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Governor Vetoes SB 364

The Governor has vetoed the tax credit related bill SB 364. This bill would have:

This bill would, with respect to any business tax credit, as defined, enacted after the effective date of this bill, require a qualified taxpayer, as defined, that claims a business tax credit and that has a specified net decrease in its employees in this state to pay a penalty, as specified.

This bill would also require a qualified taxpayer to submit to the Franchise Tax Board on the original return specified information, including the number of annual full-time equivalent employees employed by the qualified taxpayer in the state in the current and previous year, as provided. The bill would impose a penalty if that information is not provided.

In the past I’ve called this proposal the “Kick Them When They’re Down Act.” It is not difficult to imagine a case where a business is struggling in a difficult economy and therefore experiences a net decrease in the number of employees it employs. If this company would have taken advantage of the various tax credit programs that the State enacts in order to encourage business growth and investment, then the State is going to come after them with a a crippling assessment at a time when they can least afford it. Talk about a job killer.

Thankfully, the Governor has vetoed the bill, but not necessarily for encouraging reasons. Here is the veto message:

To the Members of the California State Senate:

I am returning Senate Bill 364 without my signature.

This bill imposes penalties on businesses claiming future-enacted hiring/employment credits should the business’s number of employees drop by more than 10% during a year.

The tactic used in this bill can be effective for assuring that businesses deliver promised employment to the State in exchange for valuable credits. Unfortunately, the bill’s approach is too broad. Penalties should be tailored to the unique provisions of each tax credit given.

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