AB 961: Income taxation: credits: California competes.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2015-03-26
Existing law allows a credit against the taxes imposed under the Corporation Tax Law and the Personal Income Tax 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 the Governors Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on 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. Existing law limits the aggregate amount of credits allocated to taxpayers to a specified sum per fiscal year. Existing law authorizes the Director of Finance to increase the aggregate amount of the economic development credits that may be allocated to taxpayers each fiscal year by $25 million per fiscal year through the 201718 fiscal year.
This bill would state the intent of the Legislature to enact legislation to improve the California Competes Tax Credit program to better serve areas with high unemployment. provide for an additional aggregate amount of credit that may be allocated in any fiscal year pursuant to these provisions of $50,000,000 per fiscal year commencing with the 201516 fiscal year through the 201718 fiscal year, to be allocated to taxpayers that are otherwise eligible for this credit that are located in a county, city and county, or metropolitan statistical area that has a 10%, or higher, unemployment rate.
This bill would take effect immediately as a tax levy.
Existing law allows a credit against the taxes imposed under the Corporation Tax Law and the Personal Income Tax 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 the Governors Office of Business and Economic Development and the taxpayer, agreed upon by the California Competes Tax Credit Committee, and based on 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.
This bill would state the intent of the Legislature to enact legislation to improve the California Competes Tax Credit program to better serve areas with high unemployment.
(a)(1)For each taxable year beginning on and after January 1, 2014, and before January 1, 2025, there shall be allowed as a credit against the net tax, as defined in Section 17039, an amount as determined by the committee pursuant to paragraph (2) and approved pursuant to Section 18410.2.
(2)The credit under this section shall be allocated by GO-Biz with respect to the 201314 fiscal year through and including the 201718 fiscal year. The amount of credit allocated to a taxpayer with respect to a fiscal year pursuant to this section shall be as set forth in a written agreement between GO-Biz and the taxpayer and shall be based on the following factors:
(A)The number of jobs the taxpayer will create or retain in this state.
(B)The compensation paid or proposed to be paid by the taxpayer to its employees, including wages and fringe benefits.
(C)The amount of investment in this state by the taxpayer.
(D)The extent of unemployment or poverty in the area according to the United States Census in which the taxpayers project or business is proposed or located.
(E)The incentives available to the taxpayer in this state, including incentives from the state, local government, and other entities.
(F)The incentives available to the taxpayer in other states.
(G)The duration of the proposed project and the duration the taxpayer commits to remain in this state.
(H)The overall economic impact in this state of the taxpayers project or business.
(I)The strategic importance of the taxpayers project or business to the state, region, or locality.
(J)The opportunity for future growth and expansion in this state by the taxpayers business.
(K)The extent to which the anticipated benefit to the state exceeds the projected benefit to the taxpayer from the tax credit.
(3)The written agreement entered into pursuant to paragraph (2) shall include:
(A)Terms and conditions that include the taxable year or years for which the credit allocated shall be allowed, a minimum compensation level, and a minimum job retention period.
(B)Provisions indicating whether the credit is to be allocated in full upon approval or in increments based on mutually agreed upon milestones when satisfactorily met by the taxpayer.
(C)Provisions that allow the committee to recapture the credit, in whole or in part, if the taxpayer fails to fulfill the terms and conditions of the written agreement.
(b)For purposes of this section:
(1)Committee means the California Competes Tax Credit Committee established pursuant to Section 18410.2.
(2)GO-Biz means the Governors Office of Business and Economic Development.
(c)For purposes of this section, GO-Biz shall do the following:
(1)Give priority to a taxpayer whose project or business is located or proposed to be located in an area of high unemployment or poverty.
(2)Negotiate with a taxpayer the terms and conditions of proposed written agreements that provide the credit allowed pursuant to this section to a taxpayer.
(3)Provide the negotiated written agreement to the committee for its approval pursuant to Section 18410.2.
(4)Inform the Franchise Tax Board of the terms and conditions of the written agreement upon approval of the written agreement by the committee.
(5)Inform the Franchise Tax Board of any recapture, in whole or in part, of a previously allocated credit upon approval of the recapture by the committee.
(6)Post on its Internet Web site all of the following:
(A)The name of each taxpayer allocated a credit pursuant to this section.
