The Senate has passed H.R. 5771 extending a collection of tax breaks retroactively for 2014. Tax credits such as WOTC, Empowerment Zones and the Research credit are included in the legislation. All of the provisions will now expire again on 12/31/2014.
Future Ways and Means Chairman Paul Ryan, speaking at the Wall Street Journal’s CEO council meeting, said:
There is one inescapable conclusion, no matter how you slice it, which is: if we’re going to lower our tax rates, and we’re going to have to lower our tax rates in this country to be competitive for faster economic growth, there will have to be base broadening in that. That means you will see closure of loopholes and tax expenditures in order to get that base broadening. Using better score-keeping, using more accurate revenue targets may change the nature and scope of that, but nevertheless it is something that has to happen in order to have lower tax rates.
Here is a video of the interview in which he made that statement:
Congressional Republicans are proposing a new tax extender bill which would simply extend all tax provisions that expired on 12/31/2013 through 12/31/2014. The bill, H.R. 5771 introduced by Ways and Means Chairman Dave Camp, can be found here.
Here is the Politico.com article on this development.
And from TheHill.com.
The FTB has posted a notice explaining its procedures for reviewing the books of taxpayers who are awarded California Competes Credits.
On October 31, GO-Biz released a set of emergency regulatory changes which can be found here.
For the application period ending October 27, GO-Biz received 286 applications. According to their press release:
For fiscal year 2014-15, GO-Biz is authorized to award $151.1 million in tax credits of which 25% ($37.7 million) is reserved for small businesses. These allocations will be determined over three award periods scheduled for January 15, 2015 ($45 million), April 16, 2015 ($75 million) and June 18, 2015 ($31.1 million plus any unallocated amounts from the previous application periods).
As of the October 27th application deadline, GO-Biz received 286 applications with a combined tax credit request of $329 million.
In its initial round with $30 million of credit available, GO-Biz received 396 applications asking for $559 million making this second round significantly less competitive than the first.
The following is the Politico Morning Tax update on tax extenders for 10/28/14:
The election is next week, which means we will soon finally learn what Congress plans to do with the raft of expired tax breaks known as the extenders. Lawmakers have been postponing work on them all year, and now that the lame duck is approaching, speculation is ramping up. Of course, Democrats will remain in control of the Senate for the rest of this year whatever voters decide next week.
Ways and Means Chairman Dave Camp, along with his likely successor, Paul Ryan, have been pushing to make at least some of the provisions permanent. That would make it easier to finance tax reform because it would be that much less that they’d have to offset. But that’s going to be a tall order. For one thing, it’s not obvious what Republicans could offer Democrats in exchange. Maybe they propose permanently extending some of Democrats’ favorite provisions, like the American Opportunity Tax Credit. But that would balloon the budget costs, and that’s one of the main reasons Democrats don’t want to make the extenders permanent in the first place. What’s more, Camp has made substantive changes to some of the extenders and senators are unlikely to wave those through without debate. And if Democrats, who want a mostly status-quo extension, lose control of the Senate, they’ll probably be in no mood to cooperate. They could threaten to punt the issue into the next Congress, leaving it for Republicans to sort out in January — by which time businesses, the IRS and others would be howling for action.
In the meantime, Senate Finance Committee Chairman Ron Wyden has begun asking colleagues what sort of non-controversial provisions they’d like to see added to the extender package. “Non-controversial” can be in the eye of the beholder, and Republicans fear the bill could become a Christmas tree. There won’t be any final decisions on what to do until after the elections, and they’ll likely be made by the White House and Senate Majority Leader Harry Reid, Minority Leader Mitch McConnell and Speaker John Boehner.
The Sacramento Business Journal examines the recent regulatory limitations GO-Biz has placed on consulting fees:
Is the Brown administration hurting California by banning commissions for consultants who help companies win tax credits? Some consultants themselves disagree on that question.
In August, the Governor’s Office of Business and Economic Development prohibited site-selection consultants from taking a percentage of the California Competes tax credit, a tax break given to businesses planning on locating or expanding in the state.
Some consultants say the move will hurt the state.
“It will make California less competitive, because companies that cannot afford to pay consultants are going to look to states where consultants can operate under those needs,” said Tom Stringer, a site selection consultant for Ryan LLC, a Dallas-based firm.
Ryan sued GO-Biz shortly after the agency implemented the tax credit ban, alleging the prohibition violates the state of California constitution.
