BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 242
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 242 (Revenue and Taxation Committee)
          As Amended  August 31, 2011
          Majority vote
           
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          |ASSEMBLY:  |76-0 |(June 2, 2011)  |SENATE: |34-0 |(September 7,  |
          |           |     |                |        |     |2011)          |
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          Original Committee Reference:   REV. & TAX.  

           SUMMARY  :  Conforms the Personal Income Tax (PIT) Law to 
          specified provisions of the federal Patient Protection and 
          Affordable Care Act (PPACA) and contains other provisions 
          sponsored by the State Board of Equalization (BOE). 

           The Senate amendments  :  

          1)Specify that the BOE must reimburse the manufacturer of a new 
            motor vehicle for any use tax the manufacturer pays to or for 
            a buyer or lessee when providing a replacement vehicle or 
            making restitution under California's "Lemon Law." 

          2)Eliminate the requirement for retailers and lenders to file an 
            election with the BOE designating which party is entitled to 
            claim a "bad debt" deduction or refund.

          3)Make a technical clarification to the "repair, retrofit, or 
            modification" exception to the 12-month rebuttable presumption 
            for vessels purchased outside of California.

          4)Delete superfluous language in the Sales and Use Tax (SUT) Law 
            as a matter of code maintenance.    

          5)Allow a taxpayer to file a claim for reimbursement of bank 
            charges and third-party check charge fees incurred as the 
            direct result of an erroneous processing action or erroneous 
            collection action by the BOE.  

          6)Amend the SUT Law to provide that restitution orders that are 
            due and payable to the BOE may be collected by the BOE in any 
            manner provided by law for the collection of a delinquent SUT 
            liability.









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          7)Amend the Cigarette and Tobacco Products Tax Law and the 
            Diesel Fuel Tax Law to provide the BOE with similar collection 
            authority.  

          8)Amend the Motor Vehicle Fuel Tax Law to provide that 
            restitution orders that are due to the State of California and 
            payable to the State Controller may be collected by the 
            Controller in any manner provided by law for the collection of 
            a delinquent motor vehicle fuel tax liability.

          9)Delete the provisions of this bill that had:

             a)   Increased the amount of qualified adoption expenses 
               excludable from an employee's gross income; and, 

             b)   Provided an income exclusion for federal grants for 
               qualifying therapeutic discovery projects; and,    

          10)Make technical and conforming changes to the code. 

           AS PASSED BY THE ASSEMBLY  , this bill:

          1)Provided that, for taxable years beginning on or after January 
            1, 2013, a simple cafeteria plan created by a certain small 
            employer for its employees would be treated as having 
            satisfied the nondiscrimination rules of a classic cafeteria 
            plan.

          2)Allowed small employers to offer exchange-participating health 
            plans through cafeteria plans effective in 2014.

          3)Increased, for taxable years beginning on or after January 1, 
            2010, the amount of qualified adoption expenses excludable 
            from an employee's gross income by $1,000.

          4)Excluded from income certain qualified health care benefits 
            provided after March 30, 2010, to a member of an Indian tribe, 
            the member's spouse, or the member's dependents.  

          5)Excluded from gross income and the alternative minimum taxable 
            income, for taxable years beginning on or after January 1, 
            2009, a federal grant for a qualifying therapeutic discovery 
            project undertaken by the taxpayer in a tax year beginning in 
            2009 or 2010.
           








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           6)Excluded from income, for taxable years beginning on or after 
            January 1, 2010, certain payments received by an individual 
            taxpayer under the National Health Service Corps loan 
            repayment or forgiveness programs. 
           
          FISCAL EFFECT  :  According to Senate Appropriations Committee 
          staff, the following represents the General Fund impact of this 
          bill's main provisions: 
          
                                  2010-11      2011-12       2012-13     
          Healthcare Conformity                                        
          Student loan exclusions-$400,000  -$500,000   -$350,000  
          Tribal benefits exclusion         -$50,000    -$150,000 -$80,000 

          Small employer plans   negligible revenue loss            

           BOE Provisions
           Technical provisions   negligible revenue loss           
          BOE admin: restitution            -$106,000              
          Back restitution collections                  $865,000* 
          $865,000*               
          Ongoing restitution collections               $568,000* 
          $1,136,000*             
            *(revenue gains)