(B)The estimated amount of the investment by each taxpayer.
(C)The estimated number of jobs created or retained.
(D)The amount of the credit allocated to the taxpayer.
(E)The amount of the credit recaptured from the taxpayer, if applicable.
(d)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)(A)Except as provided in subparagraph (B), review the books and records of all taxpayers allocated a credit pursuant to this section to ensure compliance with the terms and conditions of the written agreement between the taxpayer and GO-Biz.
(B)In the case of a taxpayer that is a small business, as defined in Section 17053.73, review the books and records of the taxpayer allocated a credit pursuant to this section to ensure compliance with the terms and conditions of the written agreement between the taxpayer and GO-Biz when, in the sole discretion of the Franchise Tax Board, a review of those books and records is appropriate or necessary in the best interests of the state.
(2)Notwithstanding Section 19542:
(A)Notify GO-Biz of a possible breach of the written agreement by a taxpayer and provide detailed information regarding the basis for that determination.
(B)Provide information to GO-Biz with respect to whether a taxpayer is a small business, as defined in Section 17053.73.
(e)In the case where the credit allowed under this section exceeds the net tax, as defined in Section 17039, for a taxable year, the excess credit may be carried over to reduce the net tax in the following taxable year, and succeeding five taxable years, if necessary, until the credit has been exhausted.
(f)Any recapture, in whole or in part, of a credit approved by the committee pursuant to Section 18410.2 shall be treated as a mathematical error appearing on the return. Any amount of tax resulting from that recapture shall be assessed by the Franchise Tax Board in the same manner as provided by Section 19051. The amount of tax resulting from the recapture shall be added to the tax otherwise due by the taxpayer for the taxable year in which the committees recapture determination occurred.
(g)(1)The aggregate amount of credit that may be allocated in any fiscal year pursuant to this section and Section 23689 shall be an amount equal to the sum of subparagraphs (A), (B), and (C), less the amount specified in subparagraphs (D) and (E):
(A)Thirty million dollars ($30,000,000) for the 201314 fiscal year, one hundred fifty million dollars ($150,000,000) for the 201415 fiscal year, and two hundred million dollars ($200,000,000) for each fiscal year from 201516 to 201718, inclusive.
(B)The unallocated credit amount, if any, from the preceding fiscal year.
(C)The amount of any previously allocated credits that have been recaptured.
(D)The amount estimated by the Director of Finance, in consultation with the Franchise Tax Board and the State Board of Equalization, to be necessary to limit the aggregation of the estimated amount of exemptions claimed pursuant to Section 6377.1 and of the amounts estimated to be claimed pursuant to this section and Sections 17053.73, 23626, and 23689 to no more than seven hundred fifty million dollars ($750,000,000) for either the current fiscal year or the next fiscal year.
(i)The Director of Finance shall notify the Chairperson of the Joint Legislative Budget Committee of the estimated annual allocation authorized by this paragraph. Any allocation pursuant to these provisions shall be made no sooner than 30 days after written notification has been provided to the Chairperson of the Joint Legislative Budget Committee and the chairpersons of the committees of each house of the Legislature that consider appropriation, or not sooner than whatever lesser time the Chairperson of the Joint Legislative Budget Committee, or his or her designee, may determine.
(ii)In no event shall the amount estimated in this subparagraph be less than zero dollars ($0).
(E)(i)For the 201516 fiscal year and each fiscal year thereafter, the amount of credit estimated by the Director of Finance to be allowed to all qualified taxpayers for that fiscal year pursuant to subparagraph (A) or subparagraph (B) of paragraph (1) of subdivision (c) of Section 23636.
(ii)If the amount available per fiscal year pursuant to this section and Section 23689 is less than the aggregate amount of credit estimated by the Director of Finance to be allowed to qualified taxpayers pursuant to subparagraph (A) or subparagraph (B) of paragraph (1) of subdivision (c) of Section 23636, the aggregate amount allowed pursuant to Section 23636 shall not be reduced and, in addition to the reduction required by clause (i), the aggregate amount of credit that may be allocated pursuant to this section and Section 23689 for the next fiscal year shall be reduced by the amount of that deficit.
(iii)It is the intent of the Legislature that the reductions specified in this subparagraph of the aggregate amount of credit that may be allocated pursuant to this section and Section 23689 shall continue if the repeal dates of the credits allowed by this section and Section 23689 are removed or extended.
