By Ken Jackson
On Thursday, Governor Jerry Brown signed two measures – AB 93and SB 90– to implement his “Economic Development Initiative” that phases out several existing tax incentives and creates a new program to stimulate business development and growth in California. Jack Stewart, CMTA President, was on hand at the San Diego bill signing press conference, making a formal media statement supporting the Governor.
The hallmark of this proposal is a statewide sales and use tax exemption (STE) for manufacturers, which has been CMTA's highest priority since the sunset of the Manufacturers Investment Tax Credit (MIC) in 2003.
Details on all three of the package components are listed below, but based on our internal calculations, we believe this package represents more than $7 billion in tax savings to California manufacturers - $4 billion tax savings with the STE through 2022; $2.7 billion for the 10 year Enterprise Zone hiring credit carry forward; and another $1.5 billion in targeted tax credits over the next eight years under the new economic development incentive fund for new and expanding manufacturers.
We thank the Governor for including such an important economic development tool in his incentive package and look forward to working with all parties involved to make this a successful program.
ECONOMIC DEVELOPMENT INITIATIVE
SALES TAX EXEMPTION
Beginning July 1, 2014, an eight year 4.19 percent STE on the purchase of basic manufacturing equipment and manufacturing and biotech research and development equipment. This exemption is available on purchases up to $200 million annually, per company. It applies to most manufacturers (NAICS Codes 3111-3399) but excludes refineries and extractive industries. It includes most major machinery and equipment, including pollution control devices, but excludes extraction, furniture or general office equipment.
HIRING TAX CREDIT
Beginning January 1, 2014, a new hiring tax credit available to those qualifying companies that hire qualified employees to work in specified geographical areas. Important features of the hiring credit include the following:
GO-BIZ INCENTIVE FUNDS
Establishes incentive funds that are available to businesses based on promised levels of investment and job creation or retention. Businesses compete for these available funds based on criteria showing the number of jobs to be created and retained, wages those jobs pay, and a set job retention period . Funds are subject to approval by the California Competes Tax Credit Committee, comprised of the Department of Finance Director, the State Treasurer and the Director of the Governor’s Office of Business and Economic Development (GO-Biz). Annual funding for this program is based on what remains after allocations are made to the STE and Hiring Credit and the total for all three programs are limited to $750 million a year. The amount of the credits cannot exceed $30 million in fiscal year (FY) 2013-14; $150 million in FY 2014-15; and $200 million for each FY 2015 through 2019.
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