BILL ANALYSIS �
AB 6
Page 1
Date of Hearing: April 22, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 6 (Gorell) - As Amended: March 21, 2013
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income taxes: credits: prewiring for alternative
energy sources
SUMMARY : Allows a credit under both the Personal Income Tax
(PIT) Law and the Corporation Tax (CT) Law for costs incurred
for the installation of "prewiring" at a "service station"
located in California. Specifically, this bill :
1)States that the credit is intended to incentivize "service
station" operators to install appropriate wiring, including a
transfer switch that would enable the use of an alternative
energy source during power outages to operate fuel pumps,
dispensing equipment, payment acceptance equipment, and safety
systems.
2)Allows a credit, for taxable years beginning on or after
January 1, 2014, and before January 1, 2019, equal to 50% of
the amount paid or incurred during the taxable year to install
"prewiring" at a "service station" located in California, not
to exceed $2,500.
3)Defines "prewiring" as wiring, including, without limitation,
a transfer switch that would enable the use of an alternative
energy source to operate fuel pumps, dispensing equipment,
payment acceptance equipment, and safety systems, that allows
a "service station" to continue to maintain electrical power
to provide services to the public during a power outage.
4)Defines a "service station" as an establishment that sells to
the public gasoline or other fuel that powers motor vehicles
and that is located on a county-designated evacuation route.
5)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.
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6)Takes immediate effect as a tax levy.
7)Sunsets on December 1, 2019.
EXISTING FEDERAL LAW : Authorizes Congress, under the commerce
clause of the United States (U.S.) Constitution, to regulate
commerce with foreign nations, and among the several states.
The U.S. Supreme Court has held that the "negative" or "dormant"
commerce clause also prohibits states from enacting laws that
unduly burden or discriminate against interstate commerce.
EXISTING STATE LAW allows:
1)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.
2)Taxpayers engaged in a trade or business to deduct expenses
that are considered ordinary and necessary in conducting that
trade or business.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates that
this bill would reduce General Fund revenues by $100,000 in
fiscal year (FY) 2012-13, by $300,000 in FY 2013-14, and by
$350,000 in FY 2014-15.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 6 is an emergency preparedness measure that will
incentivize gas stations on escape routes to purchase and
install wiring and transfer switch capabilities which will
allow them to plug in a rental generator during significant
power outages. Recent examples in New Jersey (Superstorm
Sandy) and Florida (Hurricane Katrina) show that a lack of
access to fuel can leave the state flat-footed during
natural disasters that require a rapid emergency response.
The few stations that could pump gas experienced wait times
of more than 6 hours and quickly ran out of fuel, while
inoperable stations had fuel that couldn't be pumped.
Knowing that our State is prone to natural disasters - with
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floods, fires, and earthquakes - California should not be
left flat footed in the case of a tragic event. Through
the incentives provided in AB 6, we are helping our vital
emergency relief efforts to be more efficient and
effective.
2)Proponents of this bill note the following:
[W]e are concerned about the near complete lack of
emergency generators at commercial service stations in most
communities in California and across the nation. This
directly impacts the ability of local governments to
sustain essential fleets and operations as many rely on
commercial supplies of petroleum as a back-up when their
own storage facilities run dry. Many communities also
contract ambulance and heavy equipment services that are
entirely dependent on commercial supplies of petroleum, as
are most transportation services that support shelter
operations during an emergency.
3)The FTB notes the following implementation concerns in its
staff analysis of this bill:
a) "This bill would allow a credit in an amount equal to 50
percent of the amount paid or incurred for the installation
of prewiring, not to exceed two thousand five hundred
dollars ($2,500). It is unclear whether the $2,500
limitation applies to the amount of the credit or the cost
of the installation of prewiring. To avoid disputes
between taxpayers and the department, the author may wish
to amend the bill for clarity."
b) "This bill uses the undefined phrases, "alternative
energy source" and "county-designated evacuation route,"
which could be more broadly interpreted than the author
intends. For example, the term "alternative energy source"
could be interpreted to include solar panels, wind power,
geothermal and hydroelectric. The absence of definitions
to clarify these phrases could lead to disputes with
taxpayers and would complicate the administration of this
credit."
c) "The credit would be limited to service stations located
on a county-designated evacuation route. Typically,
credits involving areas for which the department lacks
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expertise are certified by another agency or agencies that
possess the relevant expertise. The certification language
would specify the responsibilities of both the certifying
agency and the taxpayer. It is recommended that this bill
be amended to include a certifying agency."