(2)(A)In addition to the other amounts determined pursuant to paragraph (1), the Director of Finance may increase the aggregate amount of credit that may be allocated pursuant to this section and Section 23689 by up to twenty-five million dollars ($25,000,000) per fiscal year through the 201718 fiscal year. The amount of any increase made pursuant to this paragraph, when combined with any increase made pursuant to paragraph (2) of subdivision (g) of Section 23689, shall not exceed twenty-five million dollars ($25,000,000) per fiscal year through the 201718 fiscal year.
(B)It is the intent of the Legislature that the Director of Finance increase the aggregate amount under subparagraph (A) in order to mitigate the reduction of the amount available due to the credit allowed to all qualified taxpayers pursuant to subparagraph (A) or (B) of paragraph (1) of subdivision (c) of Section 23636.
(3)(A)In addition to the other amounts determined pursuant to paragraphs (1) and (2), an additional amount of credit in an amount equal to the sum of clauses (i), (ii), and (iii) may be allocated to taxpayers, otherwise eligible pursuant to this section and subject to the requirements of this section, that are located in a county, city and county, or metropolitan statistical area that has a 10 percent, or higher, rate of unemployment.
(i)Fifty million dollars ($50,000,000) for the 201516 fiscal year, and each fiscal year thereafter, to the 201718 fiscal year, inclusive.
(ii)The unallocated credit amount, if any, from the preceding fiscal year.
(iii)The amount of any previously allocated credits that have been recaptured.
(B)Paragraphs (4) and (5) shall not apply to the aggregate amount of credit allocated pursuant to this paragraph.
(3)
(4)Each fiscal year, 25 percent of the aggregate amount of the credit that may be allocated pursuant to this section and Section 23689 shall be reserved for small business, small business, as defined in Section 17053.73 or 23626.
(4)
(5)Each fiscal year, no more than 20 percent of the aggregate amount of the credit that may be allocated pursuant to this section shall be allocated to any one taxpayer.
(h)GO-Biz may prescribe rules and regulations as necessary to carry out the purposes of this section. Any rule or regulation prescribed pursuant to this section may be by adoption of an emergency regulation in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
(i)A written agreement between GO-Biz and a taxpayer with respect to the credit authorized by this section shall comply with existing law on the date the agreement is executed.
(j)(1)Upon the effective date of this section, the Department of Finance shall estimate the total dollar amount of credits that will be claimed under this section with respect to each fiscal year from the 201314 fiscal year to the 202425 fiscal year, inclusive.
(2)The Franchise Tax Board shall annually provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed under this section with respect to the relevant fiscal year. The report shall compare the total dollar amount of credits claimed under this section with respect to that fiscal year with the departments estimate with respect to that same fiscal year. If the total dollar amount of credits claimed for the fiscal year is less than the estimate for that fiscal year, the report shall identify options for increasing annual claims of the credit so as to meet estimated amounts.
(k)This section is repealed on December 1, 2025.
SEC. 2.Section 23689 of the Revenue and Taxation Code is amended to read:23689.(a)(1)For each taxable year beginning on and after January 1, 2014, and before January 1, 2025, there shall be allowed as a credit against the tax, as defined in Section 23036, an amount as determined by the committee pursuant to paragraph (2) and approved pursuant to Section 18410.2.
(2)The credit under this section shall be allocated by GO-Biz with respect to the 201314 fiscal year through and including the 201718 fiscal year. The amount of credit allocated to a taxpayer with respect to a fiscal year pursuant to this section shall be as set forth in a written agreement between GO-Biz and the taxpayer and shall be based on the following factors:
(A)The number of jobs the taxpayer will create or retain in this state.
(B)The compensation paid or proposed to be paid by the taxpayer to its employees, including wages and fringe benefits.
(C)The amount of investment in this state by the taxpayer.
(D)The extent of unemployment or poverty in the area according to the United States Census in which the taxpayers project or business is proposed or located.
(E)The incentives available to the taxpayer in this state, including incentives from the state, local government, and other entities.
(F)The incentives available to the taxpayer in other states.
(G)The duration of the proposed project and the duration the taxpayer commits to remain in this state.
(H)The overall economic impact in this state of the taxpayers project or business.
(I)The strategic importance of the taxpayers project or business to the state, region, or locality.
(J)The opportunity for future growth and expansion in this state by the taxpayers business.
(K)The extent to which the anticipated benefit to the state exceeds the projected benefit to the taxpayer from the tax credit.
(3)The written agreement entered into pursuant to paragraph (2) shall include:
(A)Terms and conditions that include the taxable year or years for which the credit allocated shall be allowed, a minimum compensation level, and a minimum job retention period.
(B)Provisions indicating whether the credit is to be allocated in full upon approval or in increments based on mutually agreed upon milestones when satisfactorily met by the taxpayer.
(C)Provisions that allow the committee to recapture the credit, in whole or in part, if the taxpayer fails to fulfill the terms and conditions of the written agreement.
(b)For purposes of this section:
(1)Committee means the California Competes Tax Credit Committee established pursuant to Section 18410.2.
(2)GO-Biz means the Governors Office of Business and Economic Development.
(c)For purposes of this section, GO-Biz shall do the following:
(1)Give priority to a taxpayer whose project or business is located or proposed to be located in an area of high unemployment or poverty.
(2)Negotiate with a taxpayer the terms and conditions of proposed written agreements that provide the credit allowed pursuant to this section to a taxpayer.
(3)Provide the negotiated written agreement to the committee for its approval pursuant to Section 18410.2.
(4)Inform the Franchise Tax Board of the terms and conditions of the written agreement upon approval of the written agreement by the committee.
(5)Inform the Franchise Tax Board of any recapture, in whole or in part, of a previously allocated credit upon approval of the recapture by the committee.
(6)Post on its Internet Web site all of the following:
(A)The name of each taxpayer allocated a credit pursuant to this section.
(B)The estimated amount of the investment by each taxpayer.
(C)The estimated number of jobs created or retained.
(D)The amount of the credit allocated to the taxpayer.
(E)The amount of the credit recaptured from the taxpayer, if applicable.
(d)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)(A)Except as provided in subparagraph (B), review the books and records of all taxpayers allocated a credit pursuant to this section to ensure compliance with the terms and conditions of the written agreement between the taxpayer and GO-Biz.
(B)In the case of a taxpayer that is a small business, as defined in Section 23626, review the books and records of the taxpayer allocated a credit pursuant to this section to ensure compliance with the terms and conditions of the written agreement between the taxpayer and GO-Biz when, in the sole discretion of the Franchise Tax Board, a review of those books and records is appropriate or necessary in the best interests of the state.
(2)Notwithstanding Section 19542:
(A)Notify GO-Biz of a possible breach of the written agreement by a taxpayer and provide detailed information regarding the basis for that determination.
(B)Provide information to GO-Biz with respect to whether a taxpayer is a small business, as defined in Section 23626.
(e)In the case where the credit allowed under this section exceeds the tax, as defined in Section 23036, for a taxable year, the excess credit may be carried over to reduce the tax in the following taxable year, and succeeding five taxable years, if necessary, until the credit has been exhausted.
(f)Any recapture, in whole or in part, of a credit approved by the committee pursuant to Section 18410.2 shall be treated as a mathematical error appearing on the return. Any amount of tax resulting from that recapture shall be assessed by the Franchise Tax Board in the same manner as provided by Section 19051. The amount of tax resulting from the recapture shall be added to the tax otherwise due by the taxpayer for the taxable year in which the committees recapture determination occurred.
(g)(1)The aggregate amount of credit that may be allocated in any fiscal year pursuant to this section and Section 17059.2 shall be an amount equal to the sum of subparagraphs (A), (B), and (C), less the amount specified in subparagraphs (D) and (E):
(A)Thirty million dollars ($30,000,000) for the 201314 fiscal year, one hundred fifty million dollars ($150,000,000) for the 201415 fiscal year, and two hundred million dollars ($200,000,000) for each fiscal year from 201516 to 201718, inclusive.
(B)The unallocated credit amount, if any, from the preceding fiscal year.
(C)The amount of any previously allocated credits that have been recaptured.
(D)The amount estimated by the Director of Finance, in consultation with the Franchise Tax Board and the State Board of Equalization, to be necessary to limit the aggregation of the estimated amount of exemptions claimed pursuant to Section 6377.1 and of the amounts estimated to be claimed pursuant to this section and Sections 17053.73, 17059.2, and 23626 to no more than seven hundred fifty million dollars ($750,000,000) for either the current fiscal year or the next fiscal year.
(i)The Director of Finance shall notify the Chairperson of the Joint Legislative Budget Committee of the estimated annual allocation authorized by this paragraph. Any allocation pursuant to these provisions shall be made no sooner than 30 days after written notification has been provided to the Chairperson of the Joint Legislative Budget Committee and the chairpersons of the committees of each house of the Legislature that consider appropriation, or not sooner than whatever lesser time the Chairperson of the Joint Legislative Budget Committee, or his or her designee, may determine.
(ii)In no event shall the amount estimated in this subparagraph be less than zero dollars ($0).
(E)(i)For the 201516 fiscal year and each fiscal year thereafter, the amount of credit estimated by the Director of Finance to be allowed to all qualified taxpayers for that fiscal year pursuant to subparagraph (A) or subparagraph (B) of paragraph (1) of subdivision (c) of Section 23636.
(ii)If the amount available per fiscal year pursuant to this section and Section 17059.2 is less than the aggregate amount of credit estimated by the Director of Finance to be allowed to qualified taxpayers pursuant to subparagraph (A) or subparagraph (B) of paragraph (1) of subdivision (c) of Section 23636, the aggregate amount allowed pursuant to Section 23636 shall not be reduced and, in addition to the reduction required by clause (i), the aggregate amount of credit that may be allocated pursuant to this section and Section 17059.2 for the next fiscal year shall be reduced by the amount of that deficit.
(iii)It is the intent of the Legislature that the reductions specified in this subparagraph of the aggregate amount of credit that may be allocated pursuant to this section and Section 17059.2 shall continue if the repeal dates of the credits allowed by this section and Section 17059.2 are removed or extended.
(2)(A)In addition to the other amounts determined pursuant to paragraph (1), the Director of Finance may increase the aggregate amount of credit that may be allocated pursuant to this section and Section 17059.2 by up to twenty-five million dollars ($25,000,000) per fiscal year through the 201718 fiscal year. The amount of any increase made pursuant to this paragraph, when combined with any increase made pursuant to paragraph (2) of subdivision (g) of Section 17059.2, shall not exceed twenty-five million dollars ($25,000,000) per fiscal year through the 201718 fiscal year.
(B)It is the intent of the Legislature that the Director of Finance increase the aggregate amount under subparagraph (A) in order to mitigate the reduction of the amount available due to the credit allowed to all qualified taxpayers pursuant to subparagraph (A) or (B) of paragraph (1) of subdivision (c) of Section 23636.
(3)(A)In addition to the other amounts determined pursuant to paragraphs (1) and (2), an additional amount of credit in an amount equal to the sum of clauses (i), (ii), and (iii) may be allocated to taxpayers, otherwise eligible pursuant to this section and subject to the requirements of this section, that are located in a county, city and county, or metropolitan statistical area that has a 10 percent, or higher, rate of unemployment.
(i)Fifty million dollars ($50,000,000) for the 201516 fiscal year, and each fiscal year thereafter, to the 201718 fiscal year, inclusive.
(ii)The unallocated credit amount, if any, from the preceding fiscal year.
(iii)The amount of any previously allocated credits that have been recaptured.
(B)Paragraphs (4) and (5) shall not apply to the aggregate amount of credit allocated pursuant to this paragraph.
(3)
(4)Each fiscal year, 25 percent of the aggregate amount of the credit that may be allocated pursuant to this section and Section 17059.2 shall be reserved for small business, as defined in Section 17053.73 or 23626.
(4)
(5)Each fiscal year, no more than 20 percent of the aggregate amount of the credit that may be allocated pursuant to this section shall be allocated to any one taxpayer.
(h)GO-Biz may prescribe rules and regulations as necessary to carry out the purposes of this section. Any rule or regulation prescribed pursuant to this section may be by adoption of an emergency regulation in accordance with Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code.
(i)(1)A written agreement between GO-Biz and a taxpayer with respect to the credit authorized by this section shall not restrict, broaden, or otherwise alter the ability of the taxpayer to assign that credit or any portion thereof in accordance with Section 23663.
(2)A written agreement between GO-Biz and a taxpayer with respect to the credit authorized by this section must comply with existing law on the date the agreement is executed.
(j)(1)Upon the effective date of this section, the Department of Finance shall estimate the total dollar amount of credits that will be claimed under this section with respect to each fiscal year from the 201314 fiscal year to the 202425 fiscal year, inclusive.
(2)The Franchise Tax Board shall annually provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed under this section with respect to the relevant fiscal year. The report shall compare the total dollar amount of credits claimed under this section with respect to that fiscal year with the departments estimate with respect to that same fiscal year. If the total dollar amount of credits claimed for the fiscal year is less than the estimate for that fiscal year, the report shall identify options for increasing annual claims of the credit so as to meet estimated amounts.
(k)This section is repealed on December 1, 2025.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
SECTION 1.It is the intent of the Legislature to enact legislation to improve the California Competes Tax Credit program to better serve areas with high unemployment.
It is the intent of the Legislature to enact legislation to improve the California Competes Tax Credit program to better serve areas with high unemployment.
|
Date
|
Status
|
|---|---|
| Feb 26, 2015 | Read first time. To print. |
| Feb 27, 2015 | From printer. May be heard in committee March 29. |
| Mar 26, 2015 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Mar 26, 2015 | Referred to Com. on REV. & TAX. |
| Apr 6, 2015 | Re-referred to Com. on REV. & TAX. |
| May 11, 2015 | In committee: Set, first hearing. Referred to REV. & TAX. suspense file. |
| May 18, 2015 | Retained in suspense file. |
| Jan 31, 2016 | Died pursuant to Article IV, Sec. 10(c) of the Constitution. |
| Feb 1, 2016 | From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. |
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AB 961
Page 4
Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 961 (
Gallagher) – As Amended March 26, 2015
SUSPENSE
Majority vote. Fiscal committee. Tax levy.
SUBJECT: Income taxation: credits: California competes.
SUMMARY:
Temporarily increases the aggregate amount of the California Competes
Tax Credit that may be allocated to taxpayers by $50 million per
fiscal year. Specifically, this bill:
Increases the aggregate amount of the California Competes Tax Credit, under both the Personal Income Tax (PIT) and the Corporation Tax (CT) laws, by $50 million for the 2015-16 fiscal year (FY), and each FY thereafter, through the FY 2017-18.
Authorizes the Governor’s Office of Business and Economic Development (GO-Biz) to allocate the additional amount of the credit to eligible taxpayers located in a county, city and county, or metropolitan statistical area that has a 10%, or higher, rate of unemployment. The amount available for this allocation in any given FY would be adjusted by any unallocated credit amount from the preceding FY, and the amount of any previously allocated credits that have been recaptured.
Specifies that both of the following conditions do not apply to the increased allocation amount of $50 million:
The minimum credit reservation applicable to small businesses, as defined in Revenue and Taxation Code (RT&C) Section 17053.73 or 23626; and,
The limitation on the maximum amount of the California Competes Tax Credit that may be allocated to any one taxpayer.
Takes effect immediately as a tax levy.
EXISTING LAW:
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."
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.
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.
Authorizes the Director of Finance to increase the aggregate amount of the economic development credits that may be allocated to taxpayers each fiscal year by $25 million per fiscal year through the 2017-18 fiscal year, as specified.
FISCAL EFFECT: Unknown.
COMMENTS:
The Author's Statement. The author has provided the following statement in support of this bill:
"Since the birth of the California Competes, the Governor's Office of Business and Economic Development (GO-Biz) has awarded 85 companies approximately $60 million to create an estimated 10,000 jobs and generate $3 billion in investment across the state. In February, 2015, GO-Biz announced it received a total of 253 applications with a combined tax credit request of $289 million for the California Competes Tax Credit period which ended on February 2, 2015. However, in the 2015-16 fiscal year, GO-Biz is only authorized to award $151.1 million in tax credits. Unfortunately, the requests for tax credits from businesses aiding California's economy are higher than the amount of money allocated for the program. GO-Biz is over $137 million short of what was requested.
