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Senator McConnell On What Happens to Tax Extenders if Republicans Win the Senate

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.

Consulting Firm Ryan Suing GO-Biz Over New Fee Regulations

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.

California Enacts SB 1335: Requirements On All Future Tax Credit Legislation

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.

NASBO Touts Savings to States from WOTC

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 Opens Second Promise Zone Round

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.

BNA On Film Tax Credit Trends

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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California Film Tax Credit Expanded

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.

Senator Hatch Discusses Extenders at U.S. Chamber of Commerce

Senator Orrin Hatch (R-Utah), the ranking Republican on the Senate Finance Committee, spoke to the U.S. Chamber of Commerce on Sept. 11. 2014. In that talk he discussed the reasons behind voting against the Senate tax extenders bill earlier this year, his commitment to see them passed, and his prediction that they would likely be passed during the lame-duck session after the November elections:

Now, I know that corporate inversions are the hot tax topic of the day. Still, I know there are other tax issues that have people in this room concerned, most notably the status of business tax extenders.

Anyone who’s paid attention to the saga surrounding the 2014 tax extenders package knows my position. I am committed to seeing it pass, as are virtually all Republicans in the Senate.

Unfortunately, as with the debate over corporate inversions, the tax extenders have been pulled into election-year politics and gamesmanship.

A few months ago, the Senate Democratic majority brought the extenders bill to the floor and tried to force it through without any consideration of any amendments – neither Republican nor Democratic amendments.

As the saying goes, that’s a dog that just won’t hunt.

The Senate Democratic Leadership, so desperate to protect their members from anything resembling a difficult vote, has turned the Senate into an amendment-free-zone.

The current Senate Majority Leader has acted to block amendments on 87 separate occasions – more than twice as many times as the previous six majority leaders combined.

Over the past year, the Senate has voted on only 11 Republican amendments. During that same time frame, Democrats in the House of Representatives – where the majority typically enjoys much greater control over the debate – have received votes on 176 amendments.

Senate Republicans are – for good reason, in my view – fed up.

So, we voted against cloture on the tax extenders bill, effectively delaying a final vote on the measure because weren’t allowed to offer any amendments. This was a particularly difficult vote for me as I had worked closely with Chairman Wyden to put the tax extenders package together in a bipartisan fashion.

But, in the end, I believe it is essential that the Senate minority stand up for the traditions and practices of the Senate, even if they aren’t so important to those in the majority.

At this time, the tax extenders package remains somewhat in limbo. We’ve made it clear to the Senate Democratic Leadership that we are more than willing to bring up and pass the extenders bill as soon as they agree to a fair and open amendment process.

Of course, with just a few legislative days left until the Senate recesses before the elections, it’s very unlikely that the extenders bill will pass before Election Day.

But, make no mistake, Republicans want to pass this legislation. We know how important these extenders are to the business community. We’re going to get it done. I’m confident that it will pass, likely during the lame duck session after the midterms.

IRS Wants Extenders Passed With Minimal Changes

Politico’s Morning Tax newsletter reports that the IRS is asking for tax extenders to be done without substantive changes:

KOSKINEN URGES CONGRESS TO PASS EXTENDERS WITH MINIMAL CHANGES. Our Brian Faler reports that IRS Commissioner John Koskinen on Wednesday urged Congress to approve the tax extenders with as few changes as possible, saying last-minute revisions would only complicate what already promises to be a hectic 2015 tax-filing season. “Obviously” lawmakers won’t deal with the extenders until after the November elections, but Koskinen said any substantive changes will force the agency to reconfigure its internal systems and mean many more questions from the public, uncertain about how the new provisions affect them.

The IRS is already struggling with tight budgets, he said, predicting that almost half of those calling the agency next year for assistance with their taxes won’t be able to talk to a live person. “To the extent that new tax legislation or changes in the way in the provisions that’s being extended are implemented make it more complicated for us,” said Koskinen.

California GO-Biz Announces Next Round of California Competes Credit

GO-Biz has posted an update memo detailing the California Competes application rounds for fiscal year 2014/15.

There will be three rounds with applications for the first round being accepted starting on September 29 and through October 27, 2014. Out of a total $151.1 million available for the year (which is more than five times the amount that was available in the inaugural round earlier this year), $45 million will be available in the first round. Applications for the second round will be accepted starting January 5, 2015 and due by February 2. That round will be for $75 million. Applications for the third round will be accepted starting on March 9, 2015 and will be due by April 6 for $31 million (plus any not allocated during earlier rounds).

