BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 434 HEARING: 5/1/13
AUTHOR: Hill & Wolk FISCAL: Yes
VERSION: 4/24/13 TAX LEVY: No
CONSULTANT: Miller
PERSONAL INCOME & CORPORATION TAXES: HIRING CREDITS:
ENTERPRISE ZONES, LAMBRAs, MANUFACTURING ENHANCEMENT AREAS,
& TARGETED AREAS
Makes substantial changes to the Enterprise Zone hiring
credits, vouchers, and disclosure requirements.
Background and Existing Law
Enterprise Zones . California's 40 enterprise zones are
located in areas as diverse as the state itself. From
Siskiyou County to Compton, and from San Francisco to
Calexico, this program provides generous tax incentives for
firms that do business in these zones. Cities and Counties
apply to the Department of Housing and Community
Development (HCD) to designate geographic areas in their
jurisdictions as enterprise zones. HCD reviews
applications, and may designate up to 42 zones statewide
for 15 year periods. Geographic areas are eligible based
on its unemployment rates, free lunch program
participation, median income, plant closures, or history of
gang-related activity.
Taxpayers located in enterprise zones may claim income and
corporation tax credits for hiring qualified individuals,
sales tax paid on equipment purchases, and can qualify
banks for a net interest deduction for loans made to a zone
business. Firms may also accelerate depreciation of
equipment, and carry over 100% of losses; however, these
incentives are largely irrelevant today because the
Legislature has since enacted similar or superior benefits
for nearly all taxpayers regardless of location.
The most significant incentive is the hiring credit.
Employers inside an enterprise zone may claim a tax credit
of 50% of the wages paid to a qualified employee in the
first year, 40% in the second year, 30% in the third year,
SB 434 -- 4/24/13 -- PageB
20% in the fourth year, and 10% in the fifth year, up to
150% of the minimum wage. Businesses or consultants submit
applications to qualify employees to zone managers, who
grant the firm or consultant a voucher certifying
eligibility if the employee qualifies. The firm then
claims the credit on its tax return. Qualified employees
include individuals:
Eligible for job training programs
Eligible for most social welfare programs
Economically disadvantaged
A "dislocated worker," as defined.
A disabled individual who is eligible or
enrolled in a state rehabilitation plan
Service connected veteran
Ex-offender
Member of a federally recognized Indian
tribe
Employers may also claim the hiring credit for residents of
Targeted Employment Areas (TEAs), in addition to the
criteria listed above. Cities and counties managing
enterprise zones may draw TEAs to contain census tracts
where 51% or more of the individuals are low or moderate
income, meaning 80% of the area wide, or countywide,
median. In other words, local agencies draw TEAs to
include communities where only half of the residents are
actually or somewhat low-income, but anyone living in one
qualifies his or her employers for the hiring credit
regardless of their own economic status or employability.
TEAs need not be contiguous to, or drawn within the borders
of the Enterprise Zone.
Taxpayers can also receive a certification qualifying an
employee for an enterprise zone hiring credit at any time.
Taxpayers may certify employees who worked for them in past
years, then submit claims for refunds for previous taxes
paid to FTB based on those certifications under
California's general four year statute of limitations for
amending past returns, a practice known as
"retro-vouchering." In general, tax law allows taxpayers
to amend their returns for four years. SB 974 (Steinberg,
2010) and AB 1139 (Perez, 2009) proposed to repeal the TEA
criterion and "retro vouchering," although neither bill
advanced to the Governor's Desk.
In his 2011-12 Budget, Governor Brown proposed to repeal
SB 434 -- 4/24/13 -- PageC
all EZ tax credits, citing the Legislative Analyst's Office
long-standing recommendation to reform or repeal the
program, and the PPIC Study noted below, among others. The
proposal-at the time-would have increased revenue $343
million (2010-11), $583 million (2011-12), according to the
Department of Finance. The Governor states that zones
would continue to provide local incentives, but zone
taxpayers could no longer receive state tax benefits. The
Legislature did not act on the Governor's proposal at that
time.
In his 2013-14 Budget, Governor Brown proposes the EZ
regulatory reform at the department of Housing and
Community Development (HCD) be largely adopted. The
comments from round one of comment period are being
compiled by HCD staff; the second notice and comment period
will be in May of this year. HCD will publish the final
package at the end of May/ beginning of June. The Budget
includes savings that assumes their adoption as follows:
Limit retro vouchering by requiring all voucher
applications to be made within one year of the date of
hire
Require third party verification of employee
residence within a Targeted Employment Area.
Streamline the vouchering process for hiring
veterans and recipients of public assistance.
Create stricter zone audit procedures and audit
failure procedures.
