We recently reviewed the status of California’s business incentive programs that replaced the Enterprise Zone program in 2013. We noted that the New Employment Credit (NEC) seemed to be falling significantly short of expectations. The legislation included a requirement that the FTB report to the Legislature each year on the performance of that credit and, if it would happen to fall short of expectations to explain the reasons behind such a shortfall. The first such report, for tax year 2014, is available here.
The report notes that $3.9 million in credits were claimed on returns for the 2014 tax year. The initial estimate made at the time of the legislation was that, for the first year, $22 million would be used and then presumably increase dramatically after that. The report goes on to list the structural factors of the program that are leading to this dramatic under-performance.
However, even this $3.9 million reflected in the report is inconsistent with the published list of taxpayers and the amounts of credits they claimed (which the legislation also requires FTB to publish). That report only lists about $299,000 in credit claims.
I asked the FTB to explain the difference between the two reports. A representative from the FTB responded that the differences could be categorized in four ways:
1. That there are still some returns processing or that will be processed in the future that will be included in future updates.
2. In some cases, the NEC was claimed incorrectly on a return where the taxpayer meant to claim the enterprise zone credit.
3. Some NEC credit claims were made without the required tentative credit reservation.
4. Some NEC credit claims were disallowed for not meeting other criteria.
So apparently, while the FTB received filed returns with $3.9 million in credits claimed, only about $299,000 of those credits were claimed accurately or properly. $299,000 is just over 1% of the anticipated $22 million first-year usage of the credit.