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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