The budget notes that these regulatory reforms will
primarily affect Corporation Tax revenue, but will also
have an impact on Personal Income Tax revenue. The
regulations, in total, are expected to increase General
Fund revenue by $10 million in 2012-13 and $50 million in
2013-14.
The Budget also states that the "Administration will be
pursuing further Enterprise Zone reform through
legislation."
Currently, HCD has designated 40 zones. Two zones, the
City of Watsonville and the Antelope Valley Zone, expired
in 2012, having reached the end of their 15 year
designation period. HCD has stated that it "will use its
authorized discretion to not open up applications for new
zones until the program is sufficiently reformed to
strengthen its effectiveness to incentivize job creation."
SB 434 -- 4/24/13 -- PageD
Contingency fees. Federal law allows the Secretary of the
Treasury to regulate practitioners with cases before the
Internal Revenue Service (IRS). IRS Circular 230 generally
spells out requirements for these practitioners, and also
regulates the conduct of anyone providing tax advice or
preparing tax returns for compensation, including
attorneys, certified public accountants, and enrolled
agents. In 2009, IRS revised Circular 230 to bar
individuals practicing before the IRS from charging clients
contingency fees, with specified exceptions, because of the
potential to exploit the audit selection process and
compromise a practitioner's duty of independent judgment.
Federal law also applies an erroneous claim for refund
penalty equal to 20% of the amount of the claim that lacks
a reasonable basis for the refund. California does not
conform to this penalty. Additionally, the American
Institute of Certified Public Accountants Code of
Professional Conduct precludes accountants from charging
contingency fees for preparing an original or amended tax
return, with specified exceptions.
State law restricts commissions charged by certified public
accountants in specified circumstances (SB 1289, Calderon,
1998). However, sophisticated cottage industries of
non-accountant tax consultants have grown considerably in
recent years, offering to amend a taxpayer's previous state
income tax returns seeking refunds of previous taxes paid
by claiming tax credits not included on the taxpayer's
original return. The taxpayer compensates the consultant
as a percentage of the refund, providing a significant
incentive to file aggressive claims with questionable
justification. As many of these consultants are neither
accountants subject to state law or codes of ethics, nor
practitioners covered by Circular 230, they may charge
taxpayers contingency fees without any limitation.
Disclosure . State law also requires the Franchise Tax
Board to "recapture" or "claw back" tax credits from
taxpayers under specified circumstances to ensure that
taxpayers do not financially benefit when acting opposite
to the intent of a tax credit. Taxpayers who claim an
enterprise zone hiring credit then terminate an employee
within 270 days must repay the credit, and a low-income
housing developer must sacrifice tax credits if he or she
raises rents at the project to the extent that they're no
longer affordable. Additionally, tax law specifies
SB 434 -- 4/24/13 -- PageE
penalties for understating liability, failing to file
returns, engaging in transactions that lack economic
substance, and engaging in fraud, among others.
Existing state and federal laws generally prohibit unlawful
disclosure or inspection of any income tax return
information. Existing state law allows a committee of
either house of the Legislature to examine confidential
taxpayer information. Criminal sanctions, including
imprisonment, apply to FTB personnel convicted of unlawful
disclosure or inspection of tax records. The Franchise Tax
Board (FTB) must notify a taxpayer if criminal charges have
been filed for willful unauthorized inspection or
disclosure of their tax data. However, FTB may publish
statistical data related to taxpayer information so long as
nothing specific to a single taxpayer is disclosed.
Notwithstanding these provisions, the Legislature directed
FTB to publish a list of the top 500 tax delinquencies over
$100,000 (AB 1418, Horton, 2006 and AB 1424, Perea, 2011).
Existing law also requires the Department of Finance to
annually publish a report detailing tax expenditures, and
relevant costs.
A Form 10-K is an annual report required by the U.S.
Securities and Exchange Commission (SEC), that gives a
comprehensive summary of a public company's performance.
Although similarly named, the annual report on Form 10-K is
distinct from the often glossy "annual report to
shareholders," which a company must send to its
shareholders when it holds an annual meeting to elect
directors (though some companies combine the annual report
and the 10-K into one document). The 10-K includes
information such as company history, organizational
structure, executive compensation, equity, subsidiaries,
and audited financial statements, among other information.
Companies with more than $10 million in assets and a class
of equity securities that is held by more than 500 owners
must file annual and other periodic reports, regardless of
whether the securities are publicly or privately traded.
In addition to the 10-K, which is filed annually, a company
is also required to file quarterly reports on Form 10-Q.
In the period between these filings, and in case of a
SB 434 -- 4/24/13 -- PageF
significant event, such as a CEO departing or bankruptcy, a
Form 8-K must be filed in order to provide up to date
information.
