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SB-553 Income taxes: California Work Opportunity Tax Credit.(2021-2022)

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Date Published: 04/15/2021 09:00 PM
SB553:v97#DOCUMENT

Amended  IN  Senate  April 15, 2021
Amended  IN  Senate  March 10, 2021

CALIFORNIA LEGISLATURE— 2021–2022 REGULAR SESSION

Senate Bill
No. 553

Introduced by Senator Limón

February 18, 2021

An act to add and repeal Sections 17053.71 and 23672 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 553, as amended, Limón. Income taxes: California work opportunity tax credit. Work Opportunity Tax Credit.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
This bill, for each taxable year beginning on or after January 1, 2021, and before January 1, 2025, would allow a credit against the taxes imposed under both laws to a qualified employer, as defined, in an amount equal to that allowed under the federal Work Opportunity Tax Credit, as modified. The bill would prohibit the credit from exceeding $2,400 per qualified employee per taxable year, and would require the Employment Development Department to issue certification of qualified individuals, as specified. By expanding the crime of perjury, this bill would create a state-mandated local program.
Existing law requires any bill authorizing a new tax expenditure, defined to include tax credits, to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.
This bill would require the Employment Development Department to prepare a specified report in this regard.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: YES  

The people of the State of California do enact as follows:


SECTION 1.

 (a) The purpose of the California Work Opportunity Tax Credit is to encourage qualified employers to hire and retain employees from targeted groups of individuals who have systematically faced barriers to employment.
(b) The Legislature finds and declares that the federal Equal Employment Opportunity Commission (EEOC) has considered the questions and forms required for the federal Work Opportunity Tax Credit (WOTC) and found that the proper use of these questions and forms, which is using them solely for purposes of applying for the WOTC, does not violate federal equal employment opportunity laws. Moreover, the proper use of the WOTC benefits those that equal employment opportunity laws seek to protect. However, despite the EEOC approving the WOTC application forms, if an employer were to use the information for purposes other than to apply for the WOTC, for example to discriminate in a hiring decision, the EEOC declared that the employer would not be protected from liability under equal employment opportunity laws. The Legislature further finds and declares that compliance with the WOTC questions and forms is necessary to ensure proper documentation and certification for employees eligible for the credit allowed by this section.

SEC. 2.

 Section 17053.71 is added to the Revenue and Taxation Code, to read:

17053.71.
 (a) For each taxable year beginning on or after January 1, 2021, and before January 1, 2025, there shall be allowed to a qualified employer as a credit against the “net tax,” as defined in Section 17039, a California WOTC in an amount equal to an amount determined in accordance with the requirements of the federal WOTC, as applicable for federal tax purposes for the taxable year, except as otherwise provided by this section.
(b) For purposes of this section, the following terms have the following meanings:
(1) “California WOTC” means the California Work Opportunity Tax Credit allowed by this section.
(2) “Federal WOTC” means the federal Work Opportunity Tax Credit allowed by Section 51 of the Internal Revenue Code, relating to amount of credit, as in effect on January 1, 2018. 2021.
(3) “Qualified employer” means a taxpayer that is an employer that is subject to, and is required to provide, unemployment insurance to the taxpayer’s employees pursuant to the Unemployment Insurance Code.
(4) “Qualified individual” means any person who is covered by unemployment insurance by the person’s employer pursuant to the Unemployment Insurance Code.
(c) The federal WOTC is modified as follows:
(1) Section 51(a) of the Internal Revenue Code, relating to determination of amount, is modified to limit the amount of tax credit allowed so as not to exceed two thousand four hundred dollars ($2,400) per qualified individual.
(2) Section 51(b) of the Internal Revenue Code, relating to qualified wages defined, is modified as follows:
(A) The wages are required to be attributable to an employee from a targeted group, as defined by Section 51(d) of the Internal Revenue Code, relating to members of targeted groups, and as modified by this section, who has worked not less than 500 hours for the qualified employer.
(B) The first five thousand dollars ($5,000) of wages attributable to service rendered during that one-year period are excluded from the calculation of qualified wages.
(3) Section 51(c) of the Internal Revenue Code, relating to wages defined, is modified to exclusively apply to wages subject to withholding under Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
(4) Sections 51(d)(1)(D), 51(d)(1)(F), 51(d)(3)(A)(iii), 51(d)(13)(D)(i)(II), and 51(d)(14) of the Internal Revenue Code shall not apply.
(5) Section 51(e) of the Internal Revenue Code, relating to qualified second-year wages, shall not apply.
(6) Section 51(g) of the Internal Revenue Code, relating to United States employment service to notify employers of availability of credit, is modified to substitute “Employment Development Department, in consultation with the Franchise Tax Board” in lieu of “United States Employment Service, in consultation with the Internal Revenue Service.”
(7) Section 51(h) of the Internal Revenue Code, relating to special rules for agricultural labor and railway labor, shall not apply.
(8) Section 51(i)(3) of the Internal Revenue Code, relating to individuals not meeting minimum employment periods, shall not apply.
(9) Section 51(j) of the Internal Revenue Code, relating to election to have work opportunity not apply, is modified to substitute “last date prescribed by state law” in lieu of “last date prescribed by law.”
(d) (1) Notwithstanding the federal WOTC, the qualified employer shall be allowed the California WOTC in the taxable year in which the employer receives a certification or in the taxable year in which the qualified employer paid or incurred the qualified first year wages.
(2) Consistent with the requirements of the federal WOTC, the Employment Development Department shall issue certification of qualified individuals.
(e) Notwithstanding the federal WOTC, in the case where the California WOTC exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following taxable year, and succeeding nine years if necessary, until the California WOTC is exhausted.
(f) Any deduction otherwise allowed under this part for the qualified wages paid or incurred by the taxpayer upon which the California WOTC is based shall be reduced by the amount of the California WOTC allowed by this section.
(g) (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 tax year from the 2021–22 fiscal year to the 2025–26 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, in accordance with Section 9795 of the Government Code, that includes all of the following:
(A) 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.
(B) The number of tax returns claiming the credit.
(C) The number of qualified individuals represented on tax returns claiming the credit.
(h) No credit shall be allowed pursuant to this section for a qualified employee unless the qualified employer obtains a certification from the Employment Development Department for that qualified employee for the Work Opportunity Tax Credit allowed by Section 51 of the Internal Revenue Code. federal WOTC.
(i)  This section shall remain in effect only until December 1, 2025, and as of that date is repealed.

SEC. 3.

 Section 23672 is added to the Revenue and Taxation Code, to read:

23672.
 (a) For each taxable year beginning on or after January 1, 2021, and before January 1, 2025, there shall be allowed to a qualified employer as a credit against the “tax,” as defined in Section 23036, a California WOTC in an amount equal to an amount determined in accordance with the requirements of the federal WOTC, as applicable for federal tax purposes for the taxable year, except as otherwise provided by this section.
(b) For purposes of this section, the following terms have the following meanings:
(1) “California WOTC” means the California Work Opportunity Tax Credit allowed by this section.
(2) “Federal WOTC” means the federal Work Opportunity Tax Credit allowed by Section 51 of the Internal Revenue Code, relating to amount of credit, as in effect on January 1, 2018. 2021.
(3) “Qualified employer” means a taxpayer that is an employer that is subject to, and is required to provide, unemployment insurance to the taxpayer’s employees pursuant to the Unemployment Insurance Code.
(4) “Qualified individual” means any person who is covered by unemployment insurance by the person’s employer pursuant to the Unemployment Insurance Code.
(c) The federal WOTC is modified as follows:
(1) Section 51(a) of the Internal Revenue Code, relating to determination of amount, is modified to limit the amount of tax credit allowed so as not to exceed two thousand four hundred dollars ($2,400) per qualified individual.
(2) Section 51(b) of the Internal Revenue Code, relating to qualified wages defined, is modified as follows:
(A) The wages are required to be attributable to an employee from a targeted group, as defined by Section 51(d) of the Internal Revenue Code, relating to members of targeted groups, and as modified by this section, who has worked not less than 500 hours for the qualified employer.
(B) The first five thousand dollars ($5,000) of wages attributable to service rendered during that one-year period are excluded from the calculation of qualified wages.
(3) Section 51(c) of the Internal Revenue Code, relating to wages defined, is modified to exclusively apply to wages subject to withholding under Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
(4) Sections 51(d)(1)(D), 51(d)(1)(F), 51(d)(3)(A)(iii), 51(d)(13)(D)(i)(II), and 51(d)(14) of the Internal Revenue Code shall not apply.
(5) Section 51(e) of the Internal Revenue Code, relating to qualified second-year wages, shall not apply.
(6) Section 51(g) of the Internal Revenue Code, relating to United States employment service to notify employers of availability of credit, is modified to substitute “Employment Development Department, in consultation with the Franchise Tax Board” in lieu of “United States Employment Service, in consultation with the Internal Revenue Service.”
(7) Section 51(h) of the Internal Revenue Code, relating to special rules for agricultural labor and railway labor, shall not apply.
(8) Section 51(i)(3) of the Internal Revenue Code, relating to individuals not meeting minimum employment periods, shall not apply.
(9) Section 51(j) of the Internal Revenue Code, relating to election to have work opportunity not apply, is modified to substitute “last date prescribed by state law” in lieu of “last date prescribed by law.”
(d) (1)  Notwithstanding the federal WOTC, the qualified employer shall be allowed the California WOTC in the taxable year in which the employer receives a certification or in the taxable year in which the qualified employer paid or incurred the qualified first year wages.
(2) Consistent with the requirements of the federal WOTC, the Employment Development Department shall issue certification of qualified individuals.
(e) Notwithstanding the federal WOTC, in the case where the California WOTC exceeds the “tax,” the excess may be carried over to reduce the “tax” in the following taxable year, and succeeding nine years if necessary, until the California WOTC is exhausted.
(f) Any deduction otherwise allowed under this part for the qualified wages paid or incurred by the taxpayer upon which the California WOTC is based shall be reduced by the amount of the California WOTC allowed by this section.
(g) (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 tax year from the 2021–22 fiscal year to the 2025–26 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, in accordance with Section 9795 of the Government Code, that includes all of the following:
(A) 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.
(B) The number of tax returns claiming the credit.
(C) The number of qualified individuals represented on tax returns claiming the credit.
(h) No credit shall be allowed pursuant to this section for a qualified employee unless the qualified employer obtains a certification from the Employment Development Department for that qualified employee for the Work Opportunity Tax Credit allowed by Section 51 of the Internal Revenue Code. federal WOTC.
(i)  This section shall remain in effect only until December 1, 2025, and as of that date is repealed.

SEC. 4.

 (a) In accordance with Section 41 of the Revenue and Taxation Code, the purpose of the California Work Opportunity Credit, as added to the Revenue and Taxation Code by Sections 17053.71 and 23672 of this bill, is to encourage employers to hire and retain individuals from targeted groups which have been found to face systemic barriers to employment. To measure whether the credit achieves its intended purpose, the Employment Development Department shall annually prepare a written report on the following:
(1) The number of employers, based on employer IDs, who filed for certification.
(2) The number and percentage of employees for which certification was granted.
(3) The distribution of newly hired employees over the eight eligible targeted groups.
(4) The distribution of employers based on industry sectors.
(5) The distribution of employees based on industry sectors.
(b) On or before October 1, 2021, and annually thereafter while Sections 17053.71 and 23672 of the Revenue and Taxation Code are in effect, the Employment Development Department shall post on its internet website the written report required by subdivision (a). A letter indicating that the report is posted shall be delivered to the Assembly and Senate Desks Secretary of the Senate and the Chief Clerk of the Assembly within four calendar days of the report being posted on the website of the Employment Development Department. The Assembly and Senate Desks Secretary of the Senate and the Chief Clerk of the Assembly shall distribute the notice, as the their respective Desk House deems appropriate.

SEC. 5.

 No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

SEC. 6.

  This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.