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Gov signs economic development initiative

 July 13, 2013


Stewart


Brown

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:

  • Qualified Employee– limited to individuals who (1) have been previously unemployed for six months; (2) received the Earned Income Tax Credit; (3) have served in the United States Military; (4) are ex-offenders previously convicted of a felony; or (5) are CalWORKS recipients.  Additional requirements also apply.
  • Qualified Wages – generally defined as wages between $12 and $28 per hour (150 to 350 percent of minimum wage).  Qualified employers would receive a tax credit of 35 percent per year on these qualified wages for a five year period.
  • “Economic Development Areas” – defined as geographical areas where tax credits are available that includes designated census tracts with high unemployment and poverty rates; former enterprise zones (including the two recently expired zones); and local agency military base recovery areas (LAMBRAs). 
  • “Net New Jobs”– companies must demonstrate that their new hire is a net job increase in their statewide workforce in order for the employee to qualify for the credit.  To the extent that manufacturers are filling open positions due to retirement, promotion or normal turnover, and not creating new positions, this credit will be difficult to utilize.
  • Retroactive Vouchering– credits may only be claimed on the original tax return.  Amended returns are not longer allowed.
  • 10-Year Carry Forward– credits claimed or earned under the expiring enterprise zone program prior to January 1, 2014 will continue to be available for up to 10 years.  And, wages paid to qualified employees prior to January 1, 2014 will continue to qualify for hiring tax credits for any remainder of the five-year period.
  • Excluded Industries – tax credit is unavailable to temporary agencies, retailers, restaurants, drinking establishments and sexually-oriented businesses (i.e. strip clubs).

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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