Proposed Law
EZ Hiring credit . Senate Bill 434 makes significant
changes to the hiring credit within the enterprise zone
program, while maintaining the 40 designated zones,
beginning on January 1, 2014 as follows:
Net new jobs requirement . SB 434 requires that in
order to qualify for any credit the taxpayer must have
experienced an increase in total jobs throughout the
state from one year to the next. While the credit may
be spread across all new employees in the "hard to
hire" categories under existing law, taxpayers are
only allowed the credit for the number of new jobs in
the state. For example, if ABC Inc. shows it has
hired 100 employees statewide, the company may receive
total credits for up to 100 employees. Alternatively,
if a taxpayer hires 50 new employees (qualified or
not) in the Compton EZ but laid off 25 employees in
Napa, the taxpayer would only be eligible for credits
of 25 "qualified employees."
Credit percentages . The credit percentages in the
bill will change to 10% in the first year; 30% in the
second year; 50% in the third year; 30% in the fourth
year and 10% in the fifth year.
Taxpayer restrictions . Prohibits taxpayers from a
temporary agency, as defined by the National
Association of Industry Classification Codes (NAICS)
from receiving the hiring credit.
Offer of transfer . Requires taxpayers that move
into an Enterprise Zone to provide an "offer of
transfer" to its employees with comparable
compensation.
Voucher requirements . Taxpayers must provide the
hiring credit voucher certification annually.
Public database . SB 434 requires the FTB to
SB 434 -- 4/24/13 -- PageG
compile a list of the hiring credit vouchers claimed
and number of new jobs created for each taxable year.
Retro-vouchering . Beginning on January 1, 2014,
taxpayers may only amend a return to claim the hiring
credit for one year.
LAMBRA's, Manufacturing Enhancement Areas, Hiring Credit :
SB 434 requires a net new jobs calculation and changes the
credit percentages; all other provisions remain the same.
Credit percentages . The percentages are: 10% in
the first year, 10% in the second year, 30% in the
third year, 40% in the fourth year and 50% in the
fifth year.
Sunset . Sunsets the hiring credit for LAMBRA's,
Manufacturing Enhancement Areas, Targeted Areas and
Enterprise Zones on January 1, 2019.
Contingency fees. Senate Bill 434 prohibits a person from
charging a contingency fee for services charge a contingent
fee for services rendered in connection with a tax credit
relating to an enterprise zone, a LAMBRA, a manufacturing
enhancement area, or a targeted tax. The bill defines a
contingency fee as any fee
The bill defines "contingent fee" identically to Circular
230, but without the exceptions, as any fee that is:
A fee that is based on the percentage of the refund
reported on a return, a fee that is based on a
percentage of the taxes saved, or a fee that depends
on the specific tax result attained.
Any fee arrangement in which the party to whom
services are rendered, or a designee of the party to
whom services are rendered, is reimbursed or credited
for all or a portion of the fee paid or agreed to be
paid if a position taken on a tax return or other
filing is challenged or is not sustained, whether
pursuant to an indemnity agreement, a guarantee, a
right of rescission, or any other arrangement with
similar effect.
The governmental entity responsible for administering the
tax shall impose a penalty equal to the amount of the
contingency fee or $5,000, whichever is greater, for
SB 434 -- 4/24/13 -- PageH
persons who fail to comply.
State Revenue Impact
The revenue estimate is still pending from the FTB.
Comments
1. Purpose of the bill . According to the author, SB 434
reforms the California Enterprise Zone program to make sure
taxpayer dollars are being spent on true job creation
instead of job transferring. The California Enterprise
Zone program has cost the state over $4 billion dollars
since its creation in the 1980s. It began as a way to help
struggling companies create jobs in disadvantaged
communities but it's evolved into a handout for large
corporations. Nearly all of the tax credits (91 percent)
were claimed by corporations with assets of $10 million or
more. Corporations with less than $1 million in assets
claimed only 1 percent of Enterprise Zone tax credits. The
largest EZ tax break is the hiring credit that gives
employers up to $37,440 for each qualified hire over a five
year period. The EZ program costs the state $700 million a
year, and the cost is growing by more than 30 percent
annually. The Public Policy Institute of California found
that "on average, enterprise zones have no effect on
business creation or job growth." The Legislative
Analysts' Office said "most research indicates that
programs [such as the Enterprise Zone Program] have little
if any impact on the creation of new employment" In a
survey conducted by the California Department of Housing
and Community Development, nearly half of businesses report
that the Enterprise Zone hiring credit "never" or "rarely"
influenced their hiring decisions. 61 percent of companies
report that it "never" or "rarely" played a role in
deciding whether or not to retain workers. SB 434
continues to allow local governments and employers to
utilize the Enterprise Zone program, but enacts common
sense reforms to focus incentives on true job creation that
will benefit the state.