"The lack of funding for businesses applying for the credit is limiting job growth and investment the state could create if allowed to increase the budget of the program. This is especially important for areas that have high unemployment. Currently, the only funding requirement of the Program is that 25% of the total amount each fiscal year be reserved for small businesses (those businesses that have gross receipts greater than $0 but less than $2 million in the prior tax year). In contrast, unemployment or poverty in an area is only one of many factors that the California Competes Tax Credit Committee considers, and there is no requirement in law that funding be set aside specifically for these areas.
"The legislature must do everything in its power to encourage economic development and business creation and expansion for areas that are struggling to recover from the recession. California Competes is a great start, but unless its efforts are reinforced and targeted through additional financial support for needy areas, the program will not be able to perform to its full potential."
The "California Competes" Tax Credit (CCTC) 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 CCTC 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.
The CCTC 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. In FY
2014-15, the total allocation amount is $151.1 million, of which a
total of over $100.3 million (after adjusting for S-corporation tax
law)1
has been awarded so far to 146 companies, including Northrop Grumman,
Macy's.com, Inc., Alibaba.com, and Honeywell International, Inc.
Too Soon? The CCTC program was designed to retain businesses in California, as well as encourage businesses to move to California or expand their current in-state operations. Taxpayers must commit to create a certain number of jobs, make a specified investment in California, and enter into a Tax Credit Agreement with the GO-Biz. The award and the agreement must be approved by the California Competes Tax Credit Committee. The agreement to award credits takes into consideration the number of jobs created, the compensation paid to employees, amount of investment by the taxpayer in California, the amount of unemployment or poverty in the area according to the U.S. census, the overall economic impact of the project, and the extent to which state benefits exceed state costs, among other criteria. In the event that a taxpayer fails to perform under the written agreement, the credit is recaptured.
The original legislation that created that CCTC program requires GO-Biz to provide information to FTB regarding the terms and conditions of the written agreements and of any recapture, in whole or in part, of a previously allocated credit. In turn, the FTB must provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed with respect to the relevant fiscal year. This exchange of information is needed to facilitate the implementation of the CCTC program as well as to evaluate its effectiveness.
The first round of allocations of the CCTC was done on June 19, 2014, when GO-Biz awarded $28.9 million to eligible taxpayers. The amounts of credit available for allocation in the current fiscal year and the following years, however, are much higher: $150 million in FY 2014-15 and $200 million in each of the FYs 2015-16, 2016-17, and 2017-18. Given that the first credit award took place less than one year ago, the Committee may wish to consider whether a modification of the program is warranted in the absence of data necessary to evaluate the needs of the program or its effectiveness.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098
1 One-third of the California Competes Tax Credit may be utilized by an S-Corporation to offset the tax on net income at the S-Corporation level (R&TC §23803(a)(1).) The remaining two-thirds is disregarded and may not be used as a carryover for the S-Corporation (R&TC §23803(a)(2)(A).) However, the full amount of the California Competes Tax Credit is also passed through to the S-Corporation’s shareholders (R&TC §23803(a)(2)(F).)
AB 961
Page 4
Date of Hearing: May 11, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 961 (
Gallagher) – As Amended March 26, 2015
Majority vote. Fiscal committee. Tax levy.
SUBJECT: Income taxation: credits: California competes
SUMMARY:
Temporarily increases the aggregate amount of the California Competes
Tax Credit that may be allocated to taxpayers by $50 million per
fiscal year. Specifically, this bill:
Increases the aggregate amount of the California Competes Tax Credit, under both the Personal Income Tax (PIT) and the Corporation Tax (CT) laws, by $50 million for the 2015-16 fiscal year (FY), and each FY thereafter, through the FY 2017-18.
Authorizes the Governor’s Office of Business and Economic Development (GO-Biz) to allocate the additional amount of the credit to eligible taxpayers located in a county, city and county, or metropolitan statistical area that has a 10%, or higher, rate of unemployment. The amount available for this allocation in any given FY would be adjusted by any unallocated credit amount from the preceding FY, and the amount of any previously allocated credits that have been recaptured.
Specifies that both of the following conditions do not apply to the increased allocation amount of $50 million:
The minimum credit reservation applicable to small businesses, as defined in Revenue and Taxation Code (RT&C) Section 17053.73 or 23626; and,
The limitation on the maximum amount of the California Competes Tax Credit that may be allocated to any one taxpayer.
