BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                    AB 50|
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                                 THIRD READING


          Bill No:  AB 50
          Author:   Hill (D)
          Amended:  3/17/11 in Senate
          Vote:     21

           
           SENATE GOVERNANCE & FINANCE COMMITTEE  :  7-0, 3/16/11
          AYES:  Wolk, DeSaulnier, Fuller, Hancock, Hernandez, La 
            Malfa, Liu
          NO VOTE RECORDED:  Huff, Kehoe

           SENATE APPROPRIATIONS COMMITTEE  :  9-0, 3/17/11
          AYES:  Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley, 
            Price, Runner, Steinberg

           ASSEMBLY FLOOR  :  75-0, 3/3/11 - See last page for vote


           SUBJECT  :    San Bruno Gas Explosion Tax Exclusion

           SOURCE  :     Author


           DIGEST  :    This bill deems that the San Bruno explosion to 
          be a qualified disaster for purposes of disaster payments, 
          thereby allowing taxpayers to exclude disaster relief 
          payments from state income.  This bill also provides 
          similar treatment for involuntary conversions resulting 
          from a disaster.

           ANALYSIS  :    Existing federal and state law provides that 
          income for purposes of taxation includes all income derived 
          from any source, such as wages, dividends, interest, 
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          capital gains, rents, and royalties, unless specifically 
          excluded, such as insurance payments.  Federal tax law 
          (Section 139 of the Internal Revenue Code ÝIRC]), to which 
          state law conforms, provides for an exclusion from income 
          for disaster relief compensation made in connection with a 
          federally-declared disaster.  This exclusion applies to 
          payments for personal, family, living, or funeral expenses, 
          as well as payments for expenses related to rebuilding or 
          rehabilitating a personal residence and its contents, that 
          are not compensated by insurance.  Federal law also 
          provides favorable tax for capital gains associated with 
          the involuntary conversion of a principle residence 
          property that was destroyed through no fault of the owner.  
          In a federally-declared disaster, federal and state law 
          excludes the first $250,000 (single) or $500,000 (joint) in 
          capital gains related to involuntary conversions from 
          income.  The taxpayer may also defer the tax on the capital 
          gain above those thresholds by purchasing a replacement 
          property within specified time periods (generally two years 
          after the year in which the gain is realized.)

          This bill provides favorable tax treatment for certain 
          payments made to persons affected by the San Bruno natural 
          gas transmission line explosion and subsequent fires on 
          September 9, 2010.  Specifically, this bill provides the 
          following state tax benefits, as if the federal government 
          had declared the San Bruno incident as a disaster:

          1. Excludes qualified payments provided to individuals 
             affected by the explosion from income for state income 
             tax purposes.  Only those payments for qualified 
             expenses that are not covered by insurance compensation 
             would be excluded from income.

          2. Allows for deferral of capital gains related to the 
             "involuntary conversion" of a principal residence that 
             was partially or totally destroyed by the explosion and 
             fire.

           Comments  

          On September 9, 2010, a natural gas transmission line owned 
          and operated by Pacific Gas & Electric Company (PG&E) 
          exploded in San Bruno.  According to National 







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          Transportation Safety Board investigative reports, the 
          explosion and resulting fires killed eight people and 
          destroyed 37 homes.  Acting Governor Abel Maldonado 
          proclaimed a state of emergency for the explosion site as a 
          state disaster, but the federal government did not declare 
          the explosion and fire to be a federal disaster, which 
          would have automatically triggered the exclusion of 
          qualified disaster relief payments under both state and 
          federal law.  In response, the Legislature approved the 
          traditional three changes to tax law when disaster strikes: 
           a state backfill for local property tax revenue losses 
          attributable to downward reassessment of disaster-affected 
          property, a prohibition on the assessor revoking the 
          homeowners' exemption for disaster-affected property, and 
          enhanced disaster losses for affected taxpayers (AB 11 X6 
          (Hall), Chapter 2, Statutes of 2010).  Absent the federal 
          declaration, these payments are taxable under both state 
          and federal law.

          This bill treats specified disaster relief payments as a 
          result of the San Bruno explosion and fire as if they were 
          "qualified disaster relief payments" under a federal 
          disaster declaration.  As such, this bill allows taxpayers 
          to exclude qualified payments from income for state income 
          tax purposes.  This bill also provides similar treatment 
          for involuntary conversions resulting from the disaster.  

          Following the San Bruno explosion and fire, PG&E set up a 
          $100 million "Rebuild San Bruno Fund" to compensate 
          affected individuals with payments for costs and losses not 
          reimbursed by insurance, provide cash payments for 
          immediate financial assistance, and reimbursements to San 
          Bruno for disaster response and infrastructure costs.  In 
          addition, individual and corporate donors sent nearly 
          $395,000 to the City of San Bruno to assist victims with 
          recovery and rebuilding efforts, and the American Red Cross 
          distributed $440,507 to meet personal living expenses, 
          housing needs, furnishings, health needs, lost wage 
          replacement, and mental health support.  Only those 
          payments that meet the criteria as "qualified disaster 
          payments" under IRC Section 139 would be excluded from 
          income for purposes of this bill.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   







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          Local:  No

          According to the Senate Appropriations Committee:

                          Fiscal Impact (in thousands)

             Major Provisions                2011-12     2012-13    
             2013-14               Fund  

            Tax revenue decrease          $300      $6        
            General

           SUPPORT  :   (Verified  3/18/11)

          American Federation of State, County and Municipal 
          Employees, AFL-CIO
          Pacific Gas & Electric Company



           ASSEMBLY FLOOR  : 
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Donnelly, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani, 
            Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman, 
            Harkey, Hayashi, Roger Hernández, Hill, Huber, Hueso, 
            Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie 
            Lowenthal, Ma, Mansoor, Mendoza, Miller, Monning, 
            Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. 
            Manuel Pérez, Portantino, Silva, Skinner, Solorio, 
            Swanson, Torres, Valadao, Wagner, Wieckowski, Williams, 
            Yamada, John A. Pérez
          NO VOTE RECORDED:  Fletcher, Hall, Mitchell, Smyth, Vacancy


          AGB:mw  3/18/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****
          








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