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Colorado WOTC Bill Moves Forward

Colorado House Bill 1372 passed a vote in the House Public Health Care & Human Services Committee on April 5 on a party-line vote. The bill was referred to the Finance Committee. In order to reduce fiscal complications, the bill was amended to begin on Jan. 1, 2018 instead of 2017.

Texas Introduces State WOTC Bill

In March, Texas House Member René Oliveira introduced HB 3305, a bill to provide tax credits to businesses that hire certain employees. While not linked to WOTC to the same degree as Colorado’s HB 1372, it is certainly modeled after WOTC.

The bill enumerates five categories of qualified employees focused on veterans and the unemployed.

The bill requires an application for certification within 60-days of hiring the employee using an online form that would be established for the purpose.

The credit amount would be 20% of the qualified employee’s first-year wages up to a maximum of $10,000.

Congresswoman Watson Proposes Another WOTC Target Group

We reported earlier on Representative Bonnie Watson Coleman’s (D-NJ) bill to enhance WOTC for businesses that hire ex-offenders.

The Congresswoman is proposing an additional WOTC category to make “older long-term unemployment recipients” a new targeted group.

Like her previous bill, this bill also proposes to make all of WOTC permanent.

The difference between this bill and the existing long-term unemployment recipient category is that for qualified employees who are 55 or over, the credit would be up to $5,600 and would also be indexed for inflation.

Here is a press release from the Congresswoman’s office.

H.R. 4840: More WOTC Enhancement Proposals

Representative Bonnie Watson Coleman (D-NJ) has introduced H.R. 4840 which focuses on enhancing WOTC for businesses that hire ex-offenders.

The bill would make four changes to the WOTC program:

  1. 1. Increase the amount of qualified wages for an employee qualified in the ex-offender category from $6,000 to $14,000 for a maximum credit of $5,600 (matching the amount available for the long-term unemployed veteran category).
  2. 2. Index that new qualified wage cap to inflation.
  3. 3. Expand the definition of a qualified ex-felon from someone hired within 1 year of conviction to within 3 years of conviction.
  4. 4. And, oh, make all of WOTC permanent.

Performance Review For California’s Enterprise Zone Replacements

When California did away with its enterprise zone tax incentive program in 2013, it replaced that program with three new tax incentives: (1) the California Competes tax credit, (2) a partial sales tax exemption on manufacturing and R&D related equipment, and (3) the New Employment hiring tax credit (NEC). At the time, a press release from Governor Brown noted: “The new Initiative will be funded by redirecting approximately $750 million annually from the state’s outdated and ineffective Enterprise Zone program.” In order to obtain the necessary bi-partisan support, the legislation needed to be revenue neutral and shift the economic incentives from the enterprise zone program to the new programs.

How are these programs tracking compared to the original commitment of $750 million for business incentives?

For fiscal year 2015/2016, the California Competes program was authorized to allocate just over $200 million (which is the amount allowed by statute).

A source from the State Board of Equalization confirmed that taxpayers received $209 million in tax savings as a result of the partial sales tax exemption between July 2014 and December 2015. This is consistent with the Governor’s budget from January which said that utilization of this benefit was forecast to be $160 million in 2015-16 and $180 million in 2016-17 (see here, page 157).

For the NEC, the legislation required that FTB publish the names of taxpayers who claimed the NEC and the amounts claimed. The FTB recently published the first list which pertains to the 2014 tax year. So far, 37 taxpayers have claimed a total of $299,164 in NEC tax credits.

$200 million for California Competes, plus about $200 million for the sales tax exemption comes to about $400 million. That leaves about $350 million before reaching the revenue neutral $750 million mark which convinced legislators to eliminate the enterprise zones. So far, the NEC is providing less than one tenth of one percent of that benefit to California businesses.

One of the requirements of the legislation was that the efficacy of the New Employment tax credits be evaluated annually. From AB 93:

(m) (1) Upon the effective date of this section, the Department of Finance shall estimate the total dollar amount of credits that will be claimed under this section with respect to each fiscal year from the 2013-14 fiscal year to the 2020-21 fiscal year, inclusive.

(2) The Franchise Tax Board shall annually provide to the Joint Legislative Budget Committee, by no later than March 1, a report of the total dollar amount of the credits claimed under this section with respect to the relevant fiscal year. The report shall compare the total dollar amount of credits claimed under this section with respect to that fiscal year with the department’s estimate with respect to that same fiscal year. If the total dollar amount of credits claimed for the fiscal year is less than the estimate for that fiscal year, the report shall identify options for increasing annual claims of the credit so as to meet estimated amounts.

I have not yet been able to confirm if such a report has been provided by the FTB.

Colorado Introduces State WOTC Bill

Colorado State Representative Dianne Primavera has proposed House Bill 16-1372, “Concerning the Creation of the Colorado Work Opportunity Income Tax Credit.”

