BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 242|
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THIRD READING
Bill No: AB 242
Author: Assembly Revenue and Taxation Committee
Amended: 8/31/11 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 9-0, 07/06/11
AYES: Wolk, Huff, DeSaulnier, Fuller, Hancock, Hernandez,
Kehoe, La Malfa, Liu
SENATE APPROPRIATIONS COMMITTEE : 9-0, 08/25/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Runner, Steinberg
ASSEMBLY FLOOR : 76-0, 06/02/11 - See last page for vote
SUBJECT : Taxation
SOURCE : Author
DIGEST : This bill conforms to specified provisions
enacted by federal healthcare reform legislation in 2010,
implement numerous non-controversial changes to tax laws
administered by the Board of Equalization (BOE), and
explicitly allow BOE and the State Controller's Office
(SCO) to collect orders of restitution awarded to the BOE
in criminal proceedings in the same manner as tax
liabilities.
Note:When the Assembly passed this bill, it only contained
federal healthcare tax conformity provisions. The
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6/29/11 amendment added the BOE-related provisions
that were formerly contained in AB 1423 (Perea) and AB
1424 (Perea). Those bills have since been amended to
delete the BOE items and add other tax-related
provisions.
ANALYSIS :
I. Tax Conformity . Current state law provides modified
conformity of California's Revenue and Taxation Code to the
Internal Revenue Code and specified public laws.
Currently, California conforms to specified federal laws as
of the "specified date" of January 1, 2009 for federal laws
enacted after January 1, 2005 and before January 1, 2009
(SB 401, Wolk, Chapter 14, Statutes of 2010). This bill
conforms to the following federal changes from the 2010
Patient Protection and Affordable Care Act (PPACA), enacted
by Congress.
Current federal law provides that Cafeteria plans and
certain qualified benefits are subject to nondiscrimination
requirements to prevent discrimination in favor of
highly-compensated individuals as to eligibility for
benefits and to actual contributions and benefits provided.
There are also rules to prevent the provision of
disproportionate benefits to key employees.
This bill conforms to the federal change under the PPACA to
provide small employers a safe harbor from the
nondiscrimination requirements of a cafeteria plan. The
safe harbor would apply to taxable years beginning on or
after January 1, 2011.
Current federal law generally does not allow benefits
offered under the new "American Health Benefit Exchanges"
to be part of a cafeteria plan. However, there is an
exception for small businesses.
This bill conforms to the federal exception that allows
benefits offered under a Small Business Health Options
Program to be part of a cafeteria plan beginning on or
after January 1, 2014.
Federal law generally provides that gross income includes
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all income from whatever source derived. Exclusions from
income are provided, however, for certain health care
benefits. Additionally, under the general welfare
exclusion doctrine, certain payments made to individuals
are excluded from gross income. New federal law (IRC
Section 139D) allows an exclusion from gross income for the
value of specified Indian tribe health care benefits.
California currently exempts from income tax income
received by an Indian tribal member who lives in that
tribe's Indian country and such income is sourced in the
tribal member's Indian country. In general, California
conforms to the general welfare doctrine and the exclusion
of certain health care benefits from gross income. The
bill conforms to this provision.
Gross income generally includes the discharge of
indebtedness of the taxpayer. Under an exception to this
general rule, gross income does not include any amount from
the forgiveness of certain student loans, provided that the
forgiveness is contingent on the student's working for a
certain period of time in certain professions for any of a
broad class of employers. The new federal law (under IRC
Section 108) modifies the gross income exclusion for
amounts received under the National Health Service Corps
loan repayment program or certain state loan repayment
programs to include any amount received by an individual
under any state loan repayment or loan forgiveness program
that is intended to provide for the increased availability
of health care services in underserved or health
professional shortage areas (as determined by the state).
California in general conforms to IRC Section 108 and to
federal law relating to exemption of student loan
forgiveness. The measure conforms to this change.
Consistent with federal law, California provides an
exclusion from the gross income of an employee for
qualified adoption expenses paid or reimbursed by an
employer under an adoption assistance program. Beginning
on or after January 1, 2010 the maximum exclusion is
increased to $13,170 per eligible child. California does
not conform to the federal adoption credit; instead
California provides its own credit for adoption costs. The
bill conforms to this provision.
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II. BOE Omnibus . This bill enacts several technical
changes to the Civil Code and Sales and Use Tax Law
sponsored by the State Board of Equalization (BOE):
Currently, BOE must reimburse a manufacturer for an amount
equal to the sales tax included in restitution under
California's Lemon Law. This bill amends the Civil Code to
allow the BOE to reimburse a manufacturer of a new motor
vehicle for the use tax refunded to a buyer or lessee when
the new motor vehicle is reacquired by the manufacturer
pursuant to California's "Lemon Law."
Retailers and lenders must file an electronic form with the
BOE designating which party is entitled to claim the bad
debt loss. The bill removes the requirement remove the
requirement in the case of accounts held by a lender that
have been found worthless and written off by the lender.
Only repair facilities licensed by the county in which it
is located is able to qualify the owner for the exception
to the rebuttable presumption that any vehicle, vessel, or
aircraft that is brought into California within 12 months
of purchase was acquired for use in California. The
measure makes a technical change to the statutes.
The sales tax is imposed on retailers for the privilege of
selling tangible personal property (TPP), absent a specific
exemption. The tax is based upon the retailer's gross
receipts from TPP sales in this state. Similarly, state
law imposes the use tax on persons for the storage, use, or
other consumption in this state of TPP purchased from any
retailer. The bill deletes obsolete reporting requirements
regarding the implementation of the racehorse breeding
stock and farm machinery exemptions and implementing
regulations under both the sales and the use tax.
State law allows a taxpayer to file a claim for
reimbursement of bank charges and third party check charges
incurred by the taxpayer as a result of an erroneous levy
or notice to withhold. The bill would also allow a
reimbursement as a result of an erroneous processing action
or collection action by the BOE.
The BOE and the State Controller's Office (SCO) collect
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orders of restitution awarded to the BOE in criminal
proceedings in the same manner as tax liabilities. This
bill provides that orders of restitution are enforceable in
the same manner as if the order were a civil judgment.
BOE's orders of restitution may be collected either (a) by
referring the restitution order to the Franchise Tax Board
(FTB) for collection under the Court-Ordered Debt (COD)
program, or (b) as a civil money judgment. When the BOE
and the SCO collect an order of restitution as a civil
money judgment, both agencies must use the collection
remedies available to any creditor under the Code of Civil
Procedure which require obtaining a levy or a lien.
Comments
California does not automatically conform to changes in
federal law, except under specified circumstances.
Instead, the Legislature must affirmatively conform to
federal changes. Conformity legislation is introduced
either as individual tax bills to conform to specific
federal changes or as one omnibus bill to conform to the
federal law as of a certain date with specified exceptions.
State tax law did not conform to changes made in federal
law after 2005 until last year, when the Legislature
enacted a bill conforming to changes through January 1,
2009 (SB 401, Wolk).
In November, 2010, voters enacted Proposition 26, which
changed the rules for the Legislature when enacting bills
that increase the proceeds of state taxes. Before
Proposition 26, Legislative Counsel interpreted Section III
of Article XIIIA of the State Constitution to allow the
Legislature to enact a bill by majority vote if it lost
revenue in the first year and over the first three years,
regardless of whether it increased a tax on any one
taxpayer. Proposition 26 amended that part of the
Constitution to instead provide that whenever any taxpayer
pays a higher tax, then a 2/3 vote is required. As such,
Legislative Counsel today keys any tax conformity bill that
contains both increases and decreases a 2/3 vote. Last
year's AB 1178 (Portantino) provided almost all of the
changes necessary for state law to conform to federal tax
changes made by federal health care reforms, and was keyed
a majority vote because its losses exceeded its gains.
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However, this bill contains only tax conformity elements
that lose revenue to ensure its majority vote enactment.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Healthcare Conformity
Student loan exclusions $400 $500
$350General
Tribal benefits exclusion $50 $150
$80General
Small employer plans negligible
revenue loss General
BOE provisions
Technical provisions negligible
revenue loss General
BOE admin: restitution $106 General
Back restitution collections
($865)* ($865)* General
Ongoing restitution collections
($568)* ($1,136)* General
*(revenue gains)
SUPPORT : (Verified 8/31/11)
Board of Equalization
California Taxpayers Association
ARGUMENTS IN SUPPORT : According to the author's office,
'The purpose of this bill is to conform California's income
tax laws to several tax-related provisions of the federal
health care acts enacted in March of 2010. AB 242 is not a
health care reform bill, but a tax-conformity bill that
would enable taxpayers to easily comply with
federally-mandated health care law. This bill is a "good
government" measure that is intended to reduce taxpayers'
compliance costs. It represents the Legislature's most
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recent attempt to simplify the tax code for both taxpayers
and practitioners by narrowing the gap between the federal
and state tax laws. This bill also implements various
technical and non-controversial tax proposals sponsored by
the State Board of Equalization. These proposals are
designed to streamline tax administration and to promote
clarity in the tax code."
ASSEMBLY FLOOR : 76-0, 06/02/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fletcher, Fong, Fuentes, Furutani,
Beth Gaines, Galgiani, Garrick, Gatto, Gordon, Grove,
Hagman, Harkey, Hayashi, Roger Hernández, Hill, Huber,
Hueso, Huffman, Jeffries, Jones, Knight, Lara, Logue,
Bonnie Lowenthal, Ma, Mansoor, Mendoza, Miller, Mitchell,
Monning, Morrell, Nestande, Nielsen, Norby, Olsen, Pan,
Perea, V. Manuel Pérez, Portantino, Silva, Skinner,
Smyth, Solorio, Swanson, Torres, Valadao, Wagner,
Wieckowski, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Conway, Gorell, Halderman, Hall
AGB:nl 8/31/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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