By Chris Micheli, California Strategies & Advocacy, LLC
Introduction
The California
Housing & Community Development Department (HCD) recently adopted
Enterprise Zone Program Regulations in Title 25, California Code of Regulations,
Chapter 7, Subchapter 21. These new regulations became effective on November
27, 2006. They amended Section 8431, definitions, and adopted new Article 14 on
EZ administration and issuance of vouchers, adding Sections 8449, 8450, 8450.1,
8450.2, 8450.3, 8450.4, 8450.5, and 8450.7.
HCD adopted these
regulations for the interpretation and implementation of changes to the state's
Enterprise Zone program resulting from the passage of Section 1 of Chapter 593,
Statutes of 2003 (SB 305), and
Sections 14, 15, 66 and 67 of Chapter 225, Statutes of 2004
(SB 1097). These statutory
changes amended Government Code Sections 7072, 7076 and 7086, and Revenue and
Taxation Code Sections 17053.74 and 23622.7.
Under the California
Government Code, the purpose of the Enterprise Zone program is to stimulate
business and industrial growth in depressed areas of the state by relaxing
regulatory controls that impede private investment. It is in the economic
interest of the state to have one strong, combined, and business-friendly
incentive program to help attract business and industry to the state, to help
retain and expand existing state business and industry, and to create increased
job opportunities for all Californians. Businesses in areas designated as
enterprise zones become eligible for a variety of governmental benefits,
including tax credits for hiring "qualified persons."
Background on EZ Program
Historically, the
Enterprise Zone program was administered by the Technology, Trade, and Commerce
Agency (TTCA). TTCA was authorized to adopt regulations into the California
Code of Regulations under Title 10, and the specific Enterprise Zone Program
regulations were adopted into Title 10, Chapter 7.8 commencing with Section
5600. On January 1, 2004, Chapter 593 transferred responsibility for the
Enterprise Zone program to HCD.
There are two sets
of statutes that affect the EZ Program. Government Code Title 1, Division 7,
Chapter 12.8 (commencing with Section 7070), known as the "Enterprise Zone
Act," governs the application, selection, designation and monitoring of
enterprise zones. California Revenue and Taxation Code Sections 17053.74 and
23622.7 (these two code sections are essentially identical, but apply to two
different groups of taxpayers) govern the tax credit available to a taxpayer
who employs a qualified employee in an enterprise zone.
To claim the hiring
tax credit, an employer must obtain a "certification" or
"voucher" from one of the agencies designated in statute, certifying
that the employer has hired a "qualified employee" for a job located
in an enterprise zone. Taxpayers are directed to retain and provide these
certifications to the Franchise Tax Board if requested. Initially, the agency
most often issuing certifications was the State Employment Development Department
(EDD).
However, over time,
EDD stopped issuing certifications (popularly known as "vouchers")
and an ad hoc process evolved whereby vouchers are now issued by local
government enterprise zone managers. EDD Electronic Field Office Directive
97-22, which was issued on April 9, 1997, instructed EDD field offices to no
longer perform eligibility determinations, request documentation or sign
vouchers. Zone managers took over this process sometime in the summer of 1997.
Recent Legislative Changes
Chapter 225, Sections 66 and 67, made the following changes in the
Enterprise Zone tax statutes (see CRTC Sections 17053.74(c)(1) and
23622.7(c)(1)) that are the subject of this rulemaking:
·
Codified the ad hoc process used by permitting
vouchers to be issued by "the local government administering the
enterprise zone";
·
Directed HCD to adopt regulations governing the
issuance of vouchers by local governments.
Purposes of
the Voucher Regulations
The primary purposes of this rulemaking are to respond to the Legislature's
direction to promulgate regulations governing the issuance of vouchers by local
enterprise zones. Article 14 – Enterprise Zone Administration and Issuance of
Vouchers – addresses the following topics:
·
Designation of a zone manager and staffing
·
Standards for a local vouchering program
·
Content to be included in a voucher application and
a voucher
·
Required supporting documentation for issuance of a
voucher
·
Appeals of a denial of a voucher
Highlights of
Specific Regulatory Provisions
Section 8431 – Definitions
Section 8431 –
Definitions – The definitions in this
section generally mirror the way the terms are used in statute. Definitions
have been added for "Enterprise Zone Manager," "Memorandum of
Understanding," and "Voucher" to clarify the administrative
arrangements of the program.
