California Assembly Bill 93 is an Economic Development and jobs bill that makes various changes in the state tax system beginning in 2013-14. This bill was carried by the Assembly Committee on Budget and included a statement of legislative intent that the Legislature finds and declares the goal of California’s economic development policy should be designed to create good jobs with middle class wages and benefits; target for assistance individuals with barriers to employment; and encourage businesses to invest and create jobs in California.
The proposed statutory changes in AB 93 are related to the Governor’s Budget proposal to address budgetary aspects of one of the state’s largest and fastest growing tax expenditure programs, and provide additional tax incentive programs to encourage economic development. This bill makes substantial changes to the state tax system, relating to the personal income tax (PIT), corporation tax (CT), and sales and use tax (SUT). This bill results in phasing-out and ending certain tax provisions relating to taxpayers located in enterprise zones (EZs) and similar tax incentive areas, ending the current New Jobs Credit tax incentive program, and instituting two major tax programs-an SUT exemption for equipment and similar purchases, and a hiring tax credit under the PIT and CT for employment in specified geographic areas. This bill also provides for allocating income tax credits through the Governor’s Office of Business and Economic Development (GO-Biz) to assist in retaining existing and attracting new business activity in the state.
The Senate Budget and Fiscal Review Committee found that the core of the proposed policy changes in Assembly Bill 93 represent an improvement in overall state tax policy. The SUT exemption, although limited to particular industries, represent a fundamental policy improvement by addressing the phenomenon of “tax pyramiding”-that is, when inputs to production are taxed as well as the outputs. While this aspect of the proposal represents good tax policy, broad application would result in significant revenue loses; however, this possibility is dealt with by targeting the exemption to particular industries. Regarding the EZ programs, the general intent of the PIT and CT tax incentives in the EZ program is to generate, in designated areas, economic activity-such as additional investment and employment-that would otherwise not occur. However, the effectiveness of the EZ program in this regard has been the subject of substantial criticism. A broad body of economic and tax research indicates that the program offers a poor return on the state’s sizable investment, largely as a consequence of the ineffectiveness and inefficiencies inherent in tax incentive programs of this type. On balance, the proposal represents a significant step forward for state policy, while still retaining certain incentive benefits for disadvantaged areas of the state.
AB 93 was enrolled and presented to Governor Brown on July 3, 2013.
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