The bill states as a rationale:

The General Assembly further finds that when such employees are hired and thus move out of unemployment, the federal government and the state see savings in the cost of these public assistance programs because there are fewer individuals in need. In some estimates, the savings to Colorado are in the neighborhood of seventy-nine million dollars just as a result of the federal work opportunity tax credit. Such savings to the state would increase if the incentive to the private-sector business is even greater because the state offers its own work opportunity tax credit.

The bill proposes to create a state income tax credit based on and linked to the federal WOTC program. Businesses who employ employees within the state who have been certified as a member of a WOTC target group would be able to claim an a state income tax credit for tax years starting in 2017. The amount of the credit is up to $9,000 over two years for a long-term family assistance recipient (which is the same as the long-term TANF category in WOTC). The credit possibilities are:

  • 1. 40% of $4,500 in first-year wages for targeted groups besides long-term TANF (if the employee works at least 400 hours)
  • 2. 25% of $4,500 in first-year wages for targeted groups besides long-term TANF (if the employee works between 120 and 400 hours)
  • 3. If the employee is a veteran, the credit is based on $4,800
  • 4. 40% of $10,000 in first-year wages plus 50% of 10,000 in second-year wages for an employee certified in the long-term TANF target group

  • IRS Notice Regarding WOTC Transition Relief and New Qualification Category

    The IRS published today Notice 16-22 concerning the extension of the federal Work Opportunity Tax Credit (WOTC) and the addition of a new qualification category. Consistent with recent IRS action, the Service is allowing a period of transition relief to allow taxpayers to submit WOTC applications to the states despite the requirement that applications must normally be submitted within 28-days of an employee’s start date. For employees not in the new qualified long-term unemployment recipient category, taxpayers will have until June 29, 2016 to submit applications for employees hired between 1/1/2015 and 5/31/2016.

    The new category of qualified employee added by Congress to WOTC last year is long-term unemployment recipients. These are individuals who have been unemployed for at least 27 consecutive weeks prior to being hired by the taxpayer applying for the credit, and who received unemployment compensation benefits during some of that time. Since this category did not become effective until 2016, the transition relief period for submitting applications with this category is until June 29, 2016 for employees hired between 1/1/2016 and 5/31/2016.

    The new qualification category requires the use of a new IRS Form 8850 and Department of Labor Form 9061 which have yet to be published. The notice indicates that these new forms may require employees qualifying in this new category to attest to their periods of unemployment and receipt of unemployment compensation.

    Ryan, Inc. Wins Suit Against GO-Biz

    According to the Sacramento Business Journal:

    A Sacramento judge has thrown out a state rule that bars site-selection consultants from claiming a share of incentives awarded by the California Competes program.

    Sacramento Superior Court judge Timothy Frawley on Thursday sided with a Dallas firm that challenged the rule. That firm, Ryan, sued the Governor’s Office of Business and Economic Development over a 2014 regulation involving tax credits the state provides to businesses that create jobs here.

    The administration imposed the ban to ensure that businesses — not consultants — received the entirety of awards from its California Competes program. But Frawley wrote that the agency, known as GO-Biz, “exceeded its statutory authority” with its regulation. The ban does not advance the program’s goals of stimulating job growth and business investment in California, he concluded.

    “The only thing the ban is likely to accomplish is discourage businesses with contingent fee arrangements from participating in the California Competes tax credit program,” Frawley wrote.

    GO-Biz declined to comment on the ruling or say if it plans to appeal. A representative of Ryan was not immediately available for comment. Ryan filed the suit in August 2014.

    The IRS Just Delayed the Due Dates for ACA Employer Reporting

    On December 28, the IRS published Notice 2016-4 providing additional transition extending the due dates for filing 2015 Section 6055 and 6056 reporting. The due date for furnishing 1095-B or 1095-C forms to employees has been extended from 2/1/2016 until 3/31/2016. And the deadline for filing 1094-B/C forms with the IRS has been extended from 2/29/2016 to 5/31/2016 for those not filing electronically, and from 3/31/2016 until 6/30/2016 for those who are filing electronically.

    The Notice explains that all other options for requesting individualized extensions are now superseded by this Notice and no other extensions will be granted:

    In view of these extensions, the provisions regarding automatic and permissive extensions of time for filing information returns and permissive extensions of time for furnishing statements will not apply to the extended due dates. Employers or other coverage providers that do not comply with these extended due dates are subject to penalties under section 6722 or 6721 for failure to timely furnish and file. However, employers and other coverage providers that do not meet the extended due dates are still encouraged to furnish and file, and the Service will take such furnishing and filing into consideration when determining whether to abate penalties for reasonable cause.

    ACA Employer Reporting: IRS Clarifies that Employees Don’t Actually Need 1095-Cs to File Taxes

    In a new FAQ regarding employer ACA reporting, the IRS is stating very clearly that individuals do not actually need their 1095-B or 1095-C in order to file their taxes:

    While the information on these forms may help you complete your tax return, they are not needed to file. You can file your federal tax return even if you have not received one of these statements.

    Fallback Extender Bill Still Includes Enhancements

    Ways and Means Chairman Kevin Brady has introduced a two-year extender bill to serve as a fallback position in case a larger deal proves elusive. The buzz is certainly making it sound like two years will be the best Congress can do.

    However, even this two-year proposal is not just a simple extension of the dates. It includes some significant enhancements to business tax credits.

    1. A new category of qualified employee would be added to the Work Opportunity Tax credit. Individuals who have been unemployed at least 27 consecutive weeks and received federal unemployment benefits for at least part of that time would become eligible for the credit.

    2. The research credit would be improved in multiple ways. The alternative simplified credit (ASC) would be increased from 14 to 20 percent, and eligible small businesses would be able to use the credit to offset AMT and/or payroll tax liability. Qualified small businesses are businesses with $50 million or less in gross receipts.

    Senator Hatch: One-Year Retro Extenders Not an Option

    Bloomberg BNA is reporting that Senate Finance Committee Chairman Orin Hatch is saying that extending the expired tax provision just for 2015 (as was done last year) is not an option this year.

    Another one-year or shorter extension of lapsed tax extenders won’t be acceptable, said Senate Finance Committee Chairman Orrin G. Hatch (R-Utah).

    That happened last year when all the provisions were extended for 2014 only, after talks on making some long-temporary tax credits permanent and continuing others on a short-term basis fell apart.

    Hatch said that isn’t an acceptable fall-back option if similar talks this year fail to produce an agreement. “It’s got to be multi-year,” Hatch told Bloomberg BNA Dec. 2. “We’re not going to put up with one year.”

    For weeks, lawmakers have continued discussing a possible deal on permanency for popular tax breaks like the business credit for research and development and the Earned Income Tax Credit that households can claim.

    Ways and Means Chairman Brady’s Priority is Permanence for Extenders

    The following is from the San Antonio Express News:

    Brady’s immediate priority as Ways and Means chairman will be to press for the permanent extension of a package of temporary tax cuts that have to be renewed every year. Among them is a research and development tax credit for businesses worth an estimated $177 billion over the next decade.

    Democrats, in turn, are expected to press for extending temporary increases to the Child Tax Credit and the Earned Income Tax Credit for the working poor. Together, making those changes permanent is estimated to cost $118 billion over the next decade.

    Backers of the worker tax credits have sought to apply early pressure by pointing to the estimated 61,000 families in Brady’s district who benefit from the earned income and child tax credits for low-income people.

    Some see the makings of a modest budget compromise by combining the business and worker tax credits as part of a must-pass comprehensive 2016 spending bill.

    “It could be a small win-win,” said Chuck Marr, director of federal tax policy for the liberal-leaning Center on Budget and Policy Priorities.

    It’s clear that Chairman Brady wants to see a permanent R&D credit, it’s less clear how many other extenders he thinks should be (or could be) made permanent.

    Governor Brown Vetoed 9 New Tax Credits

    The Los Angeles Times reports:

    Jerry Brown on Saturday vetoed nine bills that would have provided new tax credits to benefit California lawmakers’ priorities, including low-income housing, energy efficient appliances, seismic retrofits, small businesses, food bank donations and hiring.

    Brown reminded lawmakers that when he took office in 2011 the state faced a $26.6-billion budget deficit and estimated shortfalls of $20 billion and it has taken tough measures to turn around the state’s finances. He also said there are new budget issues on the horizon because lawmakers failed to deal with the expiration of a healthcare tax.

    “Despite strong revenue performance over the past few years, the state’s budget has remained precariously balanced due to unexpected costs and the provision of new services,” Brown said in his veto message. “Now, without the extension of the managed care organization tax that I called for in special session, next year’s budget faces the prospect of over $1 billion in cuts.”

    “Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state’s budget even more difficult,” he added.

    The bills rejected by the governor include one that was especially important for Los Angeles County because it would have provided a credit for seismic retrofitting of buildings not safe for earthquakes.

    Among the bills vetoed were AB 437, sponsored by Assembly Speaker Toni Atkins, which would have provided a grant for small business that had earned research and development credits but lacked the tax liability to use them. And AB 931 which would have expanded the definition of a qualified veteran for the New Employment Credit (NEC).

    Senator Cardin’s Statement on the WOTC Long-Term Unemployed Category

    Senator Cardin (MD) was the co-author (along with Senator Portman) of the amendment accepted into the Finance Committee extender bill which would add a new category to WOTC for hiring long-term unemployed individuals. In a press-release, Senator Cardin said the following about this amendment:

    I am very proud of my work to extend the availability of the Work Opportunity Tax Credit (WOTC) to promote the hiring of the long-term unemployed. WOTC has been extremely effective in encouraging employers to take chance on hiring individuals who are difficult to hire and in so doing, dramatically reduced the burden of public assistance with respect to the unemployed. Studies on the Work Opportunity Tax Credit have shown that for every WOTC hire, the federal government saves approximately $17,000 by encouraging the hiring of hard-to-employ individuals.

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