BILL ANALYSIS Ó
SB 1544
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1544 (Hernandez) - As Amended: May 2, 2012
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE : 33-0
SUBJECT : Income taxes: disaster losses: Counties of Los
Angeles and San Bernardino
SUMMARY : Provides that any losses sustained in the Counties of
Los Angeles and San Bernardino as a result of the severe winds
that occurred in November 2011 (2011 Winds) may, at the
taxpayer's election, be taken into account for the taxable year
immediately preceding the taxable year in which the disaster
occurred. Specifically, this bill :
1)Provides that Internal Revenue Code (IRC) Section 165(i) shall
apply to any losses sustained in the Counties of Los Angeles
and San Bernardino as a result of the 2011 Winds.
2)Provides that the election under IRC Section 165(i) may be
made on a return or amended return filed on or before the due
date of the return, determined with regard to extension, for
the taxable year in which the disaster occurred.
3)Provides that, unless otherwise specified, any law that
suspends, defers, reduces, or otherwise diminishes the
deduction of a net operating loss (NOL) shall not apply to a
NOL attributable to losses described above.
4)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Allows individual and corporate taxpayers to utilize NOLs to
offset their tax liabilities. For NOLs incurred in taxable
years beginning on or after January 1, 2008, existing law
provides a carryover period of 20 years.
2)Allows NOLs attributable to taxable years beginning on or
after January 1, 2013, to be carrybacks to each of the
SB 1544
Page 2
preceding two taxable years, as provided.
3)Disallows the deduction for NOLs and NOL carryovers in the
2008 to 2011 taxable years for specified taxpayers.
FISCAL EFFECT : The Franchise Tax Board estimates that this bill
would reduce General Fund (GF) revenues by $8,000 in fiscal year
(FY) 2011-12, and would increase GF revenues by $4,000 in both
FY 2012-13 and FY 2013-14.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Beginning on November 30, 2011, a powerful wind storm blew
through Los Angeles County and much of the San Gabriel
Valley, toppling trees, downing power lines, slowing
traffic, damaging homes and vehicles, and knocking out
electricity for over 350,000 customers. On December 9,
2011, due to the severity of the winds, the Governor
declared these events a State of Emergency, qualifying Los
Angeles County windstorm victims for future and immediate
tax relief. This bill would simply give affected residents
and businesses the same tax treatment that has been
afforded to other Californians afflicted by other declared
ÝStates of Emergency].
2)Proponents state:
On December 9, 2011, due to the severity of the winds,
the governor declared these
events a State of Emergency, qualifying Los Angeles County
windstorm victims
for future and immediate tax relief. This bill would
simply give affected residents
and businesses the same tax treatment that has been
afforded to other Californians
afflicted by other declared State of Emergencies.
3)Committee Staff Comments:
a) The 2011 Winds : On December 9, 2011, Governor Brown
proclaimed a state of emergency for the County of Los
Angeles and the City of Rancho Cucamonga in San Bernardino
County as a result of the severe winds that occurred
SB 1544
Page 3
beginning on November 30, 2011. President Obama, however,
did not declare the 2011 Winds a federal disaster.
b) Casualty losses vs. disaster losses : Under both federal
and state law, a casualty loss is defined as the damage,
destruction, or loss of property resulting from an
identifiable event that is sudden, unexpected, or usual. A
disaster loss, on the other hand, occurs when business or
personal property is partially or completely destroyed by a
fire, storm, flood, or other natural event in an area
declared to be a disaster by the President of the United
States.
Individuals with non-business casualty or disaster losses
that are unreimbursed may deduct such losses to the extent
that each loss exceeds $100 and aggregate net losses for
the taxable year exceed 10% of adjusted gross income. To
the extent that a casualty or disaster loss contributes to
a NOL, that loss is allowed a 20-year carry forward
treatment. In other words, 100% of the NOL may be carried
over for up to 20 taxable years.
c) Special tax treatment provided automatically for
disaster losses : In the case of disaster losses, a
taxpayer may elect to file an amended return to deduct the
loss in the taxable year prior to the taxable year in which
the disaster loss actually occurred, resulting in an
expedited refund. This election may be made for any
Presidentially-declared disaster prior to passage of any
state legislation allowing this treatment because
California conforms to federal disaster tax law treatment.
The election is not available, however, for a
"Governor-only" declared disaster, unless special state
legislation is enacted.
For disasters that were the subject of a Governor's
proclamation, but not the subject of a Presidential
disaster declaration, enactment of state law identifying a
specific event as a disaster for state tax law purposes
authorizes effected taxpayers to elect to deduct disaster
losses on the return for the prior taxable year.
d) What would this bill do? : This bill would allow
taxpayers who suffered losses as a result of the 2011 Winds
to elect to file an amended return for the prior taxable
SB 1544
Page 4
year. Thus, taxpayers would be able to claim the disaster
losses earlier than otherwise permitted, resulting in an
expedited refund. Specifically, a taxpayer would have
until the extended due date for the 2011 taxable year's
return to elect to file an amended return for the prior
taxable year to deduct the disaster losses in the prior
year. This bill would also provide limited protection from
future NOL suspension legislation for losses sustained in
the 2011 Winds.
e) Related legislation : AB 2332 (Monning) would extend
similar disaster relief provisions to taxpayers impacted by
the severe storms that occurred in Santa Cruz County in
March 2011.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098