BILL ANALYSIS Ó
AB 152
Page 1
Date of Hearing: April 25, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 152 (Fuentes) - As Amended: April 14, 2011
Majority vote. Fiscal committee.
SUBJECT : Food banks: grants: voluntary contributions: income
tax credits
SUMMARY : Requires the State Department of Social Services to
establish and administer a State Emergency Food Assistance
Program, as specified. Specifically, the tax-related provisions
of this bill :
1)Allow a tax credit, under both the Personal Income Tax Law and
the Corporation Tax Law, to "qualified taxpayers" who donate
fresh fruits or fresh vegetables to a food bank located in
California under Food and Agriculture Code (FAC) Section 58501
et seq.
2)Provide that the credit shall be equal to 10% of the cost
included in inventory costs under Internal Revenue Code (IRC)
Section 263A, or that would be required to be included in
inventory costs but for the exception for farming businesses
contained in IRC Section 263A(d), with respect to those fresh
fruits or fresh vegetables. (Generally, inventory costs would
include both the direct costs and the allocated indirect costs
required to produce the fresh fruits or vegetables.)
3)Define a "qualified taxpayer" as the person responsible for
planting a crop, managing the crop, and harvesting the crop
from land.
4)Provide that, if the credit is claimed, any deduction
otherwise allowed for that amount of the cost that is eligible
for the credit shall be reduced by the amount of the credit.
5)Provide that, upon receipt of the donated fresh fruit or fresh
vegetables, the nonprofit organization shall provide a
certificate to the donor. This certificate shall contain a
signed statement that the product is donated under FAC Section
58501 et seq. The certificate shall also contain the type and
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quantity of product donated, the name of the donor or donors,
and the name and address of the donee.
6)Provide that, in cases where the credit exceeds the taxpayer's
tax liability, the excess credit amount may be carried over to
the next year, and the succeeding six years if necessary,
until the credit is exhausted.
7)Provide that, to the extent data are available, the Franchise
Tax Board (FTB) shall report to the Legislature regarding the
utilization of the credit.
8)Apply to taxable years beginning on or after January 1, 2012,
and before January 1, 2017.
9)Are automatically repealed on December 1, 2017.
EXISTING LAW :
1)Allows for the deduction of all ordinary and necessary
expenses of a trade or business.
2)Allows taxpayers to claim a deduction for charitable
contributions made to qualified organizations. For
corporations, the deduction is generally limited to 10% of net
income.
3)Provides special rules for contributions of food inventory.
4)Provides a credit equal to 50% of the transportation costs
paid or incurred in transporting any donated agricultural
product to a nonprofit charitable organization.
FISCAL EFFECT : The FTB has not yet provided a revenue estimate
for this bill.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 152 would increase access to fresh and healthy
California-grown foods for low-income Californians by
creating a state emergency food assistance program for the
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purchase and distribution of healthy California food to
low-income communities, and by providing a tax credit to
California growers who donate fresh fruits and vegetables
to California food banks. It also works to remove
administrative barriers in getting obesity prevention
dollars into California communities in a quicker fashion by
providing grant making authority to the California
Department of Public Health.
2)Proponents state, "More than 20 percent of Californians (over
7 million) report they are unable Ýto] afford the food they
need - including many seniors and working parents whose
budgets for food are squeezed by the economic downturn and
slow recovery. Food banks across the state have experienced
an unprecedented increase in requests, beyond anything seen in
a generation. Meanwhile, many healthy foods remain out of
reach to low-income Californians because of their high cost."
3)FTB notes, "Although farmers would generally be required to
use the inventory cost method as set forth in IRC section
263A, an election to opt out of the inventory cost method is
available to certain farmers. For example, sole
proprietorships that are not required to use the accrual
method of accounting could be allowed to elect out of the
application of IRC section 263A. Because these farmers would
be required to recalculate the cost of the donated
agricultural product in order to report the credit, some
targeted taxpayers may choose not to claim this credit."
4)Committee Staff Comments:
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960's, United
States Treasury officials began arguing that these features
of the tax law should be referred to as "expenditures,"
since they are generally enacted to accomplish some
governmental purpose and there is a determinable cost
associated with each (in the form of foregone revenues).
This bill would enact a tax expenditure, in the form of an
income tax credit, designed to incentivize the donation of
healthy produce to food banks to reduce the devastating
impact of hunger on adults, children, and seniors in
California.
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b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should also be noted that, once enacted, it generally
takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. This effectively results
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
5)Related legislation :
a) AB 727 (Correa), of the 2001-02 Legislative Session,
would have established a tax credit equal to 10% of the
normal inventory costs for the donation of agricultural
products to a food bank located in Fresno, Orange, or Santa
Cruz Counties. AB 727 failed to pass out of the Senate
Committee on Revenue and Taxation.
b) AB 287 (Strickland), of the 1999-2000 Legislative
Session, would have established a credit equal to 10% of
the wholesale value of agricultural products donated by a
taxpayer to a nonprofit charitable organization or food
bank. AB 287 was held by the Assembly Committee on
Appropriations.
c) AB 196 (Thomson), of the 1997-98 Legislative Session,
would have established a tax credit equal to 20% of the
cost of agricultural products donated to a nonprofit
charitable organization. AB 196 was held by the Senate
Committee on Appropriations.
d) AB 364 (Cannella), of the 1995-96 Legislative Session,
would have, among other things, established a tax credit
equal to 10% of the cost of food donated to nonprofit
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charitable organizations. AB 364 was held by the Senate
Committee on Appropriations.
e) AB 2346 (Kelley), Chapter 1248, Statutes of 1989,
established a very similar tax credit for the donation of
agricultural products to certain nonprofit charitable
organizations. This credit was repealed by its own terms
on December 1, 1992.
6)Double-referral : This bill was double-referred to the
Assembly Committee on Health, which passed this bill out on a
19-0 vote on March 22, 2011. For additional discussion of AB
152, please refer to that committee's analysis of the bill.
REGISTERED SUPPORT / OPPOSITION :
Support
Alameda County Community Food Bank
American Federation of State, County and Municipal Employees,
AFL-CIO
California Association of Food Banks
California Communities United Institute
California Food Policy Advocates
California Hunger Action Coalition
Community Action Agency of Butte County, Inc.
Community Food Bank
Community Food Bank of San Benito County
Food Bank of Contra Costa and Solano
Food Bank for Monterey County
Foodbank of Santa Barbara County
HMC Farms
Hunger Action Los Angeles
Imperial County Food Bank
Interfaith Council of Amador
Los Angeles Regional Foodbank
Mendocino Food and Nutrition Program
Meyers Farms Family Trust
Ocean Mist Farms
Orange County Food Bank
Prima Frutta Packing, Inc.
Prime Time International
Quality Packing
San Francisco Food Bank
Second Harvest Food Bank of Orange County
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Second Harvest Food Bank of Santa Clara and San Mateo Counties
Simonian Fruit Company
T.D. Produce Sales
Van Groningen and Sons, Inc.
Vessey and Company, Inc.
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098