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Governor sweetens budget proposal

May 17, 2011|By Marc Lifsher, Los Angeles Times

Reporting from Sacramento — California Gov. Jerry Brown's revised budget proposal eases up a bit on business and offers some incentives.

The governor, who wants lawmakers to ask voters to extend a series of taxes that would generate $10.8 billion, changed his mind about eliminating a program that gave employers tax credits for creating jobs in designated enterprise zones.

He also is offering manufacturers a sales tax exemption on purchases of new equipment and is beefing up a historically under-utilized tax credit for small business owners, according to the revised budget plan released Monday.

The modified enterprise zone proposal would provide a $5,000 tax credit to employers for each new, full-time worker hired. Credits would not be given for people added to the payroll to replace previously laid off employees.

In addition, Brown wants to increase by a third to $4,000 a credit for business owners with less than 50 workers. The credit would be available through the end of 2012.

The combination of the extended taxes, tax breaks and a plan to streamline government by eliminating dozens of boards and commissions is "good and bad news for California's small employers," said John Kabateck, state executive director for the National Federation of Independent Businesses.

"The good news includes state sales tax exclusions for business equipment purchases," Kabateck said. "Expanding the small business new hire tax credit to employers with up to 50 employers would encourage small employers to hire."

But, the bad news, he said, is up to $60 billion of tax increases sought over the next five years. The money would come by maintaining temporary hikes in the state sales and vehicle license fees.

All the tax proposals would go to voters as an initiative, probably in the fall of 2012, Brown said.

His updated budget plan still calls for altering the existing corporate-tax formula, which he said benefits large companies based outside of California. But he now proposes using the estimated $940 million annual windfall from the change for a sales tax exemption for businesses that buy new equipment.

The sales tax exemption, long sought by manufacturers, would give existing companies a 1% break, starting in the 2012-13 fiscal year. A $1-million piece of machinery, for example, would result in a $10,000 tax exemption. Start-up firms would be eligible for a 5% exemption.

The start-up exemption helps but the benefit for existing companies is mainly symbolic, said Jack Stewart, president of the California Manufacturers & Technology Assn.

"The proposals acknowledge the value of a competitive tax environment for the engine of our economy — manufacturing," Stewart said. "We are disappointed that the recommendation is insufficient to encourage existing businesses to compete and grow in California."

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