BILL ANALYSIS
AB 1912
Page 1
Date of Hearing: May 12, 2008
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
AB 1912 (Plescia) - As Introduced: February 8, 2008
SUSPENSE
FOR VOTE ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income tax: credit: wildfire risk reduction
improvement
SUMMARY : Allows a tax credit for the costs paid or incurred by
a taxpayer for the purchase and installation of any wildfire
risk reduction improvement installed on the taxpayer's property.
Specifically, this bill :
1)Allows, under either the Personal Income Tax (PIT) Law or the
Corporation Tax (CT) Law, a credit in an amount equal to 15%
of the cost paid or incurred by a taxpayer for the purchase
and installation of any wildfire risk reduction improvement
installed on existing property in this state.
2)Defines the term "wildfire risk reduction improvement" as a
modification to existing property that reduces the
vulnerability to a wildfire. That term includes all of the
following improvements:
a) Replacement of less fire-resistive materials with
fire-resistive or noncombustible roofing material;
b) Siding or walls;
c) Decking materials;
d) Windows;
e) Boxed eaves;
f) Attic vents; and,
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g) Other modifications that reduce or remove the
opportunity for wind blown embers to penetrate into
vulnerable areas of a structure.
3)Specifies that no credit is allowed to a taxpayer unless the
wildfire risk reduction improvement is actually used for
purposes of reducing the risk of wildfires on the taxpayer's
property.
4)Prohibits any credit or deduction for any cost for which a
credit is allowed by this bill.
5)Requires a reduction of the basis of the wildfire risk
reduction improvement by the amount allowed as the credit.
6)Allows a taxpayer that is a partnership or an "S" corporation
to claim the credit for the cost of the wildfire risk
reduction improvement and to pass the credit to its partners
or shareholders, whichever is applicable.
7)Allows a carryover of the unused credits for eight taxable
years.
8)Applies to taxable years beginning on or after January 1,
2009, and before January 1, 2013.
9)Takes effect immediately as a tax levy.
EXISTING LAW :
1)Provides various tax credits designed to provide tax relief
for taxpayers that incur certain expenses, to influence
business practices and decisions, or to achieve social goals.
2)Requires any person who owns, leases, controls, operates, or
maintains a home, building, or structure in mountainous,
forest-covered, bush-covered, or grass-covered land within
state fire prevention and suppression responsibility areas and
very high fire hazard severity zones to maintain a defensible
space of 100 feet around the structure by removing all
flammable vegetation or other combustible growth.
FISCAL EFFECT : The Franchise Tax Board (FTB) staff estimates
that this bill will result in a revenue loss of $44 million in
the fiscal year (FY) 2008-09, $128 million in FY 2009-10, and
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$173 million in FY 2010-11.
Proposition 98 Fiscal Effect : Committee staff estimates that
this bill will result in a reduction of K-14 funding of $17.6
million in FY 2008-09, $51.2 million in FY 2009-10, and $69.2
million in FY 2010-11.
COMMENTS :
1)The author states that, "In 2007, my district took a huge hit
with the California wildfires. This is why I am proposing AB
1912. This is a net tax credit of up to 15% for those who
make improvements to their homes under the guidelines of
"wildfire risk reduction improvements." This is a credit
directed in reducing future damages and cost that the state
incurs during wildfire."
2)The proponents state that this bill raises fire safety
awareness and encourages residents and business owners to
implement fire safety plans and structural improvements. The
proponents also believe that it is important to provide
homeowners with an incentive to protect their homes with
wildfire risk reduction improvements because defensible space
"can only do part of the job". Some proponents state that
they are personally aware of several homes that burned during
a wildfire even though those homes had plenty of defensible
space.
3)The opponents contend that this bill would provide homeowners
with a tax break for taking basic measures to protect their
home. The opponents state homeowners already pay for fire
insurance and, in some areas, pay fire district assessment
fees, which should provide homeowners with the appropriate
level of protection. The opponents also argue that this bill
asks the state to pay for what a responsible homeowner should
do on their own or make sure is done by their local fire
district. Finally, the opponents state that this bill would
result in an expenditure and subsequent revenue loss at the
state and local levels, and that it would be far more
efficient to redirect the anticipated revenue loss to fund
programs that aid in augmenting our state's overall fire
protection capability.
4)Committee staff notes that this bill allows a credit for the
cost paid or incurred by a taxpayer for the purchase and
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installation of any wildfire risk reduction improvement
installed on existing property in this state. This bill does
not specify whether existing property must be owned by the
taxpayer claiming the credit. However, it limits the
application of this credit only to those improvements that are
actually used for purposes of reducing the risk of wildfires
on the taxpayer's property. Committee staff suggests that
this bill be amended to clarify that a wildfire risk reduction
improvement must be installed and used for purposes of
reducing the risk of wildfires on the taxpayer's existing
property in this state. In addition, Committee staff suggests
that this bill be amended to define the term "existing
property" and the phrase "used for purposes of reducing the
risk of wildfires".
5)Committee staff also notes that it is unclear whether this
bill applies to any property located in this state or only to
property that is located in fire prevention and suppression
responsibility areas and very high fire-hazard severity zones.
6)FTB also notes several implementation concerns. Specifically,
this bill:
a) Uses undefined terms, such as, "sponsored financial
incentives", "fire-resistive materials", "actual use", and
"structure". The definitional impression would lead to
disputes with taxpayers and would complicate the
administration of this credit.
b) Specifies that a taxpayer can receive the credit only if
the modifications made to the existing property reduce the
vulnerability of fire damage. FTB staff lacks expertise in
determining which improvements are home improvements
instead of improvements that actually reduce the risk of
fire damage. FTB staff suggests that another state agency
be designated by the author to certify which wildfire risk
reduction improvements qualify as improvements that reduce
the vulnerability of fire damage.
c) FTB staff also suggests the following amendments to
correct technical errors:
AMENDMENT 1
AB 1912
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On page 2, line 25, 26 and 30, strike "passthrough" and add:
pass-through
AMENDMENT 2
On page 3, line 3, strike "\tax" and add:
"tax"
AMENDMENT 3
On page 3, line 9, strike "(1)"
AMENDMENT 4
On page 3, line 25, 26, and 30 strike "passthrough" and
add:
pass-through
7)Committee staff notes that AB 424 (Gaines) was introduced in
the 2007 Legislative Session to provide a tax credit for 25%
of the costs paid or incurred by a taxpayer to create a
defensible space. AB 424 failed passage in the Senate Revenue
and Taxation Committee.
Also, AB 1853 (Anderson), introduced in the current 2008
legislative session, allows a deduction for the costs paid or
incurred by a qualified taxpayer to create a defensible space
within 100 feet of the structural components of a dwelling.
AB 1853 was heard in this Committee on April 28, 2008 and was
placed on the committee's suspense file.
REGISTERED SUPPORT / OPPOSITION :
Support
County of San Diego
2 individuals
Opposition
California Professional Firefighters
The American Federation of State, County and Municipal
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Employees, AFL-CIO
California Tax Reform Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098