2. Economic development . The opponents of SB 434 state
that it would seriously harm California's only remaining
economic development program and particularly impact small
businesses, impoverished areas of the state and primarily
SB 434 -- 4/24/13 -- PageI
low-income and minority communities. The coalition
opposition letter points to several provisions that it
finds objectionable including the elimination of
retroactive credits, the net increase in headcount
requirement, no hiring for temp jobs, cap, sunset and
review, transparency and the regulation of tax consultants.
All of these reforms will preclude small businesses from
claiming the credit, have a chilling effect on business
climate and lose much of its incentive effect.
3. Hiring credits . Economists generally favor broad based
levies that which spread the costs of providing public
services broadly throughout the economy with rates that are
as low as possible. A hiring credit is counter to the
economic theory and is therefore by its nature inefficient.
The EZ hiring credit does focus on the hardest to hire
individuals but only in specific areas and may reward
taxpayers for employees that would have been hired without
the credit. Economists agree that if the state does have a
hiring credit, it makes sense to focus on the hard to hire
categories in the EZ program but that it should also be
applied on a statewide basis. The committee may wish to
consider amending the bill to apply statewide instead of
only in the 40 zones.
4. Assessing performance . California's enterprise zone
program, the result of collaboration between former
Assembly members Pat Nolan and Maxine Waters (AB 40 and
514, 1984, respectively), has evolved from a
well-intentioned legislative effort to use tax credits to
draw investment into economically depressed rural and urban
areas into an almost half-billion tax credit program
referred to as California's best economic development
program. HCD administers the program, taking over from the
now-defunct Trade and Commerce Agency in 2003.
Program defenders say the program is the state's best tool
for economic development, citing accounts from taxpayers
who state that they locate in California largely because of
enterprise zone program incentives, which overcome stated
disadvantages posed by California's tax and regulatory
system. Supporters state that the incentives draw
investment into economically distressed communities and
provide avenues for hard-to-hire individuals to find
employment. However, detractors argue that the program
offers a poor return on the state's investment, and
criticize individual parts such as TEA criterion, the
SB 434 -- 4/24/13 -- PageJ
practice of "retro vouchering," and the sliding scale
structure of the hiring credit.
At the Senate Revenue and Taxation Committee's Enterprise
Zone Oversight Hearing on March 10, 2010, the Committee
took testimony from experts, including:
Dr. Charles Swenson, whose work shows
that enterprise zones have decreased unemployment
and poverty rates in California census tracts
within zones. <1>
David Neumark, whose paper states that
California's enterprise zones have no effect upon
employment and business formation in zones,<2>
and zones which have lower share of manufacturing
and where managers perform more marketing
activities have more favorable effects on
employment, and zones that devote more time to
helping firms claim tax credits, eliminate any
positive benefit.<3>
Eileen Norcross of the Mercatus Center at
George Mason University, whose written testimony
stated that enterprise zones failed to produce
the hoped for benefits of economic revitalization
and robust economic growth because the policy is
discriminatory and introduces complexity and
gamesmanship into the tax code and business
decisions. Norcross recommended that the state
should instead set rules that encourage
entrepreneurship without regard to firm size or
business activity.
LAO, which recommends that the program be
eliminated or restructured.
5. Who wins ? Committee staff asked the FTB to provide a
breakdown of 2010 hiring credits by industry and net
income. In 2010, taxpayers claimed almost $402 million in
credits but 94.62% of the firms had over $1 million in net
-------------------------
<1>
Government Programs Can Improve Local Labor Markets:
Evidence from State Enterprise Zones, Federal Empowerment
Zones, and Federal Enterprise Communities," by John Ham,
Ayse Imrohoroglu, and Charles Swenson, February 2009.
<2> "Do Enterprise Zones Create Jobs?" by David Neumark and
Jed Kolko, Journal of Urban Economics, June 2010
<3> "Do Some Enterprise Zones Create Jobs?" by Jed Kolko
and David Neumark. Journal of Policy Analysis and
Entrepreneurship, Vol 29, No. 1, 5-38 (2010).
SB 434 -- 4/24/13 -- PageK
income. A review of the data illustrated in the data below
shows all the industries with credits greater than $3.5
million are largely consolidated within a few industries.
The Committee may wish to consider if the program is
intended for small companies, should there be an income
limitation? Furthermore, is the program growing in
appropriate industries and could all these industries be
better served with a statewide credit?
The appended table shows the results of a public records
act request for individual companies in Sacramento
receiving vouchers for the hiring credit.