GO-Biz declined to comment for this story. But some industry practitioners praise the governor for attempting to reverse a rising pay-to-play trend that creates a conflict of interest for consultants. Critics of the practice argue it creates an incentive for consultants to recommend that companies move to regions where they cannot thrive.
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Quoted in The Hill, Senator Orin Hatch (possibly the next chairman of the Senate Finance Committee), said:
“At 35 percent, our corporate tax rate is the highest in the developed world and is a chokehold on the economy. That is unacceptable. I hope we can get the corporate tax rate down to 25 percent,” he said, adding that Congress should make the research and development tax credit permanent.
The Hill reports that Senator McConnell would like to see the Expire Act, already passed by the Senate Finance Committee, passed during the lame-duck session. This, presumably, is the same thing Senator Wyden would push for if the Democrats retain control of the Senate:
Senate Republican Leader Mitch McConnell (Ky.) wants to get all must-pass legislation completed in the lame-duck session, so Senate Republicans would have a clean slate at the start of 2015, if they control the upper chamber.
Senate GOP aides say that’s the message from the leader, who could face opposition from conservative lawmakers who want to block any nonemergency measures in the window between Election Day and the start of the new Congress in January.
“We keep hearing from the leadership we’re going to clear the decks in the lame duck,” said a senior GOP aide.
Under this scenario, the Senate Republican leadership would prefer to pass an omnibus spending bill or a yearlong stopgap funding measure that would keep the federal government operating until the end of the fiscal year on Sept. 30.
It could also have implications for a package extending a variety of expired tax provisions. Some House Republicans would like to delay action on the so-called tax extenders package to 2015 in the hope that a Congress under unified GOP control could make some of the fixes permanent.
This, however, would have to be done immediately at the start of the new session if the fixes were to apply to 2014. Tax returns must be filed by mid-April.
House Republicans are seeking to extend some expired provisions, like the credit for business research, indefinitely.
Aides say the Senate GOP is open to that approach, but it wants to finish off an extenders package before 2015 — and the easiest way to do that could be with the bipartisan measure already passed by the Finance Committee.
The Sacramento Business Journal reports that the Dallas-based tax consulting firm Ryan is suing GO-Biz over newly enacted emergency regulations that seek to limit the fee arrangements allowable for the California Competes Credit:
In August, the agency known as GO-Biz placed on ban on commissions received by consultants for aiding companies in securing a California Competes tax credit, a program that gives tax breaks to companies planning on moving to the state or expanding here.
The administration’s action, which was intended to ensure that companies receive tax credits in their entirety and stipends do not go to consultants, could mark the first prohibition of its kind.
Ryan’s press release on the matter states:
Ryan is seeking a declaratory judgment that the emergency rule is unconstitutional and warrants a permanent injunction. In its suit, Ryan contends that GO-Biz has exploited emergency rulemaking procedures in order to insert regulatory requirements and new language with a significantly different purpose and effect from the original emergency regulations adopted in early 2014 to govern the California Competes Tax Credit (“Tax Credit”). In defiance of the Administrative Procedures Act, GO-Biz took a list of factors that the agency is required to review when allocating the Tax Credit and capriciously inserted a requirement purporting to regulate the fee arrangements between taxpayers and the tax professionals assisting them. Ryan asserts that the fee provisions would limit the availability of the Tax Credit by allowing GO-Biz to deny the Tax Credit to taxpayers who qualify under the statutory regime put in place by the California Legislature. Ryan also contends that the rule ignores conflicting Tax Credit provisions in the Revenue and Taxation Code and the conflicting provisions governing professional fees and conduct.
Despite the fact that the California Legislature has recently and repeatedly demonstrated that it does not intend to impose limits on fee arrangements between taxpayers and their consultants, Go-Biz passed—under the guise of acting within its legal grant of power—new regulations outside of its authority that impose caps on contingency fee arrangements of Tax Credit applicants.
The August 18, 2014 version of the regulations can be found here, and state in section 8000(g)(2)(H):
Any other information requested in the application; including, but not limited to, the fee arrangement between the applicant and any consultant, attorney, tax practitioner or any other third party that prepared or submitted the application, or provided any services related to the credit. Any contingent fee arrangement must result in a fee that is less than or equal to the product of the number of hours of service provided to the applicant and a reasonable hourly rate for such services.