Takes effect immediately as a tax levy.
EXISTING LAW:
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."
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.
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.
Authorizes the Director of Finance to increase the aggregate amount of the economic development credits that may be allocated to taxpayers each fiscal year by $25 million per fiscal year through the 2017-18 fiscal year, as specified.
FISCAL EFFECT: Unknown.
COMMENTS:
The Author's Statement. The author has provided the following statement in support of this bill:
"Since the birth of the California Competes, the Governor's Office of Business and Economic Development (GO-Biz) has awarded 85 companies approximately $60 million to create an estimated 10,000 jobs and generate $3 billion in investment across the state. In February, 2015, GO-Biz announced it received a total of 253 applications with a combined tax credit request of $289 million for the California Competes Tax Credit period which ended on February 2, 2015. However, in the 2015-16 fiscal year, GO-Biz is only authorized to award $151.1 million in tax credits. Unfortunately, the requests for tax credits from businesses aiding California's economy are higher than the amount of money allocated for the program. GO-Biz is over $137 million short of what was requested.
"The lack of funding for businesses applying for the credit is limiting job growth and investment the state could create if allowed to increase the budget of the program. This is especially important for areas that have high unemployment. Currently, the only funding requirement of the Program is that 25% of the total amount each fiscal year be reserved for small businesses (those businesses that have gross receipts greater than $0 but less than $2 million in the prior tax year). In contrast, unemployment or poverty in an area is only one of many factors that the California Competes Tax Credit Committee considers, and there is no requirement in law that funding be set aside specifically for these areas.
"The legislature must do everything in its power to encourage economic development and business creation and expansion for areas that are struggling to recover from the recession. California Competes is a great start, but unless its efforts are reinforced and targeted through additional financial support for needy areas, the program will not be able to perform to its full potential."
The "California Competes" Tax Credit (CCTC) 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 CCTC 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.
The CCTC 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. In FY
2014-15, the total allocation amount is $151.1 million, of which a
total of over $100.3 million (after adjusting for S-corporation tax
law)1
has been awarded so far to 146 companies, including Northrop Grumman,
Macy's.com, Inc., Alibaba.com, and Honeywell International, Inc.
Too Soon? The CCTC program was designed to retain businesses in California, as well as encourage businesses to move to California or expand their current in-state operations. Taxpayers must commit to create a certain number of jobs, make a specified investment in California, and enter into a Tax Credit Agreement with the GO-Biz. The award and the agreement must be approved by the California Competes Tax Credit Committee. The agreement to award credits takes into consideration the number of jobs created, the compensation paid to employees, amount of investment by the taxpayer in California, the amount of unemployment or poverty in the area according to the U.S. census, the overall economic impact of the project, and the extent to which state benefits exceed state costs, among other criteria. In the event that a taxpayer fails to perform under the written agreement, the credit is recaptured.
The original legislation that created that CCTC program requires GO-Biz to provide information to FTB regarding the terms and conditions of the written agreements and of any recapture, in whole or in part, of a previously allocated credit. In turn, the FTB must provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed with respect to the relevant fiscal year. This exchange of information is needed to facilitate the implementation of the CCTC program as well as to evaluate its effectiveness.
The first round of allocations of the CCTC was done on June 19, 2014, when GO-Biz awarded $28.9 million to eligible taxpayers. The amounts of credit available for allocation in the current fiscal year and the following years, however, are much higher: $150 million in FY 2014-15 and $200 million in each of the FYs 2015-16, 2016-17, and 2017-18. Given that the first credit award took place less than one year ago, the Committee may wish to consider whether a modification of the program is warranted in the absence of data necessary to evaluate the needs of the program or its effectiveness.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098
1 One-third of the California Competes Tax Credit may be utilized by an S-Corporation to offset the tax on net income at the S-Corporation level (R&TC §23803(a)(1).) The remaining two-thirds is disregarded and may not be used as a carryover for the S-Corporation (R&TC §23803(a)(2)(A).) However, the full amount of the California Competes Tax Credit is also passed through to the S-Corporation’s shareholders (R&TC §23803(a)(2)(F).)
Discussed in Hearing
3MIN
Assembly Standing Committee on Revenue and Taxation
Bill Author
Bill Co-Author(s):