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 1960s, U.S.
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 install specified prewiring. This prewiring, in turn,
would enable service stations to continue operating during
power outages.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
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 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, certain service stations
should have prewiring installed, it could accomplish this
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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 install prewiring
without subsidizing the cost.
d) The Florida model : On October 24, 2005, Hurricane Wilma
made landfall in southern Florida as a category 3 storm,
leaving more than six million people without power, and
forcing hundreds of service stations to close.
In response to this natural disaster, Florida enacted
legislation requiring specified service stations located
within one-half mile of an interstate highway or a
designated evacuation route to be capable of operating all
fuel pumps, dispensing equipment, and payment-acceptance
equipment using an alternate power source. [Florida
Statutes Section 526.143(3)]. In addition, Florida law now
requires each newly constructed or substantially renovated
service station to meet these requirements. [Florida
Statutes Section 526.143(2).] Finally, Florida law
requires each motor fuel terminal facility, and each
wholesaler, to be capable of operating its distribution
loading racks using an alternate generated power source for
a minimum of 72 hours. [Florida Statutes Section
526.143(1).]
e) The not-so-dormant commerce clause : The credit this
bill proposes is only available for the installation of
prewiring at California service stations. By limiting the
credit to in-state activity, this bill could arguably be
susceptible to challenge under the dormant commerce clause
of the U.S. Constitution.
The U.S. Constitution authorizes Congress to regulate
commerce with foreign nations, and among the several
states. (U.S. Constitution, Article I, Section 8, Clause
3). While the commerce clause is phrased as a positive
grant of regulatory power, it "has long been seen as a
limitation on state regulatory powers, as well as an
affirmative grant of congressional authority." [Fulton
Corp. v. Faulkner (1996) 516 U.S. 325, 330.] This negative
aspect, commonly referred to as the dormant commerce
clause, prohibits economic protectionism in the form of
state regulation that benefits "instate economic interests
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by burdening out-of-state competitors." (Ibid.)
Both the U.S. Supreme Court and the California courts have
addressed challenges to various state tax provisions on
dormant commerce clause grounds. Most recently, the Court
of Appeal struck down a California statute that allowed
taxpayers a deferral for income received from the sale of
stock in corporations maintaining assets and payroll in
California, while providing no such deferral for income
from the sale of stock in corporations maintaining assets
and payroll elsewhere. [Cutler v. Franchise Tax Board
(2012) 208 Cal.App.4th 1247, 1250.] Specifically, the
court held that "the deferral provision discriminates on
its face on the basis of an interstate element in violation
of the commerce clause." (Ibid.)
While noting that no court decision has yet invalidated, as
a general matter, a state income tax credit that provides
an incentive for in-state activity, the FTB notes that such
credits "may be subject to constitutional challenge."
f) Double-dipping : This bill would allow a credit for
costs incurred installing prewiring at California service
stations. Such costs, however, are already deductible as a
business expense. Generally, a credit is allowed in lieu
of a deduction in order to eliminate multiple tax benefits
for the same item of expense. The author may wish to
consider amendments addressing this issue.
g) Who exactly are we helping? : Many service stations are
leased or franchised by independent operators. Others,
however, are owned by major refiners. For this reason,
many prior bills seeking to encourage service stations to
purchase backup generators have been limited to
independently owned and operated establishments. The
Committee may wish to consider amending this bill to
provide a similar limitation.
h) Related legislation :
i) AB 1339 (Gorell), of the 2011-12 legislative
session, would have allowed a credit equal to 50% of the
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amount paid or incurred during the taxable year, up to
$2,500, to purchase and install an emergency standby
generator at a service station located in California. AB
1339 was held by the Assembly Committee on
Appropriations.
ii) 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.
iii) 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.
iv) 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
1 individual
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098