BILL ANALYSIS SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW Denise Moreno Ducheny, Chair Bill No: SB 71 Author: Padilla As Amended: March 22, 2010 Consultant: Keely Martin Bosler Fiscal: Yes Hearing Date: March 22, 2010 Subject: Sales and use tax exemption: qualified projects. Summary: This bill authorizes the California Alternative Energy and Advanced Transportation Financing Authority (CAEATFA) to approve a sales and use tax exemption on tangible personal property utilized for the design, manufacture, production, or assembly of advanced transportation technologies or alternative energy source products, components or system. The sales and use tax exemption would sunset on January 1, 2021. Background: The CAEATFA is a state authority at the State Treasurer's Office. The CAEATFA was created for the purpose of promoting the development and utilization of alternative energy sources and the development and commercialization of advanced transportation technologies. Existing law authorizes the Authority to finance projects utilizing alternative energy sources and advanced transportation technologies using lease revenue bonds. Existing law exempts CAEATFA from paying the sales and use tax on tangible personal property constituting a project as defined by Public Resources Code 26003. The CAEATFA consists of five members: the Director of Finance, the Chairman of the California Energy Commission, the President of the Public Utilities Commission, the Controller, and the Treasurer. Proposed Law: This bill creates a new definition of a CAEATFA "project" and authorizes CAEATFA to approve a project for financial assistance in the form of the sales and use tax exemption under CAEATFA's existing authority. This bill defines "project" for the purposes of the sales -1- and use tax exemption as any tangible personal property that is utilized for the design, manufacture, production, or assembly of advanced transportation technologies or alternative source products, components, or system. This bill specifies that alternative source includes advanced electric distributive generation technology or energy storage technologies and their component materials. This bill would sunset the sales and use tax exemption for the new definition of "project" in ten years on January 1, 2021. This bill would require the Authority to provide a 20-day notice to the Legislature prior to making additional approvals of sales and use tax exemption once the exemptions exceed $100 million annually. This bill directs CAEATFA to evaluate "project" applications for the sales and use tax exemption based upon certain criteria that encourages manufacturing facilities and jobs located in California, and the reduction of greenhouse gases beyond the reduction required by federal or state law or regulation. The bill requires the Legislative Analyst's Office to report to the Joint Legislative Budget Committee on the effectiveness of this program prior to the sunset. Fiscal Effect: This bill is not likely to have a significant impact on revenues in the 2010-11 budget year. The bill is intended to attract new investments in California by green technology companies that would not occur in the absence of this tax incentive. The resulting revenue loss, therefore, would not be scored against the baseline sales tax projections used by the Department of Finance. Additionally, any sales and use tax revenue loss could be offset by an unknown amount of corporate tax revenue and income tax revenues, to the extent that this credit provides sufficient incentive for companies to establish manufacturing facilities and create new jobs in California that otherwise would not have been established in the State. Support: None available. -2- Opposed: None available. Comments: Sales and use tax exemptions are provided in existing law for various purposes including providing an incentive for certain economic investments in California. This tax exemption is directed to provide incentives to manufacturers of advanced transportation technologies and alternative energy source products. The Legislature approved and the Governor signed Chapter 488, Statutes of 2006 (AB 32, Pavley), which mandates that California reduce its greenhouse gas emissions to 1990 levels by 2020. The development of alternative technologies will ultimately help the State comply with these laws and regulations. -3-