SAN FRANCISCO — Addressing California’s high 12 percent unemployment rate that’s curbing economic growth, Gov. Jerry Brown on Thursday proposed a plan to create more jobs through tax incentives, which could benefit apparel manufacturers and small retailers.
To pay for the $1 billion in incentives, Brown at the same time has asked to change the way out-of-state companies doing business in California are taxed, which, depending on the company, could increase the amount they now pay.
The governor’s plan, which must be approved by the California legislature, is focused on small businesses of all kinds, as well as manufacturers of any size and would:
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• Increase the tax credit to $4,000 from $3,000 for new hires for businesses with up to 50 workers. Previously, the tax credit covered companies with up to 20 workers.
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• Provide a sales-tax break for new manufacturing equipment. New companies would be excluded from paying the entire 3.9375 percent of the state’s portion of sales tax, while existing companies would get a 3 percent break.
Ilse Metchek, president of the California Fashion Association, said the manufacturing tax credit would benefit the state apparel industry. “I am very encouraged,” said Metchek.
While small retailers and apparel brands hiring designers or support staff might benefit from the small-business tax break, Metchek said the benefit is less consequential for factories because of how employees move among workplaces with the ebb and flow of work.
In July, there were 61,500 workers employed in the California apparel industry, up from 61,200 from a year earlier, on an nonseasonally adjusted basis. In contrast, in July 2001, the sector had 104,300 workers.
Statewide, the unemployment rate in July increased to 12 percent against June’s 11.8 percent. The nation’s jobless rate in July was 9.1 percent.
In the Nineties and early Aughts, there was a similar manufacturing tax break, although it was tied to corporate taxes and covered only companies that were profitable, said Jay Chamberlain, chief of financial research with the Department of Finance. Additionally, under the governor’s plan, “you get the benefit as soon as you go out and get the equipment.”
Regarding the governor’s proposal for changing how out-of-state companies doing business in California are taxed, the plan would make all corporations figure their taxes according to the portion of sales earned in the state. This is how in-state companies are now taxed. However, companies based outside of California have had the option to tally their taxes using either sales in the state, or a formula based on size of payroll, property and state sales, which could result in lower taxes paid.