BILL ANALYSIS Ó
AJR 19
Page 1
Date of Hearing: August 16, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Felipe Fuentes, Chair
AJR 19 (Hall) - As Amended: August 14, 2012
SUBJECT : Food donation: federal tax deduction: non-C
corporations.
SUMMARY : Urges the United States (U.S.) Congress to permanently
extend and expand the federal charitable tax deduction for
contributions of food inventory by non-corporate taxpayers.
Specifically, this bill :
1)States all of the following:
a) The most recent food insecurity data released by the
U.S. Department of Agriculture in 2011 shows that nearly 49
million people are at risk of hunger today, while billions
of pounds of food are wasted each year;
b) Since 1976, the U.S. Congress has permitted a federal
food donation tax deduction to corporate taxpayers that
donate food products to charities in need across the
country;
c) The tax deduction, which encouraged the donations of
excess food to charity, was temporarily expanded to
taxpayers that were non-C corporations, such as small
businesses and farmers in 2005, with two-year extensions
granted in 2006, 2008, and 2010;
d) The enhanced deduction that was available to non-C
corporations expired at the end of 2011 and is currently up
for permanent reauthorization in HR 3729 and S 166; and,
e) Permanent reauthorization of the deduction is needed to
maximize the potential donation opportunity.
2)Resolves that:
a) The Legislature respectfully urges the U.S. Congress to
enact HR 3729 or S 166 to permanently extend and expand the
federal charitable tax deduction for contributions of food
inventory.
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b) The Chief Clerk of the Assembly transmit copies of this
resolution to each Senator and Representative from
California in the U.S. Congress.
EXISTING FEDERAL LAW :
1)Allows a tax deduction for charitable contributions, subject
to certain limitations such as the type of taxpayer, the
property contributed, and the donee organization. The amount
of any deduction generally equals the fair market value of the
contributed property on the date of the contribution.
2)Allows an enhanced tax deduction for charitable contributions
of food inventory by "C" corporations, as specified.
3)Limits the application of the enhanced deduction to food that
qualifies as "apparently wholesome food," i.e. food intended
for human consumption that meets all quality and labeling
standards imposed by federal, state, and local laws and
regulations, as provided.
EXISTING STATE LAW:
1)Allows a deduction for ordinary and necessary expenses of a
trade or business.
2)Conforms generally, as of January 1, 2009, to the federal
rules relating to charitable contributions, but specifically
does not conform to the enhanced deduction for a contribution
of food inventory.
3)Provides a tax credit, for taxable years beginning on or after
January 1, 2012, and before January 1, 2017, to California
growers for the costs of fresh fruits or vegetables donated to
California food banks. The tax credit amount equals to 10% of
the costs that would otherwise be included in inventory costs,
as specified, with respect to the donation of fresh fruits or
fresh vegetables to food banks located in California.
FISCAL EFFECT : Unknown
COMMENTS :
1)The Author's Statement . The author states that, "Since 2006,
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the demand for food assistance at food banks across the
country has increased by 46 percent. According to 2011 data
by the United States Department of Agriculture, approximately
49 million Americans are at risk of hunger. In Los Angeles
County alone, 17% of residents or over 1.7 million people
struggle with food insecurity. Due to the continued economic
crisis, more families are expected to become dependent upon
food banks and other food assistance programs to provide for
themselves and their families.
"Since 1986, the federal government has provided organizations a
food donation tax deduction to encourage donations to food
banks and other hunger relief programs. This deduction
expired in 2011. Last year, the US House of Representatives
introduced HR 3729 to make the tax deduction permanent in
order to incentivize continued food donations to needy
families.
"Failure to approve HR 3729 law this year could put millions of
Americans at risk of hunger and food insecurity at a time when
demand for food assistance is reaching all-time highs.
"Assembly Joint Resolution No. 19 calls on Congress to extend
the Charitable Food Donation Deduction and pass the proposed
House Bill HR 3729 to make the tax deduction permanent.
"Extending the Charitable Food Donation Deduction would give
organizations an important incentive to donate surplus food to
the needy."
