BILL ANALYSIS �
AB 1339
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Date of Hearing: May 9, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1339 (Gorell) - As Introduced: February 18, 2011
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income tax credits: emergency standby generators
SUMMARY : Allows a credit under both the Personal Income Tax
(PIT) Law and the Corporation Tax (CT) Law for costs incurred in
purchasing and installing an "emergency standby generator" at a
"service station." Specifically, this bill :
1)States that the credit is intended to incentivize service
station operators to purchase and install emergency standby
generators in California so service stations can continue to
provide public services during power outages.
2)Allows a credit, for taxable years beginning on or after
January 1, 2012, and before January 1, 2017, equal to 50% of
the amount paid or incurred during the taxable year to
purchase and install an "emergency standby generator" at a
"service station" located in California.
3)Defines an "emergency standby generator" as an electrical
generator that is rated by the manufacturer to generate at
least 30 kilowatts of electricity and whose sole function is
to automatically provide electric power when electric power
from a utility service is interrupted.
4)Defines a "service station" as an independently owned and
operated establishment that offers for sale or sells to the
public, gasoline or other fuel to power motor vehicles.
5)Provides that the depreciable basis of any emergency standby
generator shall be reduced by the amount of any credit
allowed.
6)Provides that if, in any calendar year, the State Air
Resources Board (ARB) or the State Energy Resources
Conservation and Development Commission (Commission)
establishes a certification standard for energy efficient or
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low emission emergency standby generators, the credit shall be
limited, for subsequent taxable years, to emergency standby
generators that satisfy that certification standard.
7)Requires the ARB or the Commission to notify the Franchise Tax
Board (FTB) of the certification standard within 10 working
days of establishing the standard.
8)Specifies that if a generator for which a credit is allowed is
thereafter sold, returned to the vendor, or removed from
service within one year from the date it was placed in
service, the amount of the credit allowed shall be recaptured,
as specified.
9)Provides that, in cases where the credit amount exceeds the
taxpayer's tax liability, the excess credit amount may be
carried over for up to eight years until the credit is
exhausted.
10)Takes immediate effect as a tax levy.
11)Sunsets on December 1, 2017.
EXISTING LAW allows various tax credits under both the PIT Law
and the CT Law. These credits are generally designed to
encourage socially beneficial behavior or to provide relief to
taxpayers who incur specified expenses.
FISCAL EFFECT : The FTB estimates that this bill would reduce
General Fund revenues by $300,000 in fiscal year (FY) 2011-12,
$1.3 million in FY 2012-13, and $2.4 million in FY 2013-14.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 1339 is an emergency preparedness measure that will
provide independently owned gas stations an incentive to
purchase and install standby generators so that they can
continue to provide fuel during power outages, which is
critical for emergency relief efforts. Knowing that our
State is prone to natural disasters - with floods, fire,
and earthquakes - we should not be left flat footed in the
case of a tragic event. This bill is not only asking our
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service �station] owners to be prepared, but for the entire
state to be prepared when natural disasters occur. Through
the incentives provided in AB 1339, we are helping to
ensure that emergency relief efforts will be efficient and
�as] effective as possible.
2)Proponents state, "The lessons learned from hurricane Katrina
and again from the recent cataclysmic events in Japan
underscore the true frailty of a country or states' ability to
respond to a natural disaster when one of the things we take
for granted, in this case electricity, is lost; resulting in a
crippling of the efforts of the emergency responders we depend
upon."
3)The FTB notes the following implementation concern in its
staff analysis of this bill:
This bill defines "service station" as an independently
owned and operated establishment that offers for sale or
sells gasoline or other fuel to power motor vehicles to the
public. The term "independently owned and operated" is
undefined and could lead to disputes between the department
and taxpayers. If the author's intent is to prevent
vertically-integrated oil companies that produce and/or
refine crude oil and that own and operate service stations
from claiming the credit, amendments to the bill are
necessary.
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 new tax expenditure program, in the
form of an income tax credit, to incentivize service
station operators to purchase and install emergency backup
generators.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
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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.
c) Credit or grant? : The credit this bill provides would
only benefit service station owners with an income tax
liability to offset. If the Legislature determines that,
in the interest of public safety, service stations should
have backup generators, it could accomplish this goal
through a grant program under which service stations would
receive an equal monetary incentive irrespective of their
tax liability. Of course, the state could also mandate
that certain service stations purchase and maintain backup
generators without subsidizing the cost.
d) 5%, 50%, or something in between? : This bill appears to
be modeled after AB 2665 (Strickland) of the 2009-10
Legislative Session. AB 2665 would have allowed a credit
equal to 5% of the amount paid or incurred to purchase and
install an emergency standby generator at a service station
located in California. In this Committee's analysis of AB
2665, Committee staff questioned whether a 5% credit was
sufficient to actually incentivize purchasing decisions.
AB 1339, in turn, would increase this credit percentage to
50%, which is quite high in comparison to other state
income tax credits. The Committee may wish to consider a
percentage somewhere between these two numbers in an effort
to strike an appropriate balance. Alternatively, the
Committee may wish to retain the current percentage, but
cap the amount of credit allowable for each purchased
generator.
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e) Proposed amendments : The author's office has asked the
Committee to take amendments to:
i) Explicitly provide that vertically-integrated oil
companies shall not be eligible for the credit; and,
ii) To add Assembly Member Chesbro as a joint author.
f) Related legislation :
i) AB 2665 (Strickland), of the 2009-10 Legislative
Session, would have allowed a credit equal to 5% of the
amount paid or incurred during the taxable year to
purchase and install an emergency standby generator at a
service station located in California. AB 2665 was held
by the Assembly Committee on Appropriations.
ii) AB 2623 (Strickland), of the 2007-08 Legislative
Session, would have allowed a credit equal to 5% of the
amount paid or incurred during the taxable year to
purchase and install an emergency standby generator at a
service station located in California. AB 2623 failed
passage in this Committee.
iii) SB 220 (Oller), of the 2001-02 Legislative Session,
would have allowed a credit for the purchase of backup
generators and related equipment. SB 220 failed passage
in the Senate Environmental Quality Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Healthcare Districts
CDF Firefighters Local 2881
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
AB 1339
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