Texas is Paying Attention to California Competes Program

The Dallas Morning News compares the California Competes Credit with Texas’ Enterprise Fund:

When California rolled out a $750 million plan this year to attract and retain businesses, many aspects mirrored longtime perks used by Texas, where officials love nothing more than stealing jobs from the Golden State.

For more than a decade, Gov. Rick Perry has touted the “deal-closing” Texas Enterprise Fund and other cash incentives as a “job-creation machine.” A fifth of the companies that Texas attracted during the last funding cycle, in 2011 and 2012, were based in California.

Now California is firing back. In the state’s first tax credit awards in June, more than 40 percent of the $29 million package went to companies that have gotten similar offers from Texas: Samsung, Petco and Amazon.

But as California embarks on a major effort to woo businesses, a decade’s worth of experience in Texas raises questions about the wisdom of buying jobs from corporations with taxpayer dollars.
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H.R. 5284: Another Permanent WOTC Proposal

Congressman David Jolly (R-FL) has introduced H.R. 5284 which would extend WOTC permanently. His bill, however, adds a new proposal where, for employers who hire qualified veterans, and train those veterans in “qualified computer services,” the credit with respect to those employees could be transferred to another taxpayer.

Don’t expect this bill to become law, but it is always interesting to see new ideas and have new supporters in Congress.

Congressman Schock Introduces Bill to Permanently Extend WOTC

Congressman Aaron Schock (R-IL) has introduced H.R. 5264 which will permanently extend WOTC.


Politico’s “Morning Tax” column included the following item about WOTC on Wednesday:

TIGTA: IRS LAX IN OVERSIGHT OF WOTC. The IRS doesn’t have the proper processes in place to verify eligibility for the Work Opportunity Tax Credit and claims are riddled with errors, the Treasury Inspector General for Tax Administration found in a report released yesterday.

The full Treasury Inspector General for Tax Administration (TIGTA) report can be found here.

While much of the substance of the report is redacted, Politico is clearly overstating the matter by saying that “claims are riddled with errors.”

Out of over 21,000 tax returns filed in 2012 claiming WOTC, TIGTA found only 759 claims “for which the IRS had information at the time the tax returns were processed that could have been used to identify these claims as questionable.” Examination of a sample of 77 of these claims found that 24 were “erroneous.” The report does not disclose what kind of indications existed to flag these particular claims as questionable. Indeed the report states: “Our scope was limited as a result of the IRS not requiring employers to provide any identifying information as to the individuals for whom the WOTC was being claimed. In addition, the IRS does not receive or maintain certification documentation.”

Therefore, the investigation regarding the validity of claims was not related to the qualification of employees claimed under the credit, nor the validity of documentation related to the certification process. IRS tax form 5884 includes a worksheet to enable taxpayers to calculate the credit, but unless arithmetic errors were present, the IRS does not have sufficient payroll data to assess accuracy of the form without further investigation.

TIGTA made three modest recommendations (some parts of which are redacted in the report):

1. To request more specific information regarding the individuals being included in the credit claim, similar to how claims for the New HIRE Retention Credit were filed (see IRS form 5884-B)

2. To modify tax publications to clarify how taxpayers should apply the tax credits when tax returns involve pass-through entities.

3. To modify tax publications to:

a. “Clearly and accurately advise taxpayers of where to submit form 8850″ in cases where the taxpayer operates in multiple states, or in cases where an employee lives in one state and works in another.

b. Advise taxpayers “that an approved certification must be received to be eligible to claim an individual for the WOTC.”

In other words, despite Politico’s characterization of the report, there seems to be very little to see here.

Partial Sales and Use Tax Exemption on Manufacturing and Research and Development Equipment in California

On July 1, 2014, a new California tax incentive went into effect. The provision allows certain companies involved in manufacturing and research and development, a partial exemption of sales and use tax on the purchase or lease of equipment used in the manufacturing process. The reduction is from the state tax rate of 7.5% down to 3.3125%.

This new initiative could significantly reduce sales tax on any qualified purchase. These purchases include machinery and equipment; equipment and devices used or required to operate, control, regulate, or maintain the machinery; pollution control items; and certain special purpose buildings and foundations.

Who qualifies?

• “Qualified Person” or entity who is primarily engaged (50 percent or more of the time) in certain types of business which may include but not limited to all forms of manufacturing, research and development (“R&D”) in biotechnology, and R&D in physical, engineering, and life sciences
• A qualified person means a person or entity who is primarily engaged (50 percent or more of the time) in those line of business listed in the North American Industry Classification System (NAICS) under Codes 3111 to 3399 and R&D NAICS Codes 541711 and 541712
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