BILL ANALYSIS Ó AB 922 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 922 (Maienschein) As Amended June 25, 2014 Majority vote. Tax levy ---------------------------------------------------------------------- |ASSEMBLY: | |(May 29, 2013) |SENATE: |36-0 |(August 11, 2014) | ---------------------------------------------------------------------- (vote not relevant) ------------------------------------------------------------------------ |COMMITTEE VOTE: |8-0 |(August 27, 2014) |RECOMMENDATION: |concur | |(Rev. and Tax.) | | | | | | | | | | | ------------------------------------------------------------------------ Original Committee Reference: U. & C. SUMMARY : Extends specified disaster loss treatment to losses sustained in the County of San Diego as a result of the wildfires that occurred in May 2014. The Senate amendments delete the Assembly version of this bill, and instead: 1)Provide that Internal Revenue Code (IRC) Section 165(i) shall apply to any losses sustained in the County of San Diego as a result of the wildfires that occurred in May 2014. 2)Provide that, for the losses specified above, 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 for the taxable year in which the disaster occurred. 3)Provide that, unless specifically provided otherwise, 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 a loss described above. 4)Contain a legislative finding that this bill fulfills a statewide purpose. 5)Provide that this bill shall take immediate effect as a tax levy. AB 922 Page 2 EXISTING LAW : 1)Provides for a deduction and the carryover to specified taxable years of specified losses sustained as a result of certain disasters occurring in California in an area determined by the United States President to warrant specified federal assistance or proclaimed by the Governor to be in a state of emergency. 2)Allows a taxpayer to elect to deduct those disaster losses on the return for the taxable year preceding the taxable year in which the disaster occurred. AS PASSED BY THE ASSEMBLY , this bill required the California Public Utilities Commission to authorize an electrical or gas corporation to verify, by the submission of proof of income, the continuing eligibility of a participant in the California Alternate Rates for Energy (CARE) program regardless of the means by which the participant was first enrolled in the CARE program. FISCAL EFFECT : The Franchise Tax Board estimates that this bill will reduce General Fund revenues by $7,000 in fiscal year (FY) 2013-14, by $3,000 in FY 2014-15, and by $3,000 in FY 2015-16. COMMENTS : The author has provided the following statement in support of this bill: May 5, 2014 marks the beginning of what could possibly be one of the most devastating fire seasons in San Diego County. In nearly three weeks, roughly 29,000 acres burned across the county from 19 separate fires. Conditions were intensified by high temperatures and the Santa Ana winds. It has been estimated that these fires have cost nearly $30 million in damage and destruction to personal and private property and another $30 million to fight the fires. Homes, schools and businesses experienced evacuation, and residents had their lives turned upside down. On May 15, 2014 Governor Brown declared a State of Emergency in San Diego County in response to the disastrous string of fires that ripped through the county. AB 922 Page 3 AB 922 will allow residents of San Diego County that suffered losses to their homes and businesses during the wildfires of May 2014 to elect to claim a deduction for those losses on the previous year's tax return by filing an amended return of that year's taxes resulting in an expedited payment for their losses. Assembly Revenue and Taxation Committee comments: The San Diego wildfires: On May 13, 2014, wildfires broke out in the County of San Diego, eventually burning several thousand acres. These fires destroyed structures, including homes, and damaged critical infrastructure, necessitating the evacuation of thousands of residents. Thus, on May 14, 2014, Governor Brown issued a state of emergency proclamation for the County of San Diego. 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. 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 impacted taxpayers to elect to deduct disaster losses on the return for the prior taxable year. