AB 2312: Taxation.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2018-05-15
The Personal Income Tax Law and the Corporation Tax Law allow a credit against the taxes imposed under those laws, 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 provides for the allocation of credit amounts through the 201718 fiscal year and limits the aggregate amount of credit that may be allocated in a fiscal year.
This bill, for each fiscal year, the credits described above as may be authorized for allocation for the 201819 fiscal year through the 202324 fiscal year, would allow up to 50% of the unallocated and recaptured credit amount, if any, from the preceding fiscal year to be reserved as a preliminary allocation to taxpayers that create or retain regionally significant jobs in a manufacturing, research and development, or testing facility, or a corporate headquarters, if the city, county, or city and county that is competing for the establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters applies to GO-Biz on behalf of the taxpayer, as provided.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.This bill would take effect immediately as a tax levy.The Personal Income Tax Law and the Corporation Tax Law allow a credit against the taxes imposed under those laws, 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 provides for the allocation of credit amounts through the 201718 fiscal year and limits the aggregate amount of credit that may be allocated in a fiscal year.
This bill, for each fiscal year, would allow up to 50% of the unallocated and recaptured credit amount, if any, from the preceding fiscal year to be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs in a manufacturing, research and development, or testing facility, or a corporate headquarters, if the city, county, or city and county that is competing for the creation or retention of manufacturing jobs establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters applies to GO-Biz on behalf of the taxpayer. taxpayer, as provided.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law and the Corporation Tax Law allow a credit against the taxes imposed under those laws, 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 provides for the allocation of credit amounts through the 201718 fiscal year and limits the aggregate amount of credit that may be allocated in a fiscal year.
This bill, for each fiscal year, would allow up to 50% of the unallocated credit amount, if any, from the preceding fiscal year to be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs if the city, county, or city and county that is competing for the creation or retention of manufacturing jobs applies to GO-Biz on behalf of the taxpayer.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIIIA of the California Constitution, and thus would require for passage the approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
This bill would state that it is the intent of the Legislature to enact legislation that would make the California Competes Tax Credits refundable.The Personal Income Tax Law and the Corporation Tax Law allow a credit against the taxes imposed under those laws, 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 provides for the allocation of credit amounts through the 201718 fiscal year and limits the aggregate amount of credit that may be allocated in a fiscal year.
This bill would state that it is the intent of the Legislature to enact legislation that would make the California Competes Tax Credits refundable.
(a)For any credit authorized to be allocated for the 201819 fiscal year and through and including the 202324 fiscal year, pursuant to Section 17059.2, the following provisions shall apply. If there is a conflict between this section and Section 17059.2 or any other section, the provisions of this section apply.
(b)(1)For the 201819 fiscal year and through and including the 202324 fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant jobs, as described in paragraph (2).
(2)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.
(3)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by Section 17059.2.
(4)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.
(c)In meeting the information posting requirements of subparagraph (G) of paragraph (6) of subdivision (c) of Section 17059.2, GO-Biz shall quantify the total number of credits awarded in high poverty and unemployment priority areas, as described in paragraph (1) of subdivision (c) of Section 17059.2. In any year that the dollar amount of those credits is less than 25 percent of total awarded credits, GO-Biz shall identify regulatory and legislative options for increasing awards to priority areas.
(d)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.
SEC. 2.Section 23690 is added to the Revenue and Taxation Code, to read:23690.(a)For any credit authorized to be allocated for the 201819 fiscal year and through and including the 202324 fiscal year, pursuant to Section 23689, the following provisions shall apply. If there is a conflict between this section and Section 23689 or any other section, the provisions of this section apply.
(b)(1)For the 201819 fiscal year and through and including the 202324 fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant jobs, as described in paragraph (2).
(2)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.
(3)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by Section 17059.2.
(4)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.
(c)In meeting the information posting requirements of subparagraph (G) of paragraph (6) of subdivision (c) of Section 23689, GO-Biz shall quantify the total number of credits awarded in high poverty and unemployment priority areas, as described in paragraph (1) of subdivision (c) of Section 23689. In any year that the dollar amount of those credits is less than 25 percent of total awarded credits, GO-Biz shall identify regulatory and legislative options for increasing awards to priority areas.
(d)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.
SECTION 1.Section 17059.2 of the Revenue and Taxation Code is amended to read:17059.2.(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.(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.(B)The taxpayers current and prior compliance with federal and state laws.(C)Current and prior litigation involving the taxpayer.(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.(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 California Department of Tax and Fee Administration, 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 appropriations, 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)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, as defined in Section 17053.73 or 23626.(4)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.(5)(A)Each fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant jobs, as described in subparagraph (B).(B)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.(C)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by this section.(D)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.(E)It is the intent of the Legislature that preliminary and final allocations authorized pursuant to this paragraph shall continue if the repeal dates of the credits allowed by this section and Section 23689 are removed or extended and to the extent there is authority to allocate these credits.(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.(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.(B)The taxpayers current and prior compliance with federal and state laws.(C)Current and prior litigation involving the taxpayer.(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.(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 California Department of Tax and Fee Administration, 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 appropriations, 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)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)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.(5)(A)Each fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant jobs, as described in subparagraph (B).(B)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.(C)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by this section.(D)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.(E)It is the intent of the Legislature that preliminary and final allocations authorized pursuant to this paragraph shall continue if the repeal dates of the credits allowed by this section and Section 17059.2 are removed or extended and to the extent there is authority to allocate these credits.(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 California Constitution and shall go into immediate effect.(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.
(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.
(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).
(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).
(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:
(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.
(B)The taxpayers current and prior compliance with federal and state laws.
(C)Current and prior litigation involving the taxpayer.
(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.
(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.
(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 California Department of Tax and Fee Administration, 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 appropriations, 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)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, as defined in Section 17053.73 or 23626.
(4)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.
(5)(A)Each fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs. To jobs, as described in subparagraph (B).
(B)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the creation or retention of the manufacturing jobs shall apply to GO-Biz on behalf of the taxpayer. establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.
(C)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by this section.
(D)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.
(B)(E)It is the intent of the Legislature to enact legislation that would apply the changes made to this section by the act adding this subparagraph to any future extension of this credit. that preliminary and final allocations authorized pursuant to this paragraph shall continue if the repeal dates of the credits allowed by this section and Section 23689 are removed or extended and to the extent there is authority to allocate these credits.
(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.
(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.
(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).
(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).
(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:
(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.
(B)The taxpayers current and prior compliance with federal and state laws.
(C)Current and prior litigation involving the taxpayer.
(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.
(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.
(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 California Department of Tax and Fee Administration, 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 appropriations, 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)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)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.
(5)(A)Each fiscal year, up to 50 percent of the unallocated and recaptured credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs. To jobs, as described in subparagraph (B).
(B)To receive a preliminary allocation, the city, county, or city and county in which the taxpayer is considering establishing, expanding, or retaining a manufacturing, research and development, or testing facility, or a corporate headquarters, shall demonstrate that it is currently competing for the creation or retention of the manufacturing jobs shall apply to GO-Biz on behalf of the taxpayer. establishment, expansion, or retention of a manufacturing, research and development, or testing facility, or a corporate headquarters, which directly relates to the retention or creation of 150 or more full-time jobs. A taxpayer that retains jobs shall be eligible for preliminary allocation only in the circumstances where an existing facility or headquarters is being considered for purchase.
(C)To receive a preliminary allocation, the city, county, or city and county shall apply to GO-Biz on behalf of the taxpayer. In order to finalize the allocation, the taxpayer shall submit documentation to the California Competes Tax Credit Committee, as required by GO-Biz, and shall enter into a written agreement as required by this section.
(D)A taxpayer that is establishing, expanding, or retaining a manufacturing, research and development, or testing facility is eligible for a preliminary and final allocation if the taxpayer is primarily engaged in those lines of business described in Codes 3111 to 3399, inclusive, 221111 to 221118, inclusive, 221122, 541711, or 541712 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition.
(B)(E)It is the intent of the Legislature to enact legislation that would apply the changes made to this section by the act adding this subparagraph to any future extension of this credit. that preliminary and final allocations authorized pursuant to this paragraph shall continue if the repeal dates of the credits allowed by this section and Section 17059.2 are removed or extended and to the extent there is authority to allocate these credits.
(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 California Constitution and shall go into immediate effect.
(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.
(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.
(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).
(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).
(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:
(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.
(B)The taxpayers current and prior compliance with federal and state laws.
(C)Current and prior litigation involving the taxpayer.
(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.
(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.
(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, California Department of Tax and Fee Administration, 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 appropriations, 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)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, as defined in Section 17053.73 or 23626.
(4)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.
(5)(A)Each fiscal year, up to 50 percent of the unallocated credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs. To receive a preliminary allocation, the city, county, or city and county that is competing for the creation or retention of the manufacturing jobs shall apply to GO-Biz on behalf of the taxpayer.
(B)It is the intent of the Legislature to enact legislation that would apply the changes made to this section by the act adding this subparagraph to any future extension of this credit.
(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.
(F)The primary location where the taxpayer has committed to increasing the net number of jobs or make investments. The primary location shall be listed by city or, in the case of unincorporated areas, by county.
(G)Information that identifies each tax credit award that was given a priority for being located in a high unemployment or poverty area, pursuant to paragraph (1).
(H)Information that identifies each tax credit award that is being counted toward the requirement of paragraph (3) of subdivision (g).
(7)When determining whether to enter into a written agreement with a taxpayer pursuant to this section, GO-Biz may consider other factors, including, but not limited to, the following:
(A)The financial solvency of the taxpayer and the taxpayers ability to finance its proposed expansion.
(B)The taxpayers current and prior compliance with federal and state laws.
(C)Current and prior litigation involving the taxpayer.
(D)The reasonableness of the fee arrangement between the taxpayer and any third party providing any services related to the credit allowed pursuant to this section.
(E)Any other factors GO-Biz deems necessary to ensure that the administration of the credit allowed pursuant to this section is a model of accountability and transparency and that the effective use of the limited amount of credit available is maximized.
(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, California Department of Tax and Fee Administration, 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 appropriations, 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)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)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.
(5)(A)Each fiscal year, up to 50 percent of the unallocated credit amount, if any, from the preceding fiscal year may be reserved as a preliminary allocation to taxpayers that create or retain regionally significant manufacturing jobs. To receive a preliminary allocation, the city, county, or city and county that is competing for the creation or retention of the manufacturing jobs shall apply to GO-Biz on behalf of the taxpayer.
(B)It is the intent of the Legislature to enact legislation that would apply the changes made to this section by the act adding this subparagraph to any future extension of this credit.
(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 California Constitution and shall go into immediate effect.
SECTION 1.It is the intent of the Legislature to enact legislation that would make the California Competes Tax Credit, as described in Section 17059.2 and 23689 of the Revenue and Taxation Code, refundable.It is the intent of the Legislature to enact legislation that would make the California Competes Tax Credit, as described in Section 17059.2 and 23689 of the Revenue and Taxation Code, refundable.
|
Date
|
Status
|
|---|---|
| May 25, 2018 | In committee: Held under submission. |
| May 23, 2018 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| May 16, 2018 | Re-referred to Com. on APPR. |
| May 15, 2018 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 8. Noes 1.) (May 14). Re-referred to Com. on APPR. |
| May 1, 2018 | Re-referred to Com. on REV. & TAX. |
| Apr 30, 2018 | Read second time and amended. |
| Apr 26, 2018 | From committee: Amend, and do pass as amended and re-refer to Com. on REV. & TAX. (Ayes 7. Noes 0.) (April 17). |
| Mar 21, 2018 | Re-referred to Com. on J., E.D., & E. |
| Mar 20, 2018 | From committee chair, with author's amendments: Amend, and re-refer to Com. on J., E.D., & E. Read second time and amended. |
| Mar 19, 2018 | Referred to Coms. on J., E.D., & E. and REV. & TAX. |
| Feb 14, 2018 | From printer. May be heard in committee March 16. |
| Feb 13, 2018 | Read first time. To print. |
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Date
|
Description
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Location
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Votes
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|
|---|---|---|---|---|
| May 14, 2018 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
|
| Apr 17, 2018 | Do pass as amended and be re-referred to the Committee on [Revenue and Taxation] | Assembly Standing Committee on Jobs, Economic Development, and the Economy |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Imperial Irrigation District | * Support | May 14, 2018 |
| Imperial Valley Economic Development Corporation | * Support | Apr 17, 2018 |
Date of Hearing: May 23, 2018
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez Fletcher, Chair
ABPCA Bill Id:AB 2312
Author:(Eduardo Garcia) – As Amended Ver:May 15, 2018
Policy Committee: | Jobs, Economic Development, and the Economy | Vote: | 7 - 0 |
Revenue and Taxation | 8 - 1 | ||
|
|
Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill modifies the California Competes Tax Credit Program (California Competes) to allow for a preliminary allocation of up to 50% of unallocated and recaptured credit amounts from the preceding year for taxpayers considering establishing, expanding, or retaining specified business activities in California. A local government must apply on behalf of a prospective taxpayer and must demonstrate that it is competing for that business in order to generate or retain 150 or more full-time jobs.
FISCAL EFFECT:
- One-time administrative costs to the Governor’s Office of Business and Economic Development (Go-Biz) in excess of $200,000 to develop rules and regulations, make application changes, modify the existing review processes and checklist, and to conduct outreach.
- Redirection of an unknown amount of California Compete credit dollars
COMMENTS:
- Background. In 2014, Governor Brown signed AB 93 (Committee on Budget), Chapter 69, Statutes of 2014, which among other things created California Competes. Existing law requires that each fiscal year at least 25% of the aggregate credit amount be reserved for small businesses, meaning business with $2 million or less in gross receipts, minus returns and allowances.
The administration proposes to extend California Competes for five years. Specifically, GO-Biz would be allowed to award new credits through FY 2022‑23 and credits could be claimed until January 1, 2030. In addition, the governor's proposal would: a) reduce the amount of credits from $200 million per year to $180 million per year; b) replace the small business-related requirement that 25% of the total amount of available credits be awarded to small businesses with a five-year, $20 million-per-year commitment to fund small business technical assistance; and c) specify that GO-Biz may consider the extent to which the credit will increase employment in California when awarding tax credits.
- Purpose. According to the author, AB 2312 will give local municipalities better tools to retain more control over their economic growth. Proponents argue that California lacks a “closing fund” for businesses evaluating a move to California, and AB 2312 allows local governments to reserve a portion of unallocated and recaptured California Competes tax credits to include within a community’s bid package as it competes for a new or expanding business.
- Related legislation. AB 2463 (Quirk-Silva), of the 2017-18 Legislative Session, creates a competitive grant program within GO-Biz for small business technical assistance centers. AB 2463 is pending on this committee’s Suspense File.
Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081
Date of Hearing: May 14, 2018
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Autumn R. Burke, Chairwoman
ABPCA Bill Id:AB 2312 (
Author:Eduardo Garcia) – As Amended Ver:April 30, 2018
2/3 vote. Tax levy. Fiscal committee.
SUBJECT: Taxation: California Competes Tax Credit: Local Governments: Prospective Taxpayers
SUMMARY: Modifies the California Competes Tax Credit (CCTC) program to authorize the California Competes Tax Credit Committee (CCTC Committee) to make a CCTC "preliminary allocation" to a local government on behalf of a prospective taxpayer (or existing taxpayer) engaged in specified businesses to attract (or retain) jobs to the local government's region. Specifically, this bill:
- Allows a city, county, or city and county ("local government") to apply to the Governor's Office of Business and Economic Development (GO-Biz) for a CCTC preliminary allocation under the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law on behalf of specified prospective or existing taxpayers.
- Limits CCTC local-government-reservations to up to 50% of the unallocated and recaptured credit amount, if any, from the preceding fiscal year.
- Requires a local government to demonstrate to the CCTC Committee that it is competing for the establishment, expansion, or retention of either a:
- Manufacturing, research and development (R&D), or testing facility; or,
- Corporate headquarters.
- Requires that the facility or corporate headquarters directly relate to creating or retaining "regionally significant jobs" defined as 150 or more full-time jobs.
- Disallows, in the case of retaining jobs, a CCTC preliminary allocation on behalf of a taxpayer unless that taxpayer is considering purchasing an existing facility or headquarters.
- Requires the taxpayer to be primarily engaged in one of the following NAICS Code-based industrial sectors:
- Manufacturing (3111 to 3399, inclusive);
- Power generation (221111 to 221118, inclusive);
- Power distribution (221122);
- Biotechnology R&D (541711); or,
- Physical, engineering, and life science R&D (541712).
- Requires the taxpayer to finalize the CCTC allocation by submitting the required GO-Biz documentation to the CCTC Committee and entering into the required written agreement.
- States the Legislature's intent for this bill's authorized preliminary and final allocations to continue if the CCTC repeal dates for the PIT and the CT are removed or extended, and to the extent authority exists, to allocate the credits.
- Substitutes the California Department of Tax and Fee Administration (CDTFA) for the State Board of Equalization consistent with the transfer of duties to the CDTFA upon its creation July 1, 2017.
- Takes immediate effect as a tax levy.
EXISTING LAW:
- Establishes the CCTC for the purpose of awarding individually negotiated tax credits to businesses that operate in California. Specifically, allows a credit against the taxes imposed under the CT Law and the 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.
- Requires the CCTC Committee to approve negotiated agreements. This is a five-member committee comprised of the Director of GO-Biz (chair), the State Treasurer, the Director of the Department of Finance, and one appointee each by the Speaker of the Assembly and the Senate Committee on Rules.
- Authorizes GO-Biz to allocate the CCTC with respect to Fiscal Year (FY) 2013-14 and each FY thereafter, through and including FY 2017-18.
- Authorizes the Director of Finance (DOF) to increase the aggregate amount of the economic development credits that may be allocated to taxpayers each FY by $25 million per FY through the 2017-18 FY, as specified.
- Requires that 25% of the aggregate amount of the credit that may be allocated each FY be reserved for small businesses, as defined.
- Allows CCTCs to be carried forward for six years.
FISCAL EFFECT: According to the Franchise Tax Board (FTB), this bill would result in revenue losses, but staff will be deferring to the DOF to determine the revenue impact.
COMMENTS:
- The author has provided the following statement in support of this bill:
As a 2.4 trillion dollar economy, California is a prime spot for businesses, and we need to do a better job competing with other states to attract companies. Most states provide many incentives upfront that companies can use immediately. AB 2312 proposes constructive modifications to the California Competes Tax Credit that will help it become a more proactive program while giving our local municipalities, particularly underserviced areas, better tools to retain more control over their economic growth, incentivize businesses and bring in the industries that will generate local jobs.
- Committee Staff Comments:
- What is the problem? Proponents contend that California lacks a "closing fund" or method to earmark tax benefits for a business evaluating a move to a California location. This arguably places local governments competing with other states at a disadvantage.
- What does this bill do? This bill establishes a process for a local government to reserve a portion of unallocated and recaptured CCTCs from the prior year. This reservation could be included within the community's bid package as it competes for a new or expanding business.
- Governor's 2018-19 budget proposal to modify and extend the CCTC Program: The administration proposes to extend the CCTC Program for five years.[1] Specifically, GO-Biz would be allowed to award new credits through FY 2022‑23 and credits could be claimed until January 1, 2030. In addition, the Governor's proposal would:
- Reduce the amount of credits from $200 million per year to $180 million per year.
- Eliminate the small business-related requirement that 25% of the total amount of available credits be awarded to small businesses. Instead, the administration proposes to provide a five-year, $20 million-per-year commitment to fund small business technical assistance. AB 2463 (Quirk-Silva and Cervantes), sponsored by GO-Biz, pending hearing by the Assembly Appropriations Committee, establishes the California Small Business Assistance Program related to this purpose.
- Specify that GO-Biz may consider the extent to which the credit will increase employment in California when awarding tax credits.
- Restructuring this bill: The author intends to make amendments to this bill at a later date to remove these provisions from Revenue and Taxation Code Sections 17059.2 and 23689 and, instead, add the substance of these provisions into separate sections of the PIT Law and CT Law. These standalone provisions would be operative only if the Governor's budget proposal to extend the CCTC Program for five years is enacted. Additionally, these provisions would be prospective and thus apply to any credit authorized to be allocated for the 2018-19 FY and through and including the 2023-24 FY.
- The LAO recommends the CCTC Program not be extended: The Legislative Analyst's Office report, Review of the California Competes Tax Credit (October 31, 2017), and a Budget and Policy Post (February 21, 2018) on the 2018-19 Budget California Competes Proposal generally recommend against extending the CCTC Program. In its analysis, the LAO distinguishes amongst businesses that have benefited from the CCTC as either "tradable" or "non-tradable". Tradable sector businesses produce goods and services that can be readily consumed in a location far away from where they are produced. The LAO notes that providing credits to non-tradeable businesses cause negative economic impacts and windfalls to those businesses already operating in California. Specifically, the LAO expressed concern that programs like California Competes have inherent and unavoidable risks of "providing windfall benefits or awards to businesses in the non-tradeable sector of the economy" and can result in "significant tax burden disparities among similarly situated taxpayers" by providing a "substantial benefit to a relatively small number of the hundreds of thousands of businesses here."
- Power generation and distribution: This bill proposes to allow local governments to reserve credits on behalf of power generation facilities: hydroelectric, fossil fuel, nuclear, solar, wind, geothermal, biomass, and "other" electric generation (like tidal). Arguably, these businesses are developing California's natural resources (water, wind, sunshine, geothermal, tides), which are generally not exportable/tradeable. With respect to the power generation and distribution sector, capturing the sun's power as it shines on California land and building a power distribution system for that solar power throughout the state appears to be a "non-tradeable" industry. Whereas, perfecting solar panel technology through R&D or manufacturing solar panel roof tiles would be a "tradeable" industry.
- Interstate competition: To the extent the purported purpose of this credit is to effectively compete with other states, the Committee may wish to consider whether extending tax credits to a broad category of "non-tradable" industry sectors under the umbrella of the California Competes program is sound tax policy or if it is a windfall to that industry sector. For example, Tesla selected a site in Nevada to build its gigafactory battery plant, an example of a "tradable business" related to power production. With this bill, if Telsa had been an out-of-state company searching nationwide for sites, a California local government might have better competed if it could have reserved credits on behalf of the company.
- Job retention and the purchase limitation: In the case of a local government competing to retain jobs in the region, this bill disallows a local government from receiving a preliminary allocation for the employer unless an "existing facility is being considered for purchase" or a "headquarters is being considered for purchase." This language appears to limit the CCTC allocation reservation to an employer that intends to: (i) buy the facility it currently leases or rents, or (ii) buy a vacant "existing facility" or a facility some other employer is using and move its existing employees to that facility. And, in the case of headquarters, this language appears to eliminate the scenario where an employer purchases land and then constructs a corporate headquarters upon that land. To the extent this language as it relates to job retention scenarios is interpreted more narrowly in scope than intended, additional amendments may be necessary.
- Double referral: This bill was heard in the Assembly Committee on Jobs, Economic Development and the Economy (Assembly JEDE Committee) on April 17, 2018 and passed 7 to 0. Please see the Assembly JEDE Committee analysis for detailed information on the following issues:
- Governor's Economic Development Initiative (2013) which provides incentives awarded through three programs:
- CCTC Program;
- New Employment Credit; and,
- Manufacturing and Research and Development Sales and Use Tax Exemption;
- The CCTC Program, including the number of businesses served and credit utilization to date;
- Assembly JEDE Committee CCTC Oversight Hearings (2016);
- The Governor's Proposed 2018-19 Budget changes to the CCTC Program; and,
- The LAO's Report on the CCTC Program (October 2017).
- Governor's Economic Development Initiative (2013) which provides incentives awarded through three programs:
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098
See Trailer Bill Language posted at Department of Finance's Web site under "Forecasting" RN# 1804731 dated 2/01/18. ↑
Date of Hearing: April 17, 2018
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Sharon Quirk-Silva, Chair
ABPCA Bill Id:AB 2312 (
Author:Eduardo Garcia) – As Amended Ver:March 20, 2018
SUBJECT: Taxation: California Competes Tax Credit
SUMMARY: Authorizes the California Tax Credit Committee to make a preliminary award of California Competes Tax Credits to certain local governments for the purpose of attracting and retaining manufacturing facilities with a significant number of jobs. Specifically, this bill:
- Authorizes a city, county, or city and county, to apply to the California Tax Credit Committee for a preliminary tax credit award on behalf of a prospective manufacturer.
- Requires a local government applicant to be competing for the creation or retention of manufacturing jobs.
- Authorizes the California Competes Tax Credit Committee to award up to 50% of the value of unallocated tax credits from the preceding fiscal year for preliminary awards related to the creation or retention of regionally significant manufacturing jobs.
- Expresses legislative intent that these statutory changes be included in any future extension of the California Competes Tax Credit.
- Makes technical changes to conform statute to existing law relating to the elimination of the Board of Equalization and the establishment of the California Department of Tax and Fee Administration.
- Provides, as a tax levy, for immediate implementation upon enactment.
EXISTING LAW establishes the California Competes Tax Credit for the purpose of awarding individually negotiated tax credits to businesses that operate in California. The amount of the award is based on a number of conditions, including, but not limited to, the number of jobs being created, the compensation-level of employees, the amount of investments made, and the location of the project or business. Priority is provided to projects and businesses located in high unemployment and high poverty areas.
FISCAL EFFECT: Unknown
POLICY FRAME: While California is considered a global economic leader, the state has also gained a reputation for being difficult to operate a business within. This reputation, whether deserved or not, places unique challenges on a local community when trying to attract new manufacturing facilities. One specific challenge is that the state does not have a "closing fund" or method for earmarking a tax benefit prior to the manufacturer choosing California and applying on their own.
AB 2312 establishes a process for a local government that is competing for a new or expanding manufacturing facility to reserve a portion of unused credits from the prior year. This reservation of credits could then be included within the community's bid package. The analysis includes information on the Governor’s Economic Development Initiative (GEDI), the California Competes Tax Credit, related committee oversight hearings, and the 2018-19 Governor's proposed budget. Suggested amendments are included in Comment 8.
COMMENTS:
- The Replacement Business Incentive Package: In 2013, after several years of intense debate, the California Enterprise Zone Program was eliminated and replaced with a $780 million Governor’s Economic Development Initiative (GEDI), which is comprised of the Manufacturing and Research and Development Sales and Use Tax Exemption, New Employment Tax Credit, and the California Competes Tax Credit [AB 93 (Budget), Chapter 69, Statutes of 2013 and SB 90 (Galgiani), Chapter 70, Statutes of 2013].
The intent of GEDI was to attract and retain high-value employers while at the same time ensuring accountability for the state’s job creation efforts and the effective use of taxpayer dollars.
Initial Executive Branch Estimate: $485 million Manufacturing Exemption
$150 million New Employment Tax Credit
+ $200 million California Competes
$835 million
Statute limits the exposure of the General Fund by specifying that in no tax year can the total amount of claims against the General Fund exceed $750 million. The California Competes Tax Credit is required to adjust new tax credit awards in order to stay within this limit.
Both the Manufacturing and Research and Development Sales and Use Tax Exemption and the New Employment Credit have performed less than expected. Below is information on utilization of these incentives.
- Manufacturing and Research and Development Sales and Use Tax Exemption: $54.3 million in 2014 (partial year): $154.7 million in 2015; and $164.5 in 2016.
- New Employment Credit: $340,822 in 2014; $693,323 in 2015; and $0 in 2016 according to the Franchise Tax Board's annual report on the program and its website.
- California Competes Tax Credit: $0 in 2014; $13.1 million in 2015; and $18.7 million in 2016 (does not include all fiscal year filers).
- California Competes Tax Credit: The California Competes Tax Credit is a state-wide program available to both large and small businesses, with credits awarded based on the number of jobs created/retained and capital investments made.
The tax credit program is administered through the Governor's Office of Business and Economic Development (GO-Biz) with a five-member committee specifically approving credit awards. The California Tax Credit Committee is comprised of the Director of GO-Biz (chair), the State Treasurer, the Director of the Department of Finance, and one appointee each by the Speaker of the Assembly and Senate Committee on Rules. As of March 31, 2018, the committee has met 11 times and approved 865 written agreements.
Key statutory program requirements for California Competes Tax Credit include:
- Allocation Years: 2013-14 through and including 2017-18.
- Applicable Tax Years: After January 1, 2014, and before January 1, 2025.
- Total Tax Credit Awards: $780 million for 5 years of credits: $30 million (2013–14); $150 million (2014–15); $200 million (2015-16, 2016-17, 2017-18).
- Value of the Individual Credit: Each credit award is individually negotiated with GO-Biz staff and approved by the California Competes Tax Credit Committee. Awards are based on the committed dollars of investment and net new jobs, as compared to the dollar amount of tax credits requested. No taxpayer may receive more than 20% of the total annual allocation.
- Program Priority: Applications from taxpayers whose project or business is located or proposed to be located in an area of high unemployment or high poverty are required to be treated as a priority. This is the only statutory priority under the California Competes Tax Credit. High poverty areas are those that are at or above the federal poverty rate at the time of the tax credit award. High unemployment areas are those that are at or above the state unemployment rate at the time of the tax credit award.
- Carryforward: Six years from the initial application of the credit, as specified in the written agreement.
- Competitive Award Criteria: The California Competes Tax Credit is a competitively awarded credit based on the following criteria:
- The number of anticipated California jobs created or retained;
- The compensation paid or proposed to be paid to its employees, including wages and fringe benefits;
- The amount of investment in this state by the taxpayer;
- The extent of unemployment or poverty in the area in which the taxpayer’s project or business is proposed or located;
- The incentives available to the taxpayer in this state, including incentives from the state, local government, and other entities;
- The incentives available to the taxpayer in other states;
- The duration of the proposed project and the duration the taxpayer commits to remain in this state;
- The overall economic impact in this state of the taxpayer’s project or business;
- The strategic importance of the taxpayer’s project or business to the state, region, or locality;
- The opportunity for future growth and expansion in this state by the taxpayer’s business; and
- The extent to which the anticipated benefit to the state exceeds the projected benefit to the taxpayer from the tax credit.
- Written Agreements: Each award is documented through a written agreement between GO-Biz and the taxpayer. Enforcement of the individual commitment is the responsibility of the Franchise Tax Board (FTB), which is directed to review the books and records of every non-small business taxpayer who receives a credit. FTB has the authority to review the books and records of small business tax payers, but it is not mandatory.
- Small Business Mandate: At least 25% of the tax credits are required to be reserved for small businesses on an annual basis. A small business is defined as having gross receipts (less returns and allowances) of greater than $0 but less than $2 million in the prior tax year. FTB is responsible for providing GO-Biz with the information as to whether a taxpayer qualifies as a “small business.” Since inception, GO-Biz has awarded 19.5% of the tax credits to small businesses. Relative to the number of taxpayers receiving credits, 38.7% were small businesses.
- General Fund Protection: Although statute generally sets a specific schedule for awarding the credits, GO-Biz works in partnership with the state's tax entities to ensure the financial impact on the General Fund does not exceed $750 million in the current and next fiscal year, including all incentives awarded through the California Competes Tax Credit, the Sales and Use Tax Exclusion, and the New Hire Credit.
The Franchise Tax Board is required to annually provide a report to the Joint Legislative Budget Committee that identifies the actual total dollar amount of the credits claimed under the California Competes Tax Credit.
- Number of Businesses Served: Below are charts displaying information on the tax credit awards, including numbers of small businesses and non-small businesses who received credits, those that applied for credits, the mean average credit award, and the median average credit award.
As of November 2017 | Number of Awardees | Number of Jobs Committed | Amount of Investment Committed | Credit Awarded |
Non-Small Businesses | 530 | 72,822 | $14,716,822,865 | $503,242,528 |
Small Businesses | 335 | 10,590 | $1,883,098,300 | $121,670,456 |
Total Businesses | 865 | 83,412 | $16,599,921,165 | $624,912,984 |
Fiscal Year | Total Credit Available | Total Credit Requested | Number of Non-Small Business Applications | Number of Small Business Applications | Number of Non-Small Businesses Awarded | Number of Small Businesses Awarded |
2013-2014 | $30,000,000 | $561,454,983 | 262 | 134 | 18 | 11 |
2014-2015 | $151,100,000 | $939,315,673 | 592 | 214 | 135 | 77 |
2015-2016 | $200,900,000 | $808,851,620 | 568 | 328 | 171 | 88 |
2016-2017 | $243,300,000 | $1,106,097,690 | 621 | 324 | 158 | 117 |
2017-2018* | $230,400,000 | $349,443,115 | 261 | 84 | 48 | 42 |
As of November 2017 | Average Cost | Average Amount of Investment Committed Per Credit Awarded | Mean Average Credit Award | Median Average Credit Award |
Non-Small Businesses | $6,911 | $29 | $949,514 | $377,500 |
Small Businesses | $11,489 | $15 | $363,195 | $115,000 |
Total Businesses | $7,492 | $27 | $722,443 | $250,000 |
- Credit Utilization: Under the California Competes Tax Credit Agreement, the taxpayer agrees to annually report to GO-Biz as to whether they have met their employment and/or investment milestones. If the business has met or exceeded its commitment, the taxpayer is allowed to claim the credit. If tax liability is less than the value of the credit, the taxpayer is allowed to carryforward the value of the unused portion of the credit.
In cases where the taxpayer is not able to meet the milestone, the tax payer can meet the employment and/or investment commitment in a subsequent year. When significant issues occur, such as bankruptcies, the taxpayer and GO-Biz may mutually agree to end the agreement, and those credits would then be considered "recaptured" and be available for reallocation.
Recaptured credits are not affected by the annual allocation limit in statute but are impacted by the $750 million cap on applied credits. GO-Biz reports that as of November 2017, $13.6 million in credits have been recaptured from 33 agreements.
As noted previously, utilization of the California Competes Tax Credit is lower than expected. The chart below shows data from the Franchise Tax Board and GO-Biz on utilization of the tax credit and recaptured credits.
California Competes Utilization 2014 through 2017 | ||||
Tax Year | Net Amount of Credit Eligible | Utilization by Dollar | Utilization by Number of Returns | Recaptured Credits by Dollar |
2014 | $10.3 million | $4.3 million | 87 | $250,000 |
2015 | $37.9 million | $13.1 million | 306 | $2.5 million |
2016 | $60.0 million | $18.7 million* | 465* | $2.8 million |
2017 | Not Available | Not Available | Not Available | Not Available |
*Preliminary number, not all fiscal-year filers | ||||
Source: Franchise Tax Board and GO-Biz | ||||
- Oversight Hearings: The Assembly Committee on Jobs, Economic Development, and the Economy (JEDE) held comprehensive oversight hearings on GO-Biz programs, including the California Competes Tax Credit, in 2016. Materials available: http://ajed.assembly.ca.gov/content/web-briefing Issues raised in these hearings were addressed by GO-Biz through administrative action and two JEDE sponsored bills, one in 2016 (enacted) and another in 2017 (pending in the Senate).
The first bill, AB 2900 (JEDE), increased reporting and tracking to provide greater transparency to how the tax credit was meeting its small business and program priority of awarding credits to projects and businesses located or proposed to be located in an area of high unemployment or high poverty; AB 2900 (JEDE), Chapter 582, Statutes of 2017.
The second bill, AB 162 (Cervantes and Quirk-Silva), modifies the definition of small business to better align the program with businesses that may be able to utilize the credit. As many small businesses, including start-ups, have limited tax liability, other types of business incentives are more applicable, such as small business technical assistance.
Remaining outstanding issues from the oversight hearings include:
- Providing a clear statement of the purpose of the California Competes Tax Credit and related metrics for evaluating that purpose;
- Addressing the low utilization rate, including saleable or transferable credits; and
- Determining a method for using the program to assist California communities in competing with other states in attracting and retaining large, regionally significant businesses.
AB 2312 addresses this third open item from the committee oversight hearings.
- Governor's Proposed Budget 2018-19: The Governor's proposed budget for fiscal year 2018-19 includes a legislative proposal to extend the California Competes Tax Credit for an additional five years by extending the allocation authority from June 30, 2018 to June 30, 2023.
In addition to extending tax credit allocation authority, the Governor is proposing to reduce the overall value of the annual tax credit awards from $200 million per year to $180 million per year and to remove the mandate to annually set aside 25% of allowable awards to taxpayers who meet the requirements of being a small business.
In 2016-17, $27.3 million in allocated credits from the small business set-aside was carried forward to California Competes' final year, resulting in $77.3 million in available small business credits. If unallocated, these credits would be carried forward to 2018-19 and, under the terms of AB 2312, one-half could be available for a preliminary allocation.
In a separate but related budget proposal, the Governor is proposing a five-year commitment of $20 million per year for small business technical assistance. AB 2463 (Quirk-Silva and Cervantes), sponsored by GO-Biz, establishes the California Small Business Assistance Program, which would provide grants to federally designated small business technical assistance centers, including Small Business Development Centers, Women's Business Centers, Minority Business Development Centers, Veteran Business Outreach Centers, Procurement Technical Assistance Centers, and the Manufacturing Extension Partnership.
The Governor's $20 million budget proposal is designed to capitalize the California Small Business Assistance Program. AB 2643 is also scheduled to be heard in the Assembly Committee on Jobs, Economic Development, and the Economy on April 17, 2018.
- LAO Report: The Legislative Analyst' Office issued a report on the California Competes Tax Credit in October 2017 and later issued a related "Budget and Policy Post." Among other findings, the LAO report and web-posting:
- Concluded that the executive branch has made a good faith effort to implement California Competes;
- Found that about 35% of the total number of awards (about 15% of the dollar value) were awarded to businesses in the “non-tradable” sector of the state’s economy;
- Found that even though GO-Biz had undertaken extensive outreach, the 25% small business set-aside was being significantly underutilized;
- Expressed concern that programs like California Competes have inherent and unavoidable risks of "providing windfall benefits or awards to businesses in the non-tradable sector of the economy" and can result in "significant tax burden disparities among similarly situated taxpayers" by providing a "substantial benefit to a relatively small number of the hundreds of thousands of businesses here."
Overall, the LAO recommends rejecting the Governor's proposed extension of the California Competes Tax Credit. If extended, the LAO recommends:
- Clarifying the intent of the tax credit especially as its purpose relates to attracting and retaining employers;
- Narrowly focusing the program on tradeable businesses; and
- Eliminating the small business set-aside.