2)Arguments in Support . The proponents of this bill state that
the current economic climate "has intensified the needs of aid
agencies seeking to feed the nation's hungry." The proponents
argue that one successful approach to meet this need is to
redirect surplus wholesome food produced by restaurants,
universities, hospitals and food service companies to food
banks and hunger relief organizations. A permanent extension
of the federal tax deduction for food donations by
non-corporate taxpayers will encourage companies to donate
surplus food to non-profit organizations and will create "tax
code parity for non-C and C corporations." The permanent tax
deduction will help many franchisees that are not structured
as "C" corporations and therefore are currently not in the
position to take advantage of the deduction.
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3)Federal Tax Deduction for Charitable Contributions of Food
Inventory: Background . Under federal law, a tax deduction is
allowed to taxpayers for charitable contributions, subject to
certain limitations that depend on the type of taxpayer, the
property contributed, and the donee organization. The amount
of the deduction equals the fair market value of the
contributed property on the date of the contribution.
A "C" corporation may claim a charitable contribution deduction
but the amount of the deduction is generally limited to 10% of
the corporation's taxable income for the year. In the case of
a charitable contribution of inventory by a "C" corporation,
the deduction amount is further limited; it is required to be
reduced by one-half of the amount that would have been
ordinary income had the property been sold at its fair market
value of the date of the contribution. However, a special tax
benefit in the form of an enhanced tax deduction is provided
to a "C" corporation when it contributes food inventory to a
charitable organization. The enhanced deduction amount is
equal to the corporation's basis in the inventory (generally
its cost) plus one-half of the donated food's appreciated
value, with the limitation that the total deduction may not
exceed twice the donated food's original cost. The enhanced
deduction is available only for food that qualifies as
"apparently wholesome food" and was contributed to a qualified
charity or private operating foundation for use in the care of
the ill, the needy or infants. "Apparently wholesome food" is
defined as food intended for human consumption that meets all
quality and labeling standards imposed by federal, state, and
local laws and regulations, even if the food was not readily
marketable due to appearance, age, freshness, grade, size,
surplus, or other conditions.
Non-corporate taxpayers (taxpayers other than "C"
corporations) were temporarily eligible for this enhanced
deduction for contributions of food inventory made on or after
August 28, 2005 and before December 31, 2011. The deduction
amount was limited to 10% of the taxpayer's aggregate net
income for that tax year, but this limitation was suspended
for donations made by qualified farmers and ranchers after
October 3, 2008 and before January 1, 2009.
4)Charitable Contributions and California Law . California
conforms to the federal rules related to charitable
contributions as of the specified date of January 1, 2009, but
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it specifically does not conform to the enhanced deduction for
a contribution of food inventory. Thus, the deduction amount
under the Personal Income Tax Law is limited to the taxpayer's
basis in the inventory (generally, the taxpayer's costs). The
deduction for contributions of inventory for "C" corporations
(under the Corporation Tax Law) is limited to the taxpayer's
basis in the inventory and may not exceed 10% of the
corporation's net income. However, any excess may be carried
forward for up to five years.
5)A Permanent Federal Extension and Expansion of the Charitable
Deduction for Contributions of Food Inventory (HR 3729 and S
166) . HR 3729, among other things, would (a) make permanent
the enhanced tax deduction for charitable contributions of
food inventory by non-corporate taxpayers, (b) codify the
definition of fair market value as the price at the time of
the contribution, without regard to internal standards or lack
of market, and (c) increase the amount of deductible food
inventory contributions that a taxpayer, including a C
corporation, may make in any taxable year from 10% to 15% of
taxpayer net income. S 166 is similar to HR 3729.
6)Related Legislation .
AB 152 (Fuentes), Chapter 503, Statutes of 2011, provides a
specified tax credit, for taxable years beginning on or after
January 1, 2012, and before January 1, 2017, to growers who
donate fresh fruits or fresh vegetables to food banks in
California.
7)Suggested Technical Amendments .
AMENDMENT 1
On page 2, line 5, strike out "non-C corporations" and insert:
or a non-C corporation
AMENDMENT 2
On page 2, lines 9 and 10, strike out "non-C corporations" and
insert:
or a non-C corporation
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REGISTERED SUPPORT / OPPOSITION :
Support
Yum Brands, Inc. (sponsor)
California Retailers Association
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098