SB 434 -- 4/24/13 -- PageL
Credit amounts by industry in 2010:
-------------------------------------------------
|Industry |S&UT/Hiring |PBA |
| |Credit in 2010 |Code |
|-------------------------+----------------+------|
|Other General Merch |$22,115,745 |452900|
|Stores | | |
|-------------------------+----------------+------|
|Holding Companies |$20,378,245 |551112|
| | | |
|-------------------------+----------------+------|
|Telecommunication |$19,250,261 |517000|
|Distribution | | |
|-------------------------+----------------+------|
|Wineries |$13,392,749 |312130|
| | | |
|-------------------------+----------------+------|
|Ship and Boat Building |$12,898,706 |336610|
| | | |
|-------------------------+----------------+------|
|Aerospace Mfg |$11,538,092 |336410|
| | | |
|-------------------------+----------------+------|
|Supermarkets & Other |$11,212,139 |445110|
|Grocery | | |
|-------------------------+----------------+------|
|Home Centers |$9,451,486 |444110|
| | | |
|-------------------------+----------------+------|
|Department Stores |$8,304,146 |452110|
| | | |
|-------------------------+----------------+------|
|Pharmacies/Drug Stores |$6,627,821 |446110|
| | | |
|-------------------------+----------------+------|
|Pharma/Medicine Mfg |$6,538,856 |325410|
| | | |
|-------------------------+----------------+------|
|Other Food Mfg |$6,379,676 |311900|
| | | |
|-------------------------+----------------+------|
|Investment Banking |$6,078,391 |523110|
| | | |
|-------------------------+----------------+------|
|News Syndicates |$5,970,656 |519100|
SB 434 -- 4/24/13 -- PageM
| | | |
|-------------------------+----------------+------|
|Education Services |$5,771,763 |611000|
| | | |
|-------------------------+----------------+------|
|Grocery Wholesale |$5,731,095 |424400|
| | | |
|-------------------------+----------------+------|
|Soft Drink Mfg |$5,598,381 |312110|
| | | |
|-------------------------+----------------+------|
|Auto Parts and Tire |$5,567,572 |441300|
|Stores | | |
|-------------------------+----------------+------|
|Electrical Power Gen |$5,512,978 |221100|
| | | |
|-------------------------+----------------+------|
|Long Distance Trucking |$5,276,313 |484120|
| | | |
|-------------------------+----------------+------|
|Specialty Foods |$5,162,469 |445299|
| | | |
|-------------------------+----------------+------|
|Fruit, Veg Preserve Mfg. |$5,003,546 |311400|
| | | |
|-------------------------+----------------+------|
|Bank Holding Companies |$4,802,774 |551111|
| | | |
|-------------------------+----------------+------|
|Electrical Lighting |$4,652,252 |335100|
|Equip Mfg. | | |
|-------------------------+----------------+------|
|Other Misc. Mfg. |$4,224,855 |339900|
| | | |
|-------------------------+----------------+------|
|Portfolio |$4,121,487 |523900|
|Management/Investment. | | |
|Advice | | |
|-------------------------+----------------+------|
|Iron and Steel Mills |$3,906,607 |331110|
| | | |
|-------------------------+----------------+------|
|Dairies |$3,609,411 |311500|
| | | |
|-------------------------+----------------+------|
|Hotels |$3,581,090 |721110|
| | | |
SB 434 -- 4/24/13 -- PageN
|-------------------------+----------------+------|
|Advertising |$3,540,109 |541800|
| | | |
|-------------------------+----------------+------|
|Other Depository Credit |$3,519,956 |522190|
|Intermediation | | |
|-------------------------+----------------+------|
|Waste Management |$3,449,681 |562000|
| | | |
|-------------------------+----------------+------|
|HMOs |$3,435,873 |621491|
| | | |
|-------------------------+----------------+------|
|Engineers |$3,409,482 |541330|
| | | |
|-------------------------+----------------+------|
|Other Professional, |$3,370,641 |541990|
|Scientific Tech | | |
|-------------------------+----------------+------|
|Other Fabricated Product |$3,360,768 |332900|
|Mfg. | | |
|-------------------------+----------------+------|
|Other Misc. Retailers |$3,265,254 |453990|
| | | |
|-------------------------+----------------+------|
|Machinery Equip & |$3,124,972 |423800|
|Supplies | | |
|-------------------------+----------------+------|
|Apparel Accessory Mfg. |$2,994,565 |315990|
| | | |
|-------------------------+----------------+------|
|Fast Food |$2,867,673 |722210|
| | | |
|-------------------------+----------------+------|
|Oil Refineries |$2,848,027 |324110|
| | | |
|-------------------------+----------------+------|
|Misc. Wholesale |$2,822,827 |424990|
|Nondurable | | |
|-------------------------+----------------+------|
|Transpiration Support |$2,771,545 |488990|
| | | |
|-------------------------+----------------+------|
|Apparel Wholesale |$2,742,946 |424300|
| | | |
|-------------------------+----------------+------|
|Software Publishing |$2,710,993 |511210|
SB 434 -- 4/24/13 -- PageO
| | | |
|-------------------------+----------------+------|
|Commercial Banks |$2,641,893 |522110|
| | | |
|-------------------------+----------------+------|
|Restaurants |$2,599,672 |722110|
| | | |
|-------------------------+----------------+------|
|Radio, TV, and |$2,530,395 |443112|
|Electronics Stores | | |
|-------------------------+----------------+------|
|Motion Pictures |$2,413,621 |512100|
| | | |
-------------------------------------------------
6. The right percent . SB 434 proposes changing the
percentages of the hiring credit to provide an incentive to
retain qualified employees once hired. Instead of starting
at 50% in the first year, the credit grows to 50% by the
third year. Opponents to this proposal point out that
"hard to hire" employees are the most expensive in the
first year they are hired due to the high training costs.
