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Oops! Assembly memo says tax-cut bill actually sunsets existing incentives

In a memo to the Senate sent on Friday, Assembly Speaker Fabian Núñez and Assembly Republican leader Mike Villines reveal that the centerpiece of the tax-cut plan passed in the wee hours of the morning was miswritten and the legislation, Senate Bill 98, "inadvertently" applied a sunset clause to "existing research and development provisions of California law."

The tax cut proposal had already received a cold shoulder in the Senate on Friday, where Senate President Pro Tem Don Perata said the bill looked as if it had been "written by chimpanzees."

In a letter sent to Núñez late Thursday night, Perata urged the speaker not to include tax cuts for businesses in the budget.

"We have surrendered $185 (million) in teacher tax credits to balance the budget!!!" Perata wrote. "How could you now throw them over for Hollywood movie moguls and multi-national corporations???"

Specifically, the tax incentives, according to Villines' office, will promote research and development, keep more of the film industry in Hollywood, and create tax exemptions for the purchase of jet fuel. The total value was estimated to be as high as $500 million by Perata.

But the section covering research and development tax credits in SB 98 was subject to a "drafting error," according to the memo obtained by Capitol Alert.

"One particular area of emphasis in Senate Bill 98 is the area of research and development tax credits, and in particular conforming California's tax law to the federal Alternative Incremental Credit (AIC). SB 98 provides a full five-year conformity to this enhanced federal credit," Nunez and Villines wrote. "However, in the final draft of Senate Bill 98, a technical drafting error inadvertently applied this five-year sunset to the existing research and development provisions of California law, and not the specific change to the AIC."

"All parties to the debate, discussion and drafting of SB 98 agree that this was not the intended result," the memo continues.

Núñez and Villines, however, hold firm that the Assembly has adjourned for summer recess and will not return until mid-August.

"As Speaker and Assembly Republican Leader, respectively, we are pleased to have been able to come to agreement on a significant tax incentive and economic stimulus package. Upon our return from the Summer Recess, we will take the necessary steps to correct any concerns or inadvertent consequences due to this drafting error," the memo concludes.

Meanwhile, the Senate, in an initial vote, has rejected the budget passed by the Assembly in a party-line vote, with Republicans opposed.

Below is the full memo:

TO: Interested Parties

FROM: Assembly Speaker Fabian Nunez

Assembly Republican Leader Mike Villines

DATE: July 20, 2007

RE: Drafting Error in Senate Bill 98 Related to Research and Development Credit

We write both to bring to your attention an inadvertent drafting error by Legislative Counsel in Senate Bill 98, which passed off the Assembly Floor last night with strong bipartisan support, and to express our mutual understanding to address this drafting error in August.

As you know, SB 98 contains numerous provisions, all of which provide enhanced taxpayer incentives to bring new jobs and capital investment to California. One particular area of emphasis in Senate Bill 98 is the area of research and development tax credits, and in particular conforming California's tax law to the federal Alternative Incremental Credit (AIC). SB 98 provides a full five-year conformity to this enhanced federal credit.

However, in the final draft of Senate Bill 98, a technical drafting error inadvertently applied this five-year sunset to the existing research and development provisions of California law, and not the specific change to the AIC. All parties to the debate, discussion and drafting of SB 98 agree that this was not the intended result.

As Speaker and Assembly Republican Leader, respectively, we are pleased to have been able to come to agreement on a significant tax incentive and economic stimulus package. Upon our return from the Summer Recess, we will take the necessary steps to correct any concerns or inadvertent consequences due to this drafting error.

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