Section 8431(b) –
"Certificate or Voucher" – Both terms, "certificate" and
"voucher," are used in the Enterprise Zone Act. Zone managers and
consultants for businesses generally use the term "voucher."
Therefore, the popular term "voucher" is defined as the same as
"certificate."
Section 8431(e) –
"Enterprise Zone Manager" – In actual practice, each governing body
has designated some entity within the local jurisdiction to administer the
program (e.g., an economic or community
development department employee). This definition was being added to
distinguish between the governing body of an enterprise zone and the entity
that actually administers the business of the zone.
Section 8431(f) –
"Memorandum of Understanding" – Subdivisions (a) and (b) of
Government Code Section 7076.1 refer to a memorandum of understanding between
the department and the zone. This term is used in several places in these
regulations.
Section 8431(g) –
"Qualified Employee" – The definition has been changed to be the same
as defined in the Revenue and Taxation Code.
Section 8431(i) – "Voucher" – This definition was added to
make clear the term's equivalence to "certificate."
Article 14
Enterprise Zone Administration and Issuance of Vouchers
Revenue & Taxation
Code Sections 17053.74(c)(1) and 23622.7(c)(1) state that, as part of obtaining
a hiring tax credit, a taxpayer shall obtain "a certification that a
qualified employee meets the specified eligibility requirements."
According to HCD, "the general purposes of this rulemaking are:
·
To
establish a uniform, statewide system for qualifying employees, issuing
vouchers, and providing appropriate documentation for businesses to receive
vouchers in order to obtain hiring tax credits.
·
To
create and maintain a required level of scrutiny to document that an employee
is "qualified," thereby entitling the employer to a hiring tax credit
pursuant to Revenue and Taxation Code Sections 17053.74 or 23622.7, assuming
the other "qualified employee" criteria are satisfied.
·
To
ensure independent, systematic, consistent and recorded verification that the
documentation submitted in support of an application for a hiring tax credit
voucher substantiates that the employee meets the voucher qualification
criteria."
Section 8449 –
Application of Regulations
Section 8449 –
Applicability – This new section specifies that the regulations will apply to
voucher applications submitted (to zone managers or designated third-party
processors) after the effective date of the regulations, which is November 27,
2006. To the extent that a taxpayer is seeking a voucher under the JTPA for an
employee hired prior to July 1, 2000, these regulations do not change the
existing documentation and eligibility standards that must be met.
Section 8450 – Definitions
Section 8450 –
Definitions – A separate definitions section is necessary for the terms used in
this new Article 14 because other Articles in Subchapter 21 also have their own
definitions sections and, in some cases, similar terms are used with different
definitions.
Section 8450(a) –
"Applicant" – This definition means a taxpayer who applies for a
voucher.
Section 8450(b) –
"Application" – This definition was added to clarify that two related
documents exist – the application and the resulting certificate or voucher,
defined in Section 8431 – and that the contents of an application are specified
in Section 8450.3(a).
Section 8450(c) –
"Conflict of interest" – This term is defined to clarify use of the
term in Section 8450.2(a)(4). It is important that all parties involved in the
issuance of vouchers be aware of and accept the principle that favoritism or
other unfair practices are not acceptable in the allocation of public tax
credit funds.
Section 8450(d) –
"Economically disadvantaged individual" or "economically
disadvantaged youth" – Subdivision (b)(4)(A)(iv)(III) of Revenue and
Taxation Code Sections 17053.74 and 23622.7 uses the term "economically
disadvantaged individual 14 years of age or older." However, the Revenue
and Taxation Code does not define "economically disadvantaged." The
California Employment Development Department (EDD), which administers the
federal Workforce Investment Act (WIA), has published a Workforce Investment
Act Eligibility Technical Assistance Guide, Program Year 2003-2004 (TAG). This
TAG contains various eligibility categories, including a category for eligible
youth between the ages of 14 and 21 (p. 28 of the Guide). HCD borrowed from the
TAG in Section 8450.5 in listing acceptable documentation for the various categories
of "qualified employees."
Section 8450(e) –
"Ex-Offender" – Subdivision (b)(4)(A)(iv)(VI) of Revenue and Taxation
Code Sections 17053.74 and 23622.7 confers "qualified employee"
status on a person who, immediately preceding the employee's commencement of
employment with the taxpayer, was an "ex-offender." The term
"ex-offender" is not defined in California statutes or case law. Here
it is defined as any felony or a misdemeanor subject to prison.
Section 8450(f) –
"Household" – This term means, in the context of state housing
programs and these regulations, any person or group that together occupies a
single housing unit. "Family," defined in § 8450(d), differs from "household" in that members of a
family must be related by blood, marriage or decree of court.
Section 8450(g) –
"Immediately preceding" – This term is used (though not specifically
defined) in the EZ statutes, as well as these regulations. The 90-day
definition was deemed a reasonable period and is generally consistent with the
Franchise Tax Board's administration of the tax laws.
Section 8450(h) –
"Long-term unemployed" – This term is used (though not specifically
defined) in the statutory definition of "qualified employee." The
15-week definition is the same one used by EDD.
Section 8450(i) – "Veteran" – This term is used as a component
of several qualifying factors in the statutory discussion of "qualified
employee": as 1) a service member as of September 30, 1990, who is
involuntarily separated, 2) a disabled veteran, 3) a Vietnam veteran, or 4) a
recently separated veteran. The broad regulatory definition used here is
intended to include all veterans of active duty with United States armed
forces.
Section 8450.1 –
Designation of Zone Manager and Staffing
Section 8450.1(a) –
The purpose of this section is to ensure that the governing body of each
enterprise zone in the state formally designates a manager for its zone, and
notifies the department.
Sections 8450.1(b)
and (c) – These sections are to ensure that a zone continues to support its zone
activities, including any vouchering program, in a manner that ensures timely
issuance of vouchers for qualified employees.
Section 8450.2 –
Voucher Administration
Section 8450.2 –
Administration of a Vouchering Program – This section responds to the mandate
of Government Code Section 7086(d) by establishing the parameters of a zone
vouchering program. These regulations mandate that all zones have vouchering
programs that are adequately budgeted and staffed to issue vouchers.
Section 8450.2(a) –
The purpose of this section is to ensure that all zone vouchering programs meet
minimal standards.
·
(a)(1)
Requires written policies and procedures.
·
(a)(2)
Ensures that vouchers are issued only for qualified employees.
·
(a)(3)
Requires recordkeeping and confidentiality requirements to protect the personal
information of qualified employees.
·
(a)(4)
Requires the local voucher program to have its own conflict of interest
provisions.
·
(a)(5)
Requires a written vouchering plan.
·
(a)(6)
Requires that zones make at least annual outreach efforts to keep businesses
informed.
·
(a)(7)
Permits the use of a third party to issue vouchers.
Section 8450.2(b) –
This section permits a zone to designate a third party to process voucher
applications – including another zone – provided the delegation is subject to
written controls, and the delegating zone remains responsible for the
results. Zone managers will receive from
HCD allocations of numbered vouchers.
Section 8450.2(c) –
The regulations permit the governing body to delegate administrative functions
to a zone manager which may be, but is not required to be, a department or
division of the local government. The zone also may delegate vouchering
functions to a third party by written agreement.
Section 8450.2(d) –
This section cites HCD's statutory mandate to audit
enterprise zones, and states that compliance with the new regulations will be
subject to audits.
