Update on the California New Employment Credit (NEC)

Max Shenker
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About a year ago, we reviewed the status of the business incentive programs that California enacted as replacements for the Enterprise Zone program:

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Brown noted: “The new Initiative will be funded by redirecting approximately $750 million annually from the state’s outdated and ineffective Enterprise Zone program.”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.

Regarding the NEC in particular, we noted:

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.

On March 27, 2017 the FTB updated their webpage publicizing the NEC credits claimed by various companies for tax years 2014 and 2015.

The total amount of credit utilized for tax year 2014 was revised upward from $299,000 to $340,822. The amount utilized in tax year 2015 was double that: $693,323.

Nevertheless, a program that was sold the the legislature as providing several hundred million in business incentives a year is still significantly under-performing that promise.

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