There appears to be broad support for defining a clear purpose to the California Competes Tax Credit. Ensuring that there is an alignment between that purpose and the structure of the tax credit may be more challenging. AB 2312 does provide one method for helping local California communities compete for manufacturing jobs, which is considered a tradable industry sector. Further program adjustments may also need to be made.
- Proposed Amendments: The Committee may wish to consider the following amendments:
- Expand the authority to award preliminary tax credit awards from solely manufacturing to include manufacturing, research and development, testing facilities, and corporate headquarters;
- Limit preliminary tax credit awards for retention to only those instances where an existing facility or headquarters is under consideration for being purchased;
- Define regionally significant projects as directly impacting more than 150 jobs in an eligible business activity;
- Require GO-Biz to identify eligible manufacturing, research and development, and testing facilities from within specific NACIS codes;
- Include recaptured credits within the 50% calculation for eligible credits available for preliminary awards through local government applicants; and
- Revise the legislative intent to conform to other subdivisions in the same sections.
- Related Legislation: Below is a list of bills from the current and prior sessions.
- AB 93 (Assembly Committee on Budget) California Competes Tax Credit and State Sales and Use Tax Exemption: This bill institutes three new tax programs: a Sales and Use Tax exemption for manufacturing and bio-tech equipment and similar purchases; a California Competes tax credit for attracting and retaining major employers; and a hiring credit under the Personal Income Tax and Corporation Tax for employment in specified geographic areas. Additionally, the bill results in the phasing-out and ending of certain tax provisions related to Enterprise Zones and similar tax incentive areas, and ending the current Small Business New Jobs Credit tax incentive program. The bill also provides for allocating the California Competes tax credit through the Governor's Office of Business and Economic Development to assist in retaining existing and attracting new business activity in the state. Status: Signed by the Governor, Chapter 69, Statutes of 2013.
- AB 106 (Assembly Committee on Budget) California Competes: Technical Changes 2 of 3*: This bill makes technical clarification to the Enterprise Zone Program that is set to expire on December 31, 2013, according to SB 90 and AB 93. Status: Signed by the Governor, Chapter 355, Statutes of 2013.
- AB 162 (Cervantes and Quirk-Silva) California Competes Tax Credit – Small Business: This bill expands the definition of a small business under the California Competes Tax Credit Program from being a business with less than $3 million in gross revenues in the preceding two years to being a business with no more than 50 full-time employees in the current and preceding two years. Status: Pending in the Senate Committee on Government and Finance.
- AB 437 (Atkins) Small Business Research and Development Grant Program: This bill would have allowed a qualified small business to convert into cash grants up to 10% of the value of research and development credits carried over from the 2015 and 2016 taxable years to the 2017 year, or 15% for credits generated in the 2017 to 2022 taxable years. The bill would have provided for the acceleration of the taxpayer’s ability to monetize the credits. Status: Vetoed by the Governor, 2015. Governor’s veto message: I am returning the following nine bills without my signature: Assembly Bill 35; Assembly Bill 88; Assembly Bill 99; Assembly Bill 428; Assembly Bill 437; Assembly Bill 515; Assembly Bill 931; Senate Bill 251; and Senate Bill 377. Each of these bills creates a new tax credit or expands an existing tax credit. Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts. Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.
- AB 999 (Burke) Small Business Tax Credit: This bill authorizes the allocation of $15 million of tax credits to qualifying small businesses in a qualifying high-technology field based on 25% of qualifying investments. Status: Pending in the Assembly Committee on Jobs, Economic Development, and the Economy.
- AB 1399 (Medina and V. Manuel Pérez) New Markets Tax Credit: This bill would have established the California New Market Tax Credit to stimulate investment in small businesses located in low-income communities, mirroring the federal New Market Tax Credit. Status: Vetoed by the Governor, 2014. Governor’s veto message: "This bill creates a new markets tax credit that will cost --over time-- $200 million. I certainly endorse programs that result in private investments to help low income areas, but a bill to spend this much should be considered with other priorities during the annual budget."
- AB 2900 (JEDE) Small Business Centers Reporting: This bill expands the mandatory annual reporting of data on the California Competes Tax Credit to include the city and county of the business location, and whether the business is located in areas of high unemployment or high poverty, as specified. Status: Signed by the Governor, Chapter 582, Statues of 2016.
- AB 1715 (JEDE) Small Business New Market Tax Credit: This bill authorizes the allocation of $40 million in tax credits to financial intermediaries for the purpose of stimulating investments in small businesses located in low-income communities in California. The bill mirrors the federal New Market Tax Credit. Status: Pending in the Assembly Committee on Revenue and Taxation.
- AB 1716 (JEDE) Manufacturing and Innovation Tax Credit: This bill extends the State Sales and Use Tax Exemption and the California Competes Tax Credit for five years. Status: Pending in the Assembly Committee on Jobs, Economic Development, and the Economy.
- SB 90 (Galgiani) California Competes: Technical Changes 1 of 3: This bill makes various technical changes related to the California Competes Tax Credit Program in AB 93. Status: Signed by the Governor, Chapter 70, Statutes of 2013.
- Double Referral: The Assembly Rules Committee has referred this measure to the Assembly Committee on Jobs, Economic Development, and the Economy and to the Assembly Committee on Revenue and Taxation. Should this measure pass the committee, it will be referred to R&T for further policy consideration.
REGISTERED SUPPORT / OPPOSITION:
Support
None Received
Opposition
None Received
Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090
Discussed in Hearing
1MIN
Assembly Standing Committee on Revenue and Taxation
9MIN
