California Leadership Focuses on Jobs and the State's Economy
AB 93 and SB 90 Repeal Geographical Tax Incentives and Create New Tax Credits
On July 11, 2013, joined by California workers and businesses, Governor Edmund G. Brown Jr., signed these companion bills into law, ushering in a new, more business-favorable climate to stimulate manufacturing, and research and development (R&D), and to increase job creation and hiring.
Generally, these new laws:
- Create a 4.1875 percent Sales and Use Tax Exemption for a qualified person'1; purchases of property2 to be used 50 percent or more in manufacturing, or R&D3;
- Establish a Hiring Tax Credit for certain qualified employees of taxpayers located in a designated census tract, or former Enterprise Zone (EZ)4;
- Institute the California Competes Tax Credit, and establish a committee to review and approve agreements5; and
- Repeal the New Jobs Tax Credit, as well as other geographically focused tax credits6.
Comprehensively, the elements of the new bills are largely geared to incentivize broad, statewide capital expenditures for the sales tax exemption; as well as to stimulate hiring in some of the state’s most economically fragile areas.
Moreover, the new California Competes Tax Credit is uniquely geared to attract and retain businesses that may choose to operate in the Golden State.
1"Qualified person" means a trade or business that is primarily engaged in Manufacturing activities, as described in the 2012 edition of the North American Industrial Classification System (NAICS) codes 3111 through 3399, Biotechnology R&D, described in NAICS code 541711, and Physical, engineering, and life sciences R&D, described in NAICS Code 541712.
2Tangible personal property ("TPP").
3Research and development ("R&D"). Other areas in which TPP used may qualify for the sales and use tax exemption include: TPP used 50 percent or more in manufacturing, processing, refining, fabricating, or recycling of property (that is, machinery, equipment, parts, belts, shafts, computers, software, pollution control equipment, buildings and foundations), as specified; TPP purchased by a contractor, as specified, for use in the performance of a qualified person’s construction contract. The qualified person must use the property, however, as an integral part of any manufacturing, processing, refining, fabricating, or recycling process or as a research or storage facility in connection with the manufacturing process; or TPP to be used 50 percent or more in R&D.
4Enterprise Zone ("EZ").
5Establishes the California Competes Tax Credit Committee ("Committee") comprised of the Treasurer, the Director of Finance, the Director of the Governor's Office of Business and Economic Development (GO-Biz), or their representatives, and one appointee each from the Senate and the Assembly.
6For example, EZ, Local Agency Military Base Recovery Area ("LAMBRA"), Targeted Tax Area ("TTA"), and Manufacturing Enhancement Area ("MEA")
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