterprise Zone (EZ) employee eligibility vouchers when
voucher applications are submitted by January 1, 2015.
Specifically, this bill :
1)Requires any local entity previously authorized to issue
employee eligibility certifications (i.e., vouchers) under the
EZ Act, the provisions governing Targeted Tax Areas (TTAs), or
the Local Agency Military Base Recovery Area (LAMBRA) Act, to
continue accepting voucher applications up to January 1, 2015.
2)Eliminates the current deadline of January 1, 2015, for local
entities to issue vouchers.
EXISTING LAW provides that, notwithstanding the repeal of the EZ
Act, the provisions authorizing TTAs, and the LAMBRA Act, a
local entity formerly authorized to issue employee eligibility
vouchers, may continue to accept voucher applications and to
issue vouchers up to, but no later than, January 1, 2015.
FISCAL EFFECT : Unknown
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 2517 is a commonsense measure aimed to assist California
businesses currently transitioning into a new business
environment as a result of the recent Enterprise Zone (EZ)
reforms by allowing businesses to have the opportunity to
AB 2517
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claim EZ hiring tax credits prior to the passage of AB 106
(Committee on Budget, 2013-2014).
Last year, AB 106 made several changes to the Enterprise
Zone repeal statute, including a requirement that all
employees qualifying for the tax credit for hiring certain
disadvantaged individuals to be issued a voucher by
December 31 of this year.
Unfortunately, that state-imposed deadline is forcing local
governments to issue early, arbitrary deadlines for
submission of the documentation required for businesses to
obtain hiring credit vouchers from those local
jurisdictions.
Rather than mandating documentation for the voucher
application and the issuance of the voucher be submitted by
December 31 of this year, AB 2517 would simply require the
submission of the voucher application by the end of this
calendar year. Thereafter, the business would simply wait
for the local jurisdiction to process the application and
issue the voucher.
AB 2517 would not modify the provisions of AB 106.
Instead, this bill merely provides businesses that had
hired eligible employees by the December 31, 2013 deadline
a fair opportunity to claim hiring credits to which they
are entitled under law.
2)Proponents of this bill note the following:
Last year's AB 106 (Budget Committee) made several changes
to the Enterprise Zone (EZ) repeal statute, including a
requirement that all employees qualifying for the hiring
tax credit for certain disadvantaged individuals must be
issued a voucher by December 31 of this year.
Unfortunately, that state-imposed deadline is forcing local
governments to issue early, arbitrary deadlines for
submission of the documentation required to obtain hiring
tax credit vouchers from the local jurisdictions.
For example, one local government has imposed an April 30
deadline, while two major jurisdictions have instituted
June 30 deadlines for document submission. These arbitrary
deadlines will preclude businesses from obtaining the
AB 2517
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required vouchers so that they can properly claim their EZ
hiring tax credits. Many applicants must obtain EDD wage
data, and the EDD has recently opined that its backlog will
not be resolved until the end of the third quarter of this
year. We believe a simple modification of Section 1 of AB
106 will resolve this issue.
Instead of requiring that the documentation for the voucher
application and the issuance of the voucher be required by
December 31, AB 2517 would only require that the
documentation be provided to the local government by the
end of this calendar year. Thereafter, the business would
simply wait for the local jurisdiction to process the
application and issue the voucher. This modification will
ensure that businesses who hired eligible employees by
[the] December 31, 2013 deadline (the expiration of the EZ
Program) can claim the hiring credits to which they are
entitled under the law.
3)Committee Staff Comments
a) Background information : Legislation enacted in 2013
repealed provisions of the Government Code under which
local entities had vouchering authority with respect to EZ,
LAMBRA, and TTA hiring credits as of January 1, 2014.
Taxpayers without a voucher are ineligible for the hiring
credits.
On September 26, 2013, the Governor signed further
"clean-up" legislation [AB 106 (Committee on Budget),
Chapter 355, Statutes of 2013]. Among other things, AB 106
clarified that an EZ hiring credit would not be allowed
with respect to any employee who first commenced employment
on or after January 1, 2014. AB 106 also allowed local
entities to accept voucher applications and to issue
vouchers until January 1, 2015. Thus, for an eligible
employee hired before January 1, 2014, the employer
currently has until January 1, 2015 to obtain a voucher
necessary for the EZ hiring credit.
b) What would this bill do ? This bill has two provisions.
The first would affirmatively require local entities to
accept voucher applications until January 1, 2015. Current
law allows local entities to accept applications up until
that date, but does not affirmatively require it.
AB 2517
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Proponents of this bill argue that certain local entities
have set "arbitrary" deadlines for the submission of
voucher applications. This bill would divest such local
entities of any such discretion. It is unclear to
Committee staff, however, what additional impacts this bill
might have on local entities transitioning away from EZ
vouchering responsibilities. Some of these entities have
likely begun the process of transitioning vouchering staff
to new responsibilities. Thus, it is not clear what
potential disruption and additional cost this bill might
impose on such local entities.
This bill's second provision would outright eliminate the
deadline for local entities to issue vouchers for
applications received by the January 1, 2015 deadline.
Currently, local entities are not permitted to issue
vouchers after January 1, 2015. If this provision were
enacted, however, a taxpayer could submit a voucher
application on December 31, 2014, and the local entity
would apparently have an unlimited amount of time to act on
the application and issue a voucher. The Committee may
wish to consider amending this bill to require all vouchers
be issued by January 1, 2016. Thus, local entities would
have an entire year to issue appropriate vouchers for
applications submitted by the January 1, 2015 deadline.
c) Credits are designed to incentivize behavior :
Generally, tax credits are provided as a matter of
legislative grace to encourage socially beneficial behavior
that likely would not occur absent a financial incentive.
One of the main criticisms of the former EZ hiring credit,
in turn, is that it did not always function as an incentive
to hire disadvantaged individuals. Specifically, the
credit regime gave rise to a lucrative business model
whereby consultants would approach taxpayers who were often
completely unaware that they were operating in an EZ.
These consultants would then obtain vouchers for qualified
employees (often hired years before) and help the taxpayer
claim the EZ credit by filing amended returns for prior
open years. In return for its services, the consulting
firm would charge a percentage of any refund moneys
obtained. Critics argued that in such "retro-vouchering"
situations the credit was clearly not acting as an
incentive to hire. This bill raises some of the same
concerns. If a taxpayer hired a qualified employee prior
AB 2517
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to the January 1, 2014 deadline, why is an entire year
insufficient to obtain the required voucher paperwork?
Would not such a period of time be sufficient, especially
for a taxpayer who was aware the employee qualified for the
credit at the time of hiring?
d) Running out of time : As a non-urgency measure, this
bill would go into effect on January 1, 2015.
Nevertheless, the bill seeks to require local entities to
accept applications up until that point. It is unclear how
this bill would achieve this desired result absent an
urgency clause.
REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association
California Chamber of Commerce
California Manufacturers & Technology Association
California Retailers Association
California Taxpayers Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098