Governor’s CA Enterprise Zone Proposal Calls for Elimination Not Revision

Written by Vaughn Hromiko on May 23rd, 2013

On May 22, 2013, the California State Assembly’s Budget Subcommittee #4 held a hearing that explored Governor Jerry Brown’s latest economic tax incentive proposals as they relate to the State’s current enterprise zone program. In my previous post on this subject, based solely on the language published in the Governor’s May 2013 budget revision, I concluded that significant “revisions” were the target. The recent hearing makes it abundantly clear, however, that the words “elimination” and “replacement” better describe Governor Brown’s proposal.

Thank you to Max Shenker of TCC (Tax Credit Company) for posting a video of the hearing on Vimeo.

During the hearing, a representative from the Department of Finance offered the Governor’s perspective and responded to questions. After listening through all 69 minutes of the Subcommittee’s discussion and public comments on this issue, I can make the following observations.

The Governor’s proposal would create a new statewide tax incentive program with three prongs:

  1. A revamped hiring credit available to businesses who show a net increase in jobs and hire the long-term unemployed, unemployed veterans, and individuals receiving the federal earned income tax credit. In place of the administrative enterprise zone, the revamped hiring credit would be available to businesses within any census tract with demographics demonstrating a certain level of economic distress (to be defined by the program). 
  2. A new sales tax exemption for manufacturing industries. Unlike the State’s now abandoned Manufacturing Investment Credit (MIC), which offered an income tax credit based on the amount of sales tax paid on manufacturing and production equipment, this replacement would exempt manufactures from paying the State’s portion of the California sales tax (4%).
  3. A tax credit fund administered by the Governor’s Office of Business and Economic Development (aka GO-Biz) that would authorize the agency to offer negotiated tax benefits to businesses moving into or expanding within the State of California.

If you are familiar with California’s current enterprise zone hiring credit, it should be clear to you that this revamped hiring credit would be profoundly different.  Most employers currently benefiting will no longer be eligible for a hiring benefit — if simply because they are not regularly showing a net increase in jobs.

There was no discussion about the how much tax benefit the revamped hiring credit would offer.  Nor was there any discussion about how qualifying employees would be identified, documented, or certified.

Businesses holding existing tax credits could continue to carryover and utilize them for another 5 years.

Other EZ Benefits Not Mentioned
There was no mention of the current enterprise zone program’s other benefits: the Net Interest Deduction, EZ Business Deduction, Net Operating Loss Carryover, or bid preferences for vendors bidding on state fulfillment contracts. It is not clear to me if these would also be eliminated or modified.

Agency Players
The current enterprise zone program is administered by the California Department of Housing and Community Development (HCD). With the proposed changes, HCD could be removed from the picture. The revamped hiring credit would be administered by the Franchise Tax Board. The Sales Tax Exemption would fall to the Board of Equalization.  And, as stated above, the negotiated tax credit fund would be managed by Go-Biz.

 

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Governor’s May Budget Revise Proposes Substantial Changes to California Enterprise Zone Program

Written by Vaughn Hromiko on May 14th, 2013

California Governor Jerry Brown released his May budget revise today, revealing additional intentions for the State’s enterprise-zone program.

From page 68:

“The [enterprise zone] hiring credit will be refocused to specific areas with high unemployment and poverty rates. This credit will be available for the hiring of long-term unemployed workers, unemployed veterans, and people receiving public assistance. The Enterprise Zone sales tax program will be expanded to a statewide, upfront sales tax exemption for manufacturing or biotech research and development equipment purchases.”

This budget document does not specify how these changes might be accomplished. It is clear to me, however, that new legislation would be required because this vision of the program varies substantially from that outlined in current law.

In his 2011-2012 budget proposals, Governor Brown proposed the outright elimination of the enterprise zone program.  He was unsuccessful, however, at overcoming legislators’ opposition to  the program’s death.  Since that time, the California’s legislature has experience a significant change in its membership. Perhaps this time, Governor Brown will be more successful at effectuating these serious although less drastic changes.

Not mentioned in the budget revise are the other enterprise zone tax benefits such as the net operating loss carryover, net-interest deduction for lenders, the business expense deduction and preference points for bidders on certain kinds of state procurement contracts.

UPDATE:  After listening to the California State Assembly Budget Subcommittee  May 22nd hearing on the Governor’s Enterprise Zone proposal, it is crystal clear to all that the Governor intends to replace the Enterprise Zone hiring credit program.  See my May 23 Post.

