BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1178 (Portantino)
Hearing Date: 08/12/2010 Amended: 08/05/2010
As proposed to be amended
Consultant: Mark McKenzie Policy Vote: Rev&Tax 3-1
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BILL SUMMARY: AB 1178 would make numerous changes to state tax
laws to conform to recent federal tax law changes enacted by
recent health care reform legislation (the Patient Protection
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010).
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Grant exclusion: therapeutic $1,100 $1,400
$800General
discovery project credits
Exclusion of student loan $600 $350
$350General
forgiveness: health profs.
Adoption assistance programs $2,700 $2,200
$800General
Benefits for adult children $15,000 $16,000
$19,000General
Archer MSA distributions ($150) ($300)
($300)General
Non-deductability of fee on ($3,800) ($12,000)
($14,000) General
pharmaceutical companies
Hospital insurance tax ($2,400) General
exclusion
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Total Net revenue loss $15,450 $7,650 $4,250 General
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STAFF COMMENTS: SUSPENSE FILE.
The general purpose of conforming to numerous changes in federal
law is to simplify both the preparation of California income tax
returns and the administration of state income tax laws.
Conformity changes can also have significant impacts on state
revenues, and decisions to conform, conform with modifications,
or non-conform are often deliberately designed to result in a
net revenue loss or to achieve relative revenue neutrality in
order to avoid a 2/3 vote of the Legislature as a tax increase.
In March of 2010, the U.S. Congress enacted, and President Obama
signed, comprehensive health care reform legislation: The
Patient Protection and Affordable Care Act (PPACA), (Public Law
111-148, March 23, 2010); and The Health Care and Education
Reconciliation Act of 2010 (HCERA), (Public Law 111-152, March
30, 2010).
Page 2
AB 1178 (Portantino)
AB 1178 would conform to the following 14 provisions of the
PPACA and the HCERA:
(PPACA 9023) Exclusion of grants provided in lieu of a
tax credit for a therapeutic discovery project;
(PPACA 10908) Exclusion for assistance provided to
participants in state student loan repayment programs for
certain health professionals;
(PPACA 10909) Increase in the exclusion of
employer-provided adoption assistance;
(PPACA 9021) Exclusion of health benefits provided by
Indian tribal governments;
(HCERA 1004) Exclusion of income for medical benefits
for adult children under the age of 27;
(HCERA 1409) Codification of the economic substance
doctrine;
(PPACA 9003) Revisions to the definition of qualified
medicine (prescribed drugs and insulin) for a Health
Reimbursement Arrangement (HRA), a Flexible Spending
Arrangement (FSA), or an Archer Medical Savings Account
(MSA);
(PPACA 9004) Increase to the additional tax on
distributions from Archer MSAs not used for qualified
medical expenses to 12.5 percent.;
(PPACA 9008) Denial of a deduction of the annual fee on
branded prescription pharmaceutical manufacturers and
importers;
(PPACA 9022) Nondiscrimination safe harbors for small
businesses establishing cafeteria plans;
(PPACA 9005, 10902 & HCERA 1403) Limitation on the
dollar amount of flexible spending arrangement (FSA)
contributions under cafeteria plans;
(PPACA 9015) Denial of a deduction of the additional
hospital insurance tax imposed on employees;
(PPACA 1515) Allows small businesses to have exchange
options in their cafeteria plans;
(PPACA 10108) Exclusion of the value of free choice
vouchers from income.
Staff notes that full descriptions of each of the conformity
items in this bill are included in the Franchise Tax Board's
(FTB's) report titled "Summary of March, 2010 Federal Health
Care Acts."
Staff notes that this bill was approved by the Senate Revenue
and Taxation Committee on August 11, 2010. The author agreed to
amendments to delete provisions that would: (1) conform to
federal tax treatment of Health Savings Accounts, and (2)
increase the adjusted gross income threshold for deducting
medical expenses. Due to legislative deadlines, the author
committed to taking the amendments in this Committee.