The research indicates, however, that the high first year
credit encourages churning of employees to maintain the 50%
credit. What is the right balance of acknowledging the
costs versus retaining the employees? The Committee may
wish to consider a higher percentage that includes a claw
back provision whereby if an employee is not retained for
more than one year, the taxpayers loses the credit.
7. Deluxe and Dicon . HCD released new regulations to the
program which, among other things, only allows one year of
"retro vouchering." Past regulations have been litigated
by tax credit consultants, who unsuccessfully brought suit
to enjoin HCD's 2007 regulations in Cyntron v. HCD et al ,
and also failed to disqualify the Franchise Tax Board from
auditing enterprise zone tax credits at all first through
the BOE, then in the courts. The BOE affirmed FTB's
authority in The Appeal of Deluxe (Case No. 297128).
However, tax credit consultants appealed to the courts, and
the California Court of Appeal weakened FTB's authority in
Dicon Fiberoptics v. Franchise Tax Board (Case B202997,
2009), holding that while FTB is legally authorized to
audit EZ credits, the voucher constitutes prima facie
evidence that the taxpayer is entitled to the credit. FTB
appealed this case to the California Supreme Court, which
unanimously reversed the Court of Appeal's decision in
SB 434 -- 4/24/13 -- PageP
April, 2012, thereby allowing FTB to continue to audit
documentation of enterprise zone tax credits.
8. Taxpayer confidentiality . SB 434 poses a clear tradeoff
in tax policy: are taxpayer privacy protections more
important than making public information necessary to
determine how much certain corporations pay in tax? While
taxpayer privacy is the cornerstone of a self-assessed
income tax system, how can the Legislature evaluate if the
tax system is equitable when it doesn't know who pays what
and what tax breaks are worth? Financial information is
highly sensitive to both individuals and business -
allowing friends and neighbors to know your financial
investments or personal spending, or to disclose vital data
in a tax return to a competitor, is a violation of privacy.
For these reasons, state law allows felony prosecution for
unlawful inspection and disclosure to enforce these
safeguards, and FTB must notify any taxpayers if criminal
charges are filed. Conversely, the proponents of the
measure state that during this difficult budget climate, it
is imperative to enact the bill to ensure that state
policymakers have the information necessary to determine
the impact of the elective single sales factor on the state
budget. The Committee may wish to consider whether
breaching the veil of taxpayer confidentially is worth the
tradeoff for additional information. Is the information as
important as sound tax policy that makes sense on a
statewide basis?
9. Contingency fees . SB 434 limits contingency fees;
these fees have shown to make taxpayers overly aggressive
with little to no documentation; these fees have created a
cottage industry of consultants that mine the tax code
which is counter to the intent of the program. For some
small businesses, the fees can be very high which
contradicts the program's intent of helping small
businesses. On the other hand, many taxpayers prepare
their tax returns unaware of many benefits to which they're
lawfully entitled because documenting eligibility, filing
amended returns, can be time consuming and costly, often
too much so for smaller businesses and individuals, who can
only afford to pursue these benefits using a consultant
willing to work on contingency. The Committee may wish to
consider whether the self-certification process in this
bill will result in the desired behavior suggested by this
change.
SB 434 -- 4/24/13 -- PageQ
10. " Offer of transfer ." This bill seeks to address a
perceived abuse in the EZ system whereby an employer leaves
one area outside of a zone, relieves its employees and
moves to a zone just for the purpose of receiving the
credit. The bill's terms are vague, not defined anywhere
in the Revenue & Taxation code and the certification by the
FTB cannot be administered. The Committee may wish to
consider amending the bill to have a more appropriate
department or agency that understands "transfer offers"
administer this provision in the bill.
11. Technical amendment . In order to receive the credit,
the taxpayer must be in the zone; to qualify for the credit
the taxpayer must experience an increase in statewide jobs.
The author will take amendments in committee to clarify
the enterprise zone specific provisions in all parts of the
bill.
