BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1938
                                                                  Page  1

          Date of Hearing:  May 12, 2008

                               Charles Calderon, Chair

                AB 1938 (Plescia) - As Introduced:  February 12, 2008


                                    FOR VOTE ONLY

          Majority vote.  Tax levy.  Fiscal committee.

           SUBJECT  :  Personal income taxes:  credits:  spaying or neutering  

           SUMMARY  :  Allows a personal income tax credit for costs paid to  
          spay or neuter a cat or dog.  Specifically,  this bill  :

          1)Provides, for each taxable year beginning on or after January  
            1, 2008, a credit shall be allowed against a taxpayer's net  
            tax in an amount equal to 25% of the amount paid or incurred  
            by a taxpayer for "qualified costs" to spay or neuter a cat or  

          2)Provides that the credit shall be limited to the "qualified  
            costs" paid or incurred by a taxpayer for no more than two  
            spaying or neutering operations per calendar year.

          3)Defines "qualified costs" as both of the following:

             a)   The actual costs of the spaying or neutering operation;  

             b)   The actual costs of any followup care associated with  
               the spaying or neutering operation. 

          4)Allows any unused credit to be carried over until exhausted. 

          5)Takes immediate effect as a tax levy. 

           EXISTING LAW  provides various tax credits designed to encourage  
          socially beneficial behavior or to provide relief to taxpayers  
          who incur specified expenses.  


                                                                  AB 1938
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           FISCAL EFFECT  :  The Franchise Tax Board (FTB) estimates that  
          this bill would reduce state revenues by $2 million per year. 

           Proposition 98 Fiscal Effect  :  Committee staff estimates that  
          this bill would reduce K-14 funding by $800,000 in each of the  
          next three fiscal years.  

           COMMENTS  :

          1)The author states that this bill, "encourages people to spay  
            and neuter their pets by authorizing an annual tax credit  
            equal to 25% of the aggregate amount paid."  Furthermore, the  
            author states that this bill would alleviate the increasing  
            problem of abandoned cats and dogs in the State of California.  

          2)Proponents state, "This legislation would provide much-needed  
            incentives for Californians to spay or neuter their dogs and  
            cats, which would help reduce the number of unwanted pets and  
            therefore reduce costs to local animal shelters.  Recognizing  
            that spay/neuter costs can be significant for many pet owners,  
            we believe that providing some monetary relief from those  
            costs is entirely appropriate.  It should be noted that,  
            rather than creating new regulations which typically fail to  
            target problem breeders or create unintended consequences, AB  
            1938 would appropriately encourage pet owners to be  
            responsible in ensuring that their dogs or cats do not  
            contribute to the pet overpopulation problem." 

          3)Opponents state, "This bill would authorize a tax credit in an  
            amount equal to 25% of the aggregate amount paid or incurred  
            by a taxpayer for specified costs associated with spaying or  
            neutering a cat or dog, which would, in effect, result in an  
            expenditure and subsequent revenue loss at the state and local  

          4)FTB notes that this bill:

             a)   Limits the credit to the spaying or neutering costs for  
               up to two operations per calendar year.  Thus, a couple  
               that files a joint tax return may claim this credit for up  
               to four operations - two per taxpayer.  The author may wish  
               to amend this bill to clarify whether the credit should be  
               limited to two operations per tax return, or per taxpayer. 


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             b)   Provides that "qualified costs" would include costs for  
               "followup care" associated with the spay or neuter  
               operation.  The term "followup care", however, is not  
               defined.  To eliminate confusion and reduce taxpayer  
               disputes, the author may wish to clarify this term.  

             c)   Would allow taxpayers in certain circumstances to claim  
               multiple tax benefits for the same item of expense.  To  
               eliminate this concern, this bill could be amended to  
               specify that the credit allowed under this section would be  
               taken in lieu of any other credit or deduction allowed for  
               the same expenses.  

          5)Committee staff notes:

             a)   Because this credit is not limited to individuals  
               earning a specified amount, it would be available to  
               taxpayers who require no financial incentive to spay or  
               neuter their pets. 

             b)   This bill does not require the spaying or neutering  
               operation to occur in California.  As such, a pet owner  
               could offset his/her California source income by taking a  
               credit for a pet operation done outside the state.

             c)   This bill would apply to taxable years beginning on or  
               after January 1, 2008.  Thus, this bill would allow certain  
               taxpayers to take a credit for pet operations undertaken  
               before this bill's enactment.  The author may wish to amend  
               the bill's operative date to bring the bill in line with  
               the stated intent of incentivizing future conduct. 

             d)   Many local governments already provide subsidized spay  
               and neutering services.  For example, the City of  
               Sacramento provides free spay and neuter clinics for the  
               pets of low-income residents.

             e)   This bill lacks a sunset date to allow periodic review  
               of this tax expenditure in the future. 

             f)   This bill does not limit the number of years for the  
               carryover period.  As such, FTB would be required to retain  
               the carryover on the tax forms indefinitely.  Recent  
               credits have been enacted with a carryover period  
               limitation because credits are typically exhausted within  


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               eight years of being earned. 

             g)   SB 430 (Vincent), introduced during the 2001-02  
               Legislative Session, would have provided a credit for  
               spaying or neutering a cat or dog purchased or adopted by  
               the taxpayer.  SB 430 failed to pass out of the Senate  
               Revenue and Taxation Committee.  


          Animal Switchboard
          The California Outdoor Heritage Alliance
          The California Veterinary Medical Association
          The League of Humane Voters 

          American Federation of State, County and Municipal Employees,  
          California Professional Firefighters
          California Tax Reform Association
          Analysis Prepared by  :  M. David Ruff / REV. & TAX. / (916)