California’s new job tax credit proposal

On Feb. 14, Assemblyman Carlos Villapudua (D-Stockton) introduced Assembly Bill 2035 to make significant changes to California’s existing New Employment Credit (NEC). Under current law, both in the Personal Income Tax Act and the Corporation Tax Act, there is a tax credit, the NEC, for the tax years 2014 to 2025. The NEC is a credit given to a qualified taxpayer who hires a qualified full-time employee. in a designated census tract or economic development area and who receives a provisional credit reservation for that qualified full-time employee.

Under the NEC, a qualified full-time employee is defined as a person who meets certain requirements and meets at least one of two specified conditions relating to the number of hours worked and paid by the employee. In addition, certain employers whose main activity is to provide certain services, including catering services, are excluded from the NEC application.

AB 2035 would expand the definition of qualified taxpayer by allowing a taxpayer who is primarily engaged in food service to claim the NEC. For purposes of meeting the definition of qualified full-time employee, the bill would allow an employee to receive eligible wages from the eligible taxpayer for services averaging at least 25 hours per week. The bill would also define “high unemployment” for the purposes of designated pilot areas.

Clause 1 of the bill would amend Income Tax Code Section 17053.73 of the Personal Income Tax Act to add to the definition of “base year” that the business receives a provisional Franchise Tax Board (FTB) credit reservation for any qualified full-time employee. employee. It would also add the following as qualified employers:

For employers primarily engaged in providing services, as described in the North American Industry Classification System (NAICS) codes 711110, 722410, 722511, 722513, 722514 or 722515 published by the United States Office of Management and Budget, 2012 Edition, is paid a qualified salary by the qualified taxpayer for services of at least 25 hours per week on average.

In addition, the bill would remove the limit on employers whose primary business is to provide food services and those listed in the NAICS codes above. The bill would also define “high unemployment” to mean an average unemployment rate above the average state unemployment rate in the calendar year preceding the date of designation or an average of more than 10,000 unemployed. during the calendar year preceding the date of designation. based on information from the Labor Market Information Division, Employment Development Department.

Finally, the bill would extend the applicable period for the designation of a designated pilot area from December 31, 2020 to December 31, 2025. All of the myriad other rules of the NEC would remain in effect.

Clause 2 of the bill would amend Income Tax Code Section 23626 of the Corporations Tax Act to add to the definition of “base year” that the business receives a reservation Provisional Franchise Tax Board (FTB) credit for any qualified full-time employee. . It would also add the following as qualified employers:

For employers primarily engaged in providing services, as described in the North American Industry Classification System (NAICS) codes 711110, 722410, 722511, 722513, 722514 or 722515 published by the United States Office of Management and Budget, 2012 Edition, is paid a qualified salary by the qualified taxpayer for services of at least 25 hours per week on average.

In addition, the bill would remove the limit on employers whose primary business is to provide food services and those listed in the NAICS codes above. The bill would also define “high unemployment” to mean an average unemployment rate above the average state unemployment rate in the calendar year preceding the date of designation or an average of more than 10,000 unemployed. during the calendar year preceding the date of designation. based on information from the Labor Market Information Division, Employment Development Department.

Finally, the bill would extend the applicable period for the designation of a designated pilot area from December 31, 2020 to December 31, 2025. All of the myriad other rules of the NEC would remain in effect.

Clause three of the bill specifies that it is a tax levy and would come into effect immediately once the bill is enacted. The bill is expected to receive its first political committee hearing in late March or early April.