Support and Opposition (4/25/13)
Support : California Labor Federation; California Nurses
Association; California Public Interest Research Group; CA
Teamsters Public Affairs Council; CA Conference Board of
the Amalgamated Transit Union; United Food and Commercial
Workers Union, Western States Council; Engineers and
Scientists of CA; UNITE HERE!; California Conference of
Machinists; American Federation of State, County and
Municipal Employees, AFL-CIO; Professional & Technical
Engineers, Local 21; International Longshore & Warehouse
Union; Utility Workers Union of America, Local 132; San
Mateo County Central Labor Council; Western Center on Law
and Poverty; California School Employees Association.
Opposition : California Asian Pacific Chamber of Commerce;
California Association for Local Economic Development;
California Bankers Association; California Business
Properties Association; California Chamber of Commerce;
California Employment Opportunity Network; California
Hispanic Chamber of Commerce; California League of Cities;
California Manufacturing and Technology Association;
California Retailers Association; City of Sacramento;
National Federation of Independent Business; League of
California Cities; California Association of Enterprise
Zones.
SB 434 -- 4/24/13 -- PageR
SB 434 -- 4/24/13 -- PageS
Appendix:
Public records act request finding for one month.
Sacramento Enterprise Zone Monthly Report October 2012
---------------------------------------------------------------------
| Business |City |Address |Zip |Vouchers |
| | | | |Received |
|-------------+-------------+-------------+-------------+-------------|
|99 Cents |Rancho |2868 |95670 |1 |
|Only Stores |Cordova |Zinfandel Dr | | |
|-------------+-------------+-------------+-------------+-------------|
|99 Cents |Sacramento |5924 |95824 |1 |
|Only Stores | |Stockton | | |
| | |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Acuity |Sacramento |6201 27th St |95822 |1 |
|Brands LL069 | | | | |
|-------------+-------------+-------------+-------------+-------------|
|AMPAC |Sacramento |8388 Rovana |95828 |1 |
|Services, | |Circle | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|A-Z Bus |Sacramento |3418 52nd |95823 |7 |
|Sales, Inc | |Ave | | |
|-------------+-------------+-------------+-------------+-------------|
|Bank of |Rancho |2882 |95670 |2 |
|America |Cordova |Prospect | | |
| | |Park Dr Ste | | |
| | |240 | | |
|-------------+-------------+-------------+-------------+-------------|
|Capital |Sacramento |5657 |95824 |1 |
|Force | |Stockton | | |
|Protective | |Blvd | | |
|Services, | | | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Checksmart |Sacramento |2815 Florin |95822 |1 |
|Financial | |Rd | | |
|Holding | | | | |
SB 434 -- 4/24/13 -- PageT
|Corporation | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Chemical |Rancho |3765 Omec |95742 |2 |
|Technologies |Cordova |Circle #2 | | |
|International| | | | |
| | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Chevron |Sacramento |2700 Del |95815 |1 |
|Stations, | |Paso Rd | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Controlled |Sacramento |5701-C 88th |95828 |5 |
|Access | |St | | |
|Consultants, | | | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Costco |Rancho |11260 White |95742 |1 |
|Wholesale |Cordova |Rock Rd | | |
|Corporation | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Crusader |Rancho |3115 B Gold |95742 |5 |
|Fence Co, |Cordova |Valley Dr | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|CTI II LLC |Rancho |10860 Gold |95670 |6 |
| |Cordova |Ctr Dr Ste | | |
| | |255 | | |
|-------------+-------------+-------------+-------------+-------------|
|Dish Network |Sacramento |5601 |95826 |1 |
|SA2 | |Warehouse | | |
| | |Way | | |
|-------------+-------------+-------------+-------------+-------------|
|ECOM |Sacramento |1796 Tribute |95815 |1 |
|Engineering, | |Rd Ste 100 | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|E-filliate, |Rancho |11321 White |95742 |1 |
|Inc |Cordova |Rock Rd | | |
|-------------+-------------+-------------+-------------+-------------|
|Fastenal |Sacramento |5005 Raley |95838 |1 |
|Company | |Blvd Unit H | | |
|-------------+-------------+-------------+-------------+-------------|
|FedEx Ground |Sacramento |8200 Elder |95824 |19 |
|Package | |Creek Rd | | |
|Systems | | | | |
|-------------+-------------+-------------+-------------+-------------|
|FedEx |Sacramento |8371 Rovana |95828 |1 |
SB 434 -- 4/24/13 -- PageU
|SmartPost | |Circle | | |
|S5958 | | | | |
