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Home My WebLink About01 LAMBRA HIRING TAX CREDIT PROCESSING FEEe.,m,,, • Agenda Item 1 AGENDA REPORT Reviewed: City Manager Finance Director ,~ MEETING DATE: OCTOBER 18, 2011 TO: WILLIAM A. HUSTON, INTERIM CITY MANAGER FROM: CITY MANAGER'S OFFICE SUBJECT: LAMBRA HIRING TAX CREDIT PROCESSING FEE SUMMARY City Council approval is requested for a processing fee for businesses processing Local Agency Military Recovery Area (LAMBRA) Zone Hiring Tax Credit applications to recover the costs associated with staff time and State of California Department of Housing and Community Development pass-through fees. RECOMMENDATION It is recommended that the City Council 1. Open and, after public testimony, close the public hearing; and 2. Adopt Resolution No.11-73: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN ADOPTING THE LAMBRA HIRING TAX CREDIT VOUCHER APPLICATION PROCESSING FEE. FISCAL IMPACT The fees generated will reimburse the City for staff time and fees required to be paid to the State of California and do not exceed the estimated cost of service for which the fee is being levied. BACKGROUND On September 1, 2001, the State of California Housing and Community Development (HCD) designated Tustin Legacy a Local Agency Military Base Recovery Area (LAMBRA) Zone. The designation provides significant state tax advantages to businesses locating in the Tustin Legacy LAMBRA. Businesses can receive tax incentives for hiring qualified employees, credit for sales or use tax paid or incurred on qualified property, business expense deduction for the cost of qualified property and a net operating loss carryover. There are currently eight LAMBRAs in California. Agenda Report - LAMBRA Hiring Tax Credit Processing Fee October 18, 2011 Page 2 Hiring Tax Credits- Businesses may earn up to $37,440 in state tax credits over afive- year period for each qualified employee hired. Businesses may reduce their state income tax by up to one-half the amount of the wages (up to $12 per hour) paid to one or more employees in their first year of employment. The following is an example for a single employee: Year 1 $12.00 2,080 $24,960 50% $12,480 Year 2 $24,960 40% $ 9,984 Year 3 $24,960 30% $ 7,488 Year 4 $24,960 20% $ 4,992 Year 5 $24,960 10% $ 2,496 Total Five Year Credit $37,440 Sales or use tax credit- Firms may earn sales tax credits on purchases of $20 million per year of qualified machinery and machinery parts. For instance, if a business purchases equipment for $100,000 with a 7.75% sales tax requirement, it may claim a state sales tax and use tax credit of $7,750. There is also a carry forward provision that allows any unused tax credit to be carried forward to the following year. Unused tax credits may be applied to future tax years, stretching out the benefit of the initial investment. Business expense reduction- Businesses can deduct up to $40,000, depending on the year purchased, of the cost of business equipment, furnishings, and fixtures as well as other depreciable personal property used in the IAMBRA as a business expense. The remaining value of the purchased item can be depreciated in following years under generally accepted accounting practices. Net Operating Loss Carryover- Businesses showing a net operating loss may be able to carry that loss forward for up to 15 years to reduce future tax liability. For taxable years beginning in 2010 and 2011, California suspended the net operating loss carryovers deduction. Taxpayers may continue to compute and carryover NOLs during the suspension period. Voucher Application Costs- In order for businesses to receive a Hiring Credit for qualified employees, they must submit a Voucher Application and receive a Voucher Certificate. The City reviews the application and, if approved, issues the certificate. Agenda Report - LAMBRA Hiring Tax Credit Processing Fee October 18, 2011 Page 3 The voucher certifies the business employs an individual who qualifies the business for a Hiring Tax Credit. Staff has surveyed other Enterprise Zones and LAMBRAs (State Designated Economic Development Areas) to ascertain the fee they charge businesses for processing vouchers. The fee ranges from $0 to $109. Tustin staff has calculated that the staff time required to review the Voucher Application and approve the Voucher Certificate will cost the City, on average, $75 to process the paperwork. In addition, HCD charges the City a $15 pass-thru fee for every application submitted. As a result, it is recommended that the City charge $90 as noted below based on costs incurred for every Voucher Application where an applicant requests a standard review time of 25 working days from submittal. .. -. :- . . Admin. Secrets $23.40 $7.02 $2.81 $33.23 20 minutes $11.08 $3.76 Mans ement Anal st $31.34 $9.40 $44.50 30 minutes $22.25 Red. Pro ram Mana er $57.63 $17.29 $6.92 $81.84 15 minutes $20.46 Assistant City Mgr./ $10.44 Assistant Exec. Director $87.01 $26.10 $123.55 10 minutes $20.59 Total Salary Cost per Voucher Application (Rounded to nearest tenth) $75 HCD Cost per Voucher Application $15 .-. -. ~ .. .. •~ An additional fee of $50 will be charged if an applicant requests expedited review of the Voucher Application within 10 working days from submittal. Other Enterprise and LAMBRA Zones that offered expedited services generally charged $40 to $50 and their review time was within 15 days. In the event there is a returned check, the City of Tustin Finance Department will also charge a returned check fee of $55. Businesses that may be eligible for the tax incentives are currently those located at "The District", the only commercial development within Tustin Legacy at this time. To date, interest in the LAMBRA Hiring Tax Credit has been generated by information listed on State and City of Tustin websites and from Tax Consultants who provide a service to Agenda Report - LAMBRA Hiring Tax Credit Processing Fee October 18, 2011 Page 4 businesses by collecting the required LAMBRA information and preparing and submitting an application to the City. While there have been no applications submitted to date, recent LAMBRA inquiries indicate the City should be receiving requests before the end of the year. Approval of the fee will allow the City to recover costs while processing requests and issuing voucher certificates. Staff will increase efforts to inform existing and future businesses of the LAMBRA tax incentives by advertising the LAMBRA program on the Tustin Legacy website and by mailing marketing materials to each business to be located at Tustin Legacy. Christine A. Shingleton Assistant City Manag RESOLUTION NO. 11-73 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN ADOPTING THE LAMBRA HIRING TAX CREDIT VOUCHER APPLICATION PROCESSING FEE AND INCORPORATING THE FEE INTO RESOLUTIONNO. 08-60, THE COMPREHENSIVE SCHEDULE OF FEES The City Council of the City of Tustin does hereby resolve as follows: I. The City Council hereby finds, determines and declares as follows: A. In 2001, the State designated Tustin Legacy as a Local Agency Military Base Recovery Area (LAMBRA) Zone. The Tustin Legacy LAMBRA provides significant state tax advantages to businesses locating in the Tustin Legacy LAMBRA. Businesses can receive tax incentives for hiring qualified employees, credit for sales or use tax paid or incurred on qualified property, business expense deduction for the cost of qualified property and a net operating loss carryover. B. The Office of the City Manager is responsible for administering the Tustin Legacy LAMBRA program. Businesses seeking to take advantage of the tax incentive for hiring qualified employees must submit a Hiring Tax Credit Voucher Application to the Office and the Office reviews the application and, if eligible, issues a Hiring Tax Credit Voucher Certificate. C. The Office of the City Manager has analyzed the cost to administer the program and the proposed fee does not exceed the estimated cost of service for which the fee is being levied. The Office calculates the staff time required to review the application and approve the certificate will cost the City, on average, $75 to process the paperwork. In addition, the California Department of Housing and Community Development charges the City $15 for every application submitted. As a result, the total charge for the fee will be $90 for each application processed. The review time will be within 25 working days from submittal. An additional fee of $30 will be charged to expedite reviewing the Voucher Application within 10 working days from submittal. D. On September 2, 2008, the City Council adopted Resolution No. 08-60, amending the City-wide Comprehensive Schedule of Fees. E. It is not the Council’s intention to repeal previously adopted fees but to incorporate the LAMBRA Hiring Tax Credit Voucher Application fee into Resolution No. 08-60’s Comprehensive Schedule of Fees. _________________ Resolution 11-73 Page 1 of 3 F. A Public Hearing regarding the LAMBRA Hiring Tax Credit Voucher Application Fee was held on October 18, 2011 in accordance with Section 66018 of the California Government Code, at which oral or written presentations could be made, as part of the regularly scheduled meeting and a Notice of the Public Hearing was published pursuant to Government Code Section 6062(a). II. The City Council hereby does resolve as follows: A. The LAMBRA Hiring Tax Credit Voucher Application fee is adopted and incorporated into Resolution No. 08-60’s Comprehensive Schedule of Fees and shall be levied until further resolution of this Council. B. This Resolution shall be effective immediately upon adoption and the City Clerk shall certify to the adoption of this Resolution. PASSED AND ADOPTED at a regular meeting of the City Council of the City of Tustin held on the 18th day of October, 2011. _________________________________________ JERRY AMANTE Mayor _____________________________ PAMELA STOKER City Clerk ________________ Resolution 11-73 Page 2 of 3 Resolution No. 11-73 Page 3 STATE OF CALIFORNIA ) ORANGE COUNTY ) CITY OF TUSTIN ) I, Pamela Stoker, City Clerk and ex-officio Clerk of the City Council of the City of Tustin, California, do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and forgoing Resolution No. 11-73 was duly passed and adopted at a regular meeting of the City Council of the City of Tustin, held on October 18, 2011, by the following vote: BOARDMEMBER AYES: BOARDMEMBER NOES: BOARDMEMBER ABSTAINED: BOARDMEMBER ABSENT: ________________________ PAMELA STOKER CITY CLERK _______________ Resolution 11-73 Page 3 of 3