(April 26, 2013) A California Chamber of Commerce-opposed “job killer” bill that imposes an arbitrary maximum 10-year sunset on all future tax credits passed the Senate this week.

SB 365 (Wolk; D-Davis) creates uncertainty for California employers making long-term investment decisions by requiring tax incentives end 10 years after their effective date.

The CalChamber supports efforts of the state to consider the effectiveness of tax policies and programmatic expenditures.

SB 365, however, attempts to address this periodic review and good government structure related to tax policy by mandating a maximum 10-year sunset on all future tax credits. This would have the adverse effect of creating uncertainty about the future of the state’s tax structure.

Stability Is Key

When businesses choose to locate in a state, factors such as the availability of a skilled workforce, infrastructure, regulatory environment, and tax structure all play a significant role. Businesses evaluate whether they can rely on these factors to remain relatively stable and consistent in the long term.

Furthermore, for capital-intensive industries like manufacturing and research and development, investment decisions are made many years into the future. The ability for corporate decision makers in these industries to plan anticipated costs over a span of many years is an important factor when determining locations for these investments.

Establishing an arbitrary maximum 10-year sunset puts the long-term viability of any credit in jeopardy and, in many cases, could ultimately render the credit’s value useless in a company’s final decision on a location.

Amendments Needed

The CalChamber believes that the arbitrary maximum 10-year sunset requirement should be amended to allow tax credits introduced in the future to be evaluated on their own merit. A reasonable sunset should be applied only if appropriate.

Key Vote

SB 365 passed the Senate, 22-11, and will be considered next by the Assembly.

Ayes: Beall (D-San Jose), Block (D-San Diego), Corbett (D-San Leandro), de León (D-Los Angeles), DeSaulnier (D-Concord), Evans (D-Santa Rosa), Hancock (D-Oakland), Hernández (D-West Covina), Hill (D-San Mateo), Jackson (D-Santa Barbara), Lara (D-Bell Gardens), Leno (D-San Francisco), Lieu (D-Torrance), Liu (D-La Cañada Flintridge), Monning (D-Carmel), Padilla (D-Pacoima), Pavley (D-Agoura Hills), Price (D-Los Angeles), Roth (D-Riverside), Steinberg (D-Sacramento), Wolk (D-Davis), Yee (D-San Francisco/San Mateo).

Noes: Anderson (R-Alpine), Berryhill (R-Modesto), Cannella (R-Ceres), Emmerson (R-Hemet), Fuller (R-Bakersfield), T. Gaines (R-Rocklin), Huff (R-Diamond Bar), Knight (R-Palmdale), Nielsen (R-Gerber), Walters (R-Irvine), Wyland (R-Escondido).

No vote recorded: R. Calderon (D-Montebello), Correa (D-Santa Ana), Galgiani (D-Stockton), Hueso (D-Logan Heights), Wright (D-Inglewood).