Section 8450.3 –
Content of an Application and a Voucher
Section 8450.3(a) –
Content of a Voucher Application
·
(a)(1)
Requires the name, address, telephone number and other personal data of the
employee to ensure that the various documents provided to establish that the
employee is "qualified" all pertain to the same person and not
another person with the same or similar name.
·
(a)(2) Requires
standard identification and contact information for the employer to specify the
holder of the voucher, facilitate contact, and facilitate assessment of the
effects of the program.
·
(a)(3)
Requires the applicant to designate the eligibility category being applied for
to assist the zone manager in its review of the application.
·
(a)(4)
States the requirement for an application to include the specified
documentation.
·
(a)(5)
Requires a statement from the applicant that it has provided priority in
specified hiring efforts.
·
(b)(6)
Requires a statement that the employer is engaged in a trade or business within
the zone.
Section 8450.3(b) –
Content of a Voucher – The information required specifies the employee, the
employer, the zone, and the statutory authority and category under which the
voucher is being issued.
Section 8450.4 –
Voucher Issuance
Section 8450.4 –
Issuance of a Voucher – In subsection (a), there are three basic requirements: (1)
the business requesting the voucher is an eligible applicant, (2) the
application contains all the required information, and (3), the application
demonstrates that the employee is a "qualified employee." Subsection
(b) was added to authorize issuance of vouchers after a zone terminates by
certain parties under certain conditions.
Section 8450.5 –
Documentation Requirements
Section 8450.5 –
Acceptable Documentation – This section incorporates larger lists of acceptable
documentation that are more closely based on statute and on those in the EDD
Technical Assistance Guide (TAG).
Section 8450.5(a) –
This section lists documentation to demonstrate that an employee is qualified
under the general statutory categories.
Section 8450.5(b) –
This section uses a definition of "economically disadvantaged" based
on state and federal income categories that are used to determine income
eligibility for qualification for subsidized housing programs.
Section 8450.5(c) –
This section lists documentation to demonstrate that an employee is qualified
under dislocated worker including, but not limited to, "due to
layoff".
Section 8450.5(d) –
This section lists documentation to demonstrate that an employee is qualified
under dislocated worker due to plant, facility or enterprise closure.
Section 8450.5(e) –
This section lists documentation to demonstrate that an employee is qualified
under dislocated worker due to long-term unemployment with limited
opportunities for employment or reemployment in the same occupation.
Section 8450.5(f) –
This section lists documentation to demonstrate that an employee is qualified
under dislocated worker category due to loss of self-employment.
Section 8450.5(g) –
(j) – This section lists documentation to demonstrate that an employee is
qualified under dislocated worker due to base closure, prior active duty
military, migrant worker, or Clean Air Act.
Section 8450.5(k) –
This section lists documentation to demonstrate that an employee is qualified
under disability category.
Section 8450.5(l) –
This section lists documentation to demonstrate that an employee is qualified
under Vietnam era or recently separated veteran category.
Section 8450.5(m) –
This section lists documentation to demonstrate that an employee is qualified
under ex-offender category.
Section 8450.5(n) –
This section lists documentation to demonstrate that an employee is qualified
under eligible for public subsidies category.
Section 8450.5(o) –
This section lists documentation to demonstrate that an employee is qualified
under Native American, Native Samoan, or Native Hawaiian.
Section 8450.5(p) –
This section lists documentation to demonstrate that an employee is qualified
under residents of Targeted Employment Areas (TEAs).
Section 8450.7 –
Voucher Appeals
Section 8450.7(a) –
Establishes the minimum information necessary to file an appeal both to the
local zone manager and the Department.
Section 8450.7(b) –
Sets a time limit for the filing of an appeal of 60 days from the denial of an
application, and requires the zone to respond to an appeal within another 60
days.
Section 8450.7(c) –
Permits an Applicant to appeal a second denial by a zone manager to the
department within 30 days.
Section 8450.7(d) –
Requires HCD to issue a final decision on an appeal in writing.
Caltaxletter December
1, 2006
©
2006 California Taxpayers' Association. All Rights Reserved.