|-------------+-------------+-------------+-------------+-------------|
|G4S Secure |Sacramento |1565 River |95815 |4 |
|Solutions, | |Pk Dr Ste A | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Gold Club, |Rancho |11363 Folsom |95742 |3 |
|Inc |Cordova |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Goyette & |Gold River |2366 Gold |95670 |1 |
|Associates, | |Meadow Way | | |
|Inc | |Ste 200 | | |
|-------------+-------------+-------------+-------------+-------------|
|Interline |Sacramento |5961 Outfall |95828 |1 |
|Brands Inc | |Circle | | |
|-------------+-------------+-------------+-------------+-------------|
|JRD Holdings |Sacramento |1275 Vine St |95811 |2 |
|-------------+-------------+-------------+-------------+-------------|
|Kroger |Sacramento |5330 |95820 |1 |
| | |Stockton | | |
| | |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Maita |Sacramento |2820 Auburn |95821 |6 |
|Chevrolet | |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Maita |Sacramento |2820 Auburn |95821 |25 |
|Enterprises, | |Blvd | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Markstein |Sacramento |60 Main Ave |95838 |2 |
|Beverage | | | | |
|Company | | | | |
|-------------+-------------+-------------+-------------+-------------|
|McGee & |Sacramento |3780 Rosin |95834 |1 |
|Thielen | |Ct #120 | | |
|Insurance | | | | |
|Brokers | | | | |
|-------------+-------------+-------------+-------------+-------------|
|OfficeMax |Sacramento |2800 Power |95826 |1 |
| | |Inn Rd | | |
|-------------+-------------+-------------+-------------+-------------|
|O'Reilly |Sacramento |5908 |95824 |1 |
|Automotive, | |Stockton | | |
|Inc | |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Pacific |Sacramento |8670 23rd |95826 |2 |
SB 434 -- 4/24/13 -- PageV
|Adhesive | |Ave | | |
|Company | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Packageone, |Sacramento |4225 Pell Dr |95838 |7 |
|Inc. | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Performance |Sacramento |3131 52nd |95823 |1 |
|Swing Stage, | |Ave | | |
|Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Pool Corp |Rancho |11285 Sunco |95742 |2 |
| |Cordova |Dr | | |
|-------------+-------------+-------------+-------------+-------------|
|Pool Corp |Rancho |2751 |95742 |1 |
| |Cordova |Mercantile | | |
| | |Dr Ste 400 | | |
|-------------+-------------+-------------+-------------+-------------|
|Prenatal |Sacramento |1111 |95815 |2 |
|Diagnosis of | |Exposition | | |
|N. CA | |Blvd Ste 200 | | |
|Medical | | | | |
|Group, Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|R & M Oritz, |Rancho |2801 |95670 |1 |
|Inc |Cordova |Zinfandel Dr | | |
|-------------+-------------+-------------+-------------+-------------|
|Recycling |Sacramento |3300 Power |95826 |12 |
|Industries | |Inn Rd | | |
|-------------+-------------+-------------+-------------+-------------|
|RSM, Inc |Rancho |2731 Citrus |95742 |4 |
| |Cordova |Rd #A | | |
|-------------+-------------+-------------+-------------+-------------|
|Sam's |Rancho |11167-G |95670 |7 |
|Airpack |Cordova |Trade Ctr Dr | | |
|Plus, Inc | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Save Mart |Sacramento |3860 Florin |95823 |1 |
|Supermarkets,| |Rd | | |
| Inc 464 | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Staples 0887 |Rancho |2690 Sunrise |95742 |1 |
| |Cordova |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|Superior |Rancho |11285 Sunco |95742 |1 |
|Pool |Cordova |Dr | | |
|Products | | | | |
|-------------+-------------+-------------+-------------+-------------|
SB 434 -- 4/24/13 -- PageW
|Taco Bell |Rancho |2891 |95670 |1 |
|3007 |Cordova |Zinfandel Dr | | |
|-------------+-------------+-------------+-------------+-------------|
|Total Renal |Sacramento |4650 |95834 |2 |
|Care, Inc | |Northgate | | |
| | |Blvd Ste 150 | | |
|-------------+-------------+-------------+-------------+-------------|
|Touchstone |Sacramento |116 N. 16th |95814 |1 |
|Climbing, | |St | | |
|Inc 05 | | | | |
|-------------+-------------+-------------+-------------+-------------|
|Tri Tool Inc |Rancho |3041 Sunrise |95742 |1 |
| |Cordova |Blvd | | |
|-------------+-------------+-------------+-------------+-------------|
|TruGreen |Rancho |3213 |95742 |2 |
|LandCare LLC |Cordova |Fitzgerald | | |
| | |Rd | | |
|-------------+-------------+-------------+-------------+-------------|
|Western |Sacramento |5501 |95820 |1 |
|Dental | |Stockton | | |
|Services, | |Blvd | | |
|Inc | | | | |
---------------------------------------------------------------------