The newly released Franchise Tax Board’s Report on the New Employment Credit (NEC) indicates that the credit is a bad joke on California businesses as less than $4 million in credits were actually claimed in 2014 when an estimated $22 million was projected by the FTB. That’s a paltry 18% of the best estimates. This is proof positive of what many tax professionals, including myself, stated from the get go. The California NEC is a pathetic substitute for California’s EZ Program that it replaced.
The FTB staff goes on to state that “FTB staff advises caution in making statutory changes to the current program.” Why? The NEC is a complete and utter failure. Personally, I think whoever drafted this law should find himself or herself another vocation or move to Texas and go to work for their Legislature.
The FTB sets forth four reasons why they think so few companies qualify for or take advantage of the credit. Those four reasons are:
(1) a particularly steep learning curve on how to apply for and take advantage of the NEC;
(2) businesses are still utilizing other credits to reduce their taxes;
(3) many businesses are claiming the credit without reserving them first with the FTB; and,
(4) businesses are reserving the credits and never actually claiming same, e.g., some businesses may have unexpectedly failed to fulfill the requirement that they increase total employment over the previous year.
Luckily, under the law, since the credits claimed were less than the FTB estimates, the FTB is required to identify options for increasing annual claims to meet the estimates. This requirement must have caused the FTB Statistical Research staff extreme anguish as they have to admit their inability to do reliable estimates despite the millions spent on their computer models and “dynamic forecasting”.
So, here are the FTB’s listed options for making the NEC work better or be less flawed:
- Expand the geographic limitations (currently census tracts with high unemployment and low income, former Enterprise Zones and LAMBRAs);
- Change eligibility requirements;
- Change the range of wages qualifying (currently only employees paid between $15 to $35 per hour);
- Drop the requirement or streamline the reservation system;
- Expand to additional business types;
- Change the credit percentage (now at 35%); and,
- Expand education and outreach.
Options one through seven are no brainers to me. Yes; they all should be included in new legislation passed today if our Legislators are truly serious about high unemployment, low income and the loss of manufacturing and jobs throughout the state. The real question is: Who in the Legislature will take the lead and show us some true leadership?
That’s my two cents.