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White House Reiterates Proposal for Permanent WOTC Program

Written by Vaughn Hromiko on May 1st, 2013

As reported earlier this month, the 2014 fiscal budget as proposed by the White House includes a proposal to make the VOW to Hire Heroes tax credits permanent.  It would accomplish this by giving permanency to the entire Work Opportunity Tax Credit (WOTC) program — of which the VOW tax credits are an integral part.

During a veterans’ employment event at the White House on Tuesday, President Obama reiterated that proposal.

Obama noted that he has proposed a permanent extension of a tax break that Congress approved in late 2011. Employers get up to a $5,600 tax credit for hiring a veteran out of work for more than six months, or up to $9,600 for hiring a disabled veteran out of work for the same amount of time

Read more:

WashingtonPost: White House musters U.S. firms to hire veterans, spouses

MSNBC: More jobs for vets, cheers Michelle Obama, but ‘there’s more work to be done

SeattleTimes: President, first lady ask companies to hire vets

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White House Budget Proposes Permanent WOTC Tax Credit Program

Written by Vaughn Hromiko on April 12th, 2013

Last summer, the House Subcommittee on Select Revenue Measures held hearings to explore HOW to evaluate the numerous tax extenders coming before Congress each year.  Chairman of the Subcommittee, Congressman Pat Tiberi (R-OH) explained at the time:

“[We] need to consider carefully the principles that we should use to evaluate the merits of these policies. Having recently heard from our House colleagues about their views on many of these extenders, it is time for the Subcommittee Members to roll up their sleeves and see how the provisions stack up against what experts consider the principles of sound tax policy.”

Ultimately, some programs should be made permanent while those not worthy of permanence should be eliminated altogether.

A loose consensus has existed among observers that the Work Opportunity Tax Credit (WOTC) program would be a strong candidate for permanence.   The Obama Administrative this week has cast its vote on that issue.

On page 33 of the Fiscal Year 2014 Budget of the U.S. Government we find this little jewel.  (Thank you to Paul Suplizio, President of the WOTC Coalition, who pointed this out in a coalition email early this week.)

The Administration also continues its support of tax credits that will help employ veterans. The Returning Heroes Tax Credit, which provides up to $5,600 to employers, and the Wounded Warrior Tax Credit, which provides up to $9,600 to hire long-term unemployed veterans with service-connected disabilities, were recently extended for one more year in the American Taxpayer Relief Act of 2012. These credits are a part of the Work Opportunity Tax Credit (WOTC), which contains other categories targeted to hiring veterans. The Budget proposes to permanently extend the WOTC.

FYI, the WOTC program is not directly mentioned again anywhere within the 244 page budget document.

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Washington DC Empowerment Zone is No More

Written by Vaughn Hromiko on March 26th, 2013

This question has been coming up since the passage in January of the American Taxpayer Relief Act of 2012.  Did the act renew the Washington DC Empowerment Zone designation?

Answer: Unfortunately, no.

While the American Taxpayer Relief Act fo 2012 did renew and extend Empowerment Zones generally — retroactively for 2012 through the end of 2013, that renewal did not include the Washington D.C. zone, which would have required additional treatment in the law.

Here’s the excerpt from the IRS website.

 

The Designation of Washington, DC, as an Empowerment Zone, Expired After 2011 — 19-FEB-2013

If you downloaded the 2012 Form 8844 before February 12, 2013, please note the following.

The American Taxpayer Relief Act of 2012 did not extend Washington, DC’s designation as an empowerment zone. Under Internal Revenue Code section 1400, the designation of Washington, DC as an empowerment zone, expired after 2011.

 

 

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Great News! Question Resolved: IRS Notice 2013-14 is Fully Retroactive

Written by Vaughn Hromiko on March 12th, 2013

Carmen Ortiz, the United States’ National WOTC Coordinator (U.S. Department of Labor, Employment & Training Administration) issued a correspondence to all of the program’s Regional Coordinators. The purpose of the correspondence was to answer the question many have been asking about IRS Notice 2013-14.

Does the notice in essence wave the “on or before the day of hire” requirements created by §51(d)(13)(A)(ii). Short answer: YES!

In her email correspondence, Ms. Ortiz states that while she is the author of the response to this question, she first ran her response before the IRS.

Now I quote Ms. Ortiz, National WOTC Coordinator:

“The transition relief would permit an employer to go back and have a targeted group member employee hired within the relevant timeframe fill out a Form 8850 and submit it by April 29, 2013.”

And again, in other words:

“An employer can go back and if the new hire was employed within the relevant timeframe, the employer/employee can fill out a Form 8850, signed and dated and submit it to a SWA requesting certification by April 29, 2013.”

So, to summarize.

Notice 2013-14 waves the 28-day deadline for submitting IRS Form 8850 (the WOTC Pre-screen Notice) for qualifying employees hired within certain dates ranges in 2012 and early 2013. The extended deadline for submitting the applications for affected employees is now April 29, 2013. If a Form 8850 was not previously completed by the employee, the form may be completed at this time.

The rules apply as follows:

  • For all targeted groups except qualifying veterans, the extension applies to qualifying employees hired from January 1, 2012 through March 31, 2013 (that’s a period of 15 months).
  • For qualifying veterans, the extension applies to qualifying employees hired between January 1, 2013 through March 31, 2013 (a period of just 3 months)

 

Excerpted from Notice 2013-14

Targeted Groups other than Veterans:

A taxable employer that hires a member of a targeted group (as defined in § 51(d)(2) through (10), other than a qualified veteran described in § 51(d)(3)) on or after January 1, 2012, and on or before March 31, 2013, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the DLA to request certification not later than April 29, 2013.

Qualifying Veterans:

An employer that hires any qualified veteran described in § 51(d)(3) on or after January 1, 2013, and on or before March 31, 2013, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the DLA to request certification not later than April 29, 2013.

Thank you to John Sandusky, Partner at the Tax Incentive Group, LLC for forwarding this information to me at The WOTCPlanet.com.

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Confusion about IRS Notice 2013-14

Written by Vaughn Hromiko on March 11th, 2013

I have received a number of additional inquiries about IRS Notice 2013-14. Specifically, readers want to know if under the Notice, the affected employees are still required to complete IRS Form 8850 on or before the day they are offered a job.

Answer: I do not know for sure but until further guidance is given must assume that, Yes, employees with hire dates affected by Notice 2013-14 are still required to have completed the form on or before the day of their job offer.

Having said that, I am looking further into this issue.  

 

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Caution about IRS Notice 2013-14

Written by Vaughn Hromiko on March 9th, 2013

Yesterday, I published a post about IRS Notice 2013-14.

I have since modified that post and I want to advise caution about how employers interpret the IRS Notice.

The notice provides that employers who submit a completed IRS Form 8850  by April 29, 2013 “will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii).”  This “transition relief” applies generally to WOTC qualifying employees hired from January 1, 2012 through March 31, 2013.  For qualifying veterans, the period is limited to employees hired during the first quarter of 2013.

Now, let’s get technical for a moment.  § 51(d)(13)(A)(ii) includes two basic requirements:  One, that employees complete the IRS 8850 pre-screening notice on or before the day they are offered a job; and two, that employers submit the completed IRS Form 8850 within 28-days of the new employee’s start date.

It is clear that Notice 2013-14 waves the 28-day submission deadline for these employees.

It is not clear, however, if the transition relief waves the requirement that employees complete the IRS 8850 on or before the day of their job offer.  If it does not, then the level of benefit stemming from this transition relief is much less than I originally suspected.

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Opportunity Alert! IRS Notice 2013-14 Providing Transition Relief for Employers Submitting Late WOTC Applications

Written by Vaughn Hromiko on March 8th, 2013

The IRS has released IRS Notice 2013-14, which provides transition relief given the late retroactive renewal of the Work Opportunity Tax Credit program in January. The transition rules are not the same, however, for all WOTC target groups.

Notice 2013-14 waves the 28-day deadline for submitting IRS Form 8850 (the WOTC Pre-screen Notice) for qualifying employees hired within certain dates ranges in 2012 and early 2013. The extended deadline for submitting the applications for affected employees is now April 29, 2013.

The rules apply as follows:

  • For all targeted groups except qualifying veterans, the extension applies to qualifying employees hired from January 1, 2012 through March 31, 2013 (that’s a period of 15 months).
  • For qualifying veterans, the extension applies to qualifying employees hired between January 1, 2013 through March 31, 2013 (a period of just 3 months)

 

Excerpted from Notice 2013-14

 Targeted Groups other than Veterans:

A taxable employer that hires a member of a targeted group (as defined in § 51(d)(2) through (10), other than a qualified veteran described in § 51(d)(3)) on or after January 1, 2012, and on or before March 31, 2013, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the DLA to request certification not later than April 29, 2013.

Qualifying Veterans:

An employer that hires any qualified veteran described in § 51(d)(3) on or after January 1, 2013, and on or before March 31, 2013, will be considered to have satisfied the requirements of § 51(d)(13)(A)(ii) if it submits the completed Form 8850 to the DLA to request certification not later than April 29, 2013.

Here a link to the entire Notice 2013-14.

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Tax Reform on the Horizon – Battle for WOTC and Other Incentives Looms

Written by Vaughn Hromiko on March 1st, 2013

Speaker of the US House of Representatives, John Boehner (R-Ohio) has recently repeated his vow to make comprehensive tax reform a top priority of the new Congress this year.  Symbolic of that end, Speaker Boehner has reserved the designation of House Resolution 1 (HR 1) for the coming tax reform bill.

“Fixing our tax code is one of my highest legislative priorities for this Congress . It’s time we shift the balance of power from the tax collector to the taxpayer.” Read more at The Hill, “Boehner: Tax reform to be H.R. 1.”

Paul Suplizio, President of the WOTC Coalition, made the observation today that given this priority, supporters of the Work Opportunity Tax Credit and other jobs-related incentives will soon face a political challenge that could easily turn against them.

“Integral to tax reform will be decisions on retaining many tax provisions that expire at year-end, including WOTC and VOW Act veterans job incentives.”

“We’ve stressed in the past that our Coalition will have to work harder than ever to keep WOTC alive when the House takes up tax reform, as the odds right now are against our winning a favorable verdict in the Ways and Means Committee.”

The remainder of Mr. Suplizio’s observations today are published here with permission.

********

Subject: President And Leaders Agree To Avoid Shutdown, Boehner Sets Course For Tax Reform

From: Paul Suplizio
Date: Fri, March 01, 2013 6:10 pm
March 1, 2013

The President and Congressional leaders didn’t resolve the sequester in their meeting today, but they did reach agreement to pass a bill funding the government for the rest of 2013, averting a government shutdown.

Both sides agreed to a measure adhering to the $1.043 trillion cap set for FY 2013 discretionary spending by the Budget Control Act of 2011, and not dealing with sequester or taxes.

The bill will more likely be a Continuing Resolution along the lines of Appropriations Chairman Rogers’ proposal in the House, which includes assured funding levels for Defense and Veterans Administration.

The President acknowledged across-the-board sequester cuts would be taken from the $1.043 trillion Continuing Resolution, so long as the sequester remains in effect.

Funding the government in an orderly manner and avoiding a shutdown means the question of mitigating the sequester remains on the table. The parties are deadlocked but channels are open—whether they’ll be used depends on who feels the most heat.

The heat’s already rising. At a press conference today, Chairman “Buck” McKeon of the House Armed Services Committee, surrounded by his subcommittee chairman, attacked the President for not forestalling the sequester, punishing service men and women. He admitted though, he had voted for sequester in 2011—not expecting the Super Committee would fail and it would come to pass.

The President’s budget for 2014 will be released in a few days, followed by House and Senate budgets next month. If the sequester is still in effect then, it will be absorbed in the struggle of dueling budgets, from which will emerge this year’s major tax and spending bills.

Two days ago Ways and Means Committee Chairman Dave Camp won a decision from Speaker Boehner to report a tax reform bill, whose broad outlines will be set by the coming Ryan budget. The Speaker’s courageous decision was taken despite fears of many Republicans that taking votes to eliminate or cap popular deductions and credits could hurt them.

Integral to tax reform will be decisions on retaining many tax provisions that expire at year-end, including WOTC and VOW Act veterans job incentives. You can read the long list of expiring provisions at the Joint Committee on Taxation’s web site, www.jct.gov, in JCX-3-13, “List of Expiring Federal Tax Provisions, 2013-2023.”

We’ve stressed in the past that our Coalition will have to work harder than ever to keep WOTC alive when the House takes up tax reform, as the odds right now are against our winning a favorable verdict in the Ways and Means Committee. Thanks to allies like Senators Baucus and Finance Committee Democrats, we may prevail in the Senate, but once the Senate goes to conference with the House to resolve their differing bills, the game can turn on a whim. We once lost the entire target group of disadvantaged youth in conference because a tobacco-state senator insisted on an excise tax cut—those jobs paid for his cut!

PAUL E. SUPLIZIO
President, WOTC Coalition

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