Governor Brown signed SB 1335:
This bill would require any bill, introduced on or after January 1, 2015, that would authorize a personal income or corporation tax credit to contain, among other provisions, specified goals, purposes, and objectives that the tax credit will achieve and detailed performance indicators, including data collection requirements, to measure whether the tax credit is meeting those goals, purposes, and objectives. This bill would provide that taxpayer information collected pursuant to these new requirements is subject to the limitation on the collection and use of that information.
The National Association of State Budget Officers (NASBO) is highlighting a new study from an economist with the Wharton School of business showing that states collectively save $1.7 billion a year because of WOTC:
At the end of 2013, more than 50 temporary tax breaks expired and have yet to be renewed. Among them is the Work Opportunity Tax Credit (WOTC), a program that was originally enacted as part of the 1996 welfare reform law. The WOTC is a federal tax credit available to employers who hire individuals from certain target populations who face significant barriers to employment, such as veterans and recipients of public assistance like Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP), and Supplemental Security Income (SSI). According to a study conducted by a labor economist at the Wharton School at the University of Pennsylvania, the WOTC saves states $1.7 billion collectively in annual matching and administrative costs for TANF, SNAP and Medicaid, by encouraging employers to hire individuals who receive benefits under these programs. As these individuals gain employment and increase their wage earnings, many are able to roll off of these public assistance programs, thus producing the savings to states. The study also found that the federal government achieves average net savings of roughly $17,700 per individual hired due to the WOTC program. Legislation has been introduced in the House by Representatives by Aaron Shock (R-IL) and Charlie Rangel (D-NY) to make the WOTC permanent (HR 5264), while a bill approved by the Senate Finance Committee would extend the WOTC, along with the other expired tax breaks, for two more years (S 2260). Lawmakers in the House and Senate are expected to debate the renewal of expired tax extenders, which have been regularly renewed in past years, during the lame duck session following the mid-term elections. To learn more about the study on state and federal savings resulting from the WOTC, you can read the federal-level study, an explanation of the state-level computations, and a summary table with the state-by-state savings estimates. The National Employment Opportunity Network (NEON), an advocacy organization, has further information about the study and background on the WOTC on its website.
HUD has announced the opening of a second application round for Promise Zone designations. Applications are due Nov. 21, 2014.
While President Obama called for Promise Zones to include a hiring credit component, Congress has yet to introduce any legislation that would authorize such a credit.
The BNA SALT Talk Blog contrasts California’s recent increase in film tax credits with other states who are pulling back on such incentives:
Last week, in the shadow of the historic TCL Chinese Theatre in Hollywood, Gov. Jerry Brown signed legislation to increase California’s film tax credits to $330 million per year. California, which has seen many film productions depart for other states with more generous benefits, hopes that the credits will herald a new era in Hollywood. But while California fights to keep the film industry local, many other states are seeing their film tax credits end up on the cutting room floor.
In addition to increasing the cap on film credits from $100 million to $330 million in FY2016-17, AB1839 makes numerous changes including expanding eligibility to films with larger budgets and more television shows, such as those on streaming platforms like Netflix. The bill also eliminates the lottery system for credits that was previously in place and replaces it with a ranking system that takes into account, among other factors, how many jobs the production will create.
However, the debate over the effectiveness of film credits rages on in state legislatures, and many states are repealing their programs. North Carolina is the latest state to decide to not renew its film credits, replacing the credits with a much smaller grant program. In addition to North Carolina, at least seven other states have cancelled their film tax credit programs and several others have reduced their credits, according to Governing. Even Canadian provinces have been scaling back their film credits.
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According to the Sacramento Bee:
It’s a happy ending for California’s film and television tax credit. Gov. Jerry Brown will sign today the bill expanding the program to $330 million in annual production incentives for the next five years.
The effort to reverse declining film and television production in California faced doubts over its effectiveness in luring industry jobs back from other states. But after an intense lobbying effort by Hollywood – including a visit from stew aficionado Carl Weathers – Brown reached a deal with lawmakers more than tripling the five-year-old tax credit.
Brown will sign the legislation, which also replaces the program’s lottery system with a competitive application, at 10 a.m. at the legendary TCL (formerly Grauman’s) Chinese Theater in Los Angeles. No word on whether he’ll leave his handprints and signature alongside those of fellow Gov. Arnold Schwarzenegger.