           COMMENTS  :  Assembly Revenue and Taxation Committee staff notes 
          all of the following:

           1)Establishment of simple cafeteria plans for small businesses  .  
            Under existing law, an employer may establish a "cafeteria 
            plan" - a separate written plan under which all participants 
            are employees and are permitted to choose among at least one 
            taxable benefit (e.g., current cash compensation) and at least 
            one "qualified benefit."  "Qualified benefits" are 
            employer-provided benefits that are not taxable, such as, for 
            example, group term life insurance coverage not in excess of 
            $50,000 and benefits under a dependent care assistance 
            program.  Cafeteria plans and certain qualified benefits are 
            subject to non-discrimination requirements.  The basic purpose 
            of those requirements is to prevent the provision of 
            disproportionate benefits to highly-compensated employees.  A 
            failure to satisfy the nondiscrimination rules, generally, 
            results in a loss of the tax exclusion by the 
            highly-compensated individuals.  For taxable years beginning 
            on or after January 1, 2013, the PPACA (Public Law 111-148) 








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            allows certain small employers to provide a simple cafeteria 
            plan for their employees, under which the nondiscrimination 
            rules of a classic cafeteria plan would be treated as 
            satisfied.  A small business is an employer that, during 
            either of the two preceding years, employed an average of 100 
            or fewer employees on business days.

          This bill would conform California's income tax law 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. 

           2)Offering of exchange-participating qualified health plans 
            through cafeteria plans .  For taxable years beginning after 
            December 31, 2013, reimbursement or direct payments for the 
            premiums for coverage under any qualified health plan offered 
            through an exchange is a qualified benefit under a cafeteria 
            plan if the employer is a qualified employer (PPACA Section 
            1515).  A qualified employer, generally, is a small employer 
            that elects to make all its full-time employees eligible for 
            one or more qualified plans offered in the small group market 
            through an Exchange.   This bill would conform California's 
            tax laws to the federal definition of "qualified benefits" to 
            include reimbursement and direct payments for the premiums for 
            qualified health plans offered through an Exchange under a 
            qualified employer's cafeteria plan. 
           
           3)Health care benefits of Indian tribe members  .  Under the 
            PPACA, qualified health care benefits provided to a member of 
            an Indian tribe, the member's spouse, or the member's 
            dependents are excludable from the member's gross income, for 
            benefits and coverage provided after March 30, 2010.  The 
            exclusion applies to the value of:  a) health services or 
            benefits provided or purchased by the Indian Health Service 
            (HIS) through a grant to or a contract or compact with an 
            Indian tribe or tribal organization, or through programs of 
            third parties funded by the HIS; b) medical care provided by 
            an Indian tribe or tribal organization to a member of an 
            Indian tribe, including the member's spouse or dependents; c) 
            accident or health plan coverage provided by an Indian tribe 
            or tribal organization for medical care to a member of an 
            Indian tribe, including the member's spouse or dependents; 
            and, d) any other medical care provided by an Indian tribe or 
            tribal organization that supplements, replaces, or substitutes 








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            for the programs and services provided by the federal 
            government to Indian tribes or Indians. 

          This bill would allow the same tax treatment for those benefits 
            under the PIT Law. 

           4)Student loan repayment program  .  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 (Internal Revenue Code Section 108) modifies the 
            gross income exclusion for amounts received under the National 
            Health Service Corps loan repayment program and 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).  
            Thus, under the PPACA, for taxable years beginning on or after 
            January 1, 2010, individuals are allowed to exclude from 
            income certain payments received under the National Health 
            Service Corps loan repayment or forgiveness programs.  This 
            bill would also exclude from gross income those types of 
            payments for purposes of the PIT Law. 


           5)This bill's BOE-sponsored provisions  :  In addition to the 
            provisions governing the collection of restitution awards, 
            this bill contains several BOE-sponsored provisions that were 
            previously included in the May 4th version of AB 1424 (Revenue 
            and Taxation Committee), which passed the Assembly Floor on a 
            vote of 75-0 on May 26, 2011.  Those provisions were later 
            amended out of AB 1424 in the Senate.  

           

          Analysis Prepared by  :  Oksana Jaffe and M. David Ruff / REV. & 
          TAX. / (916) 319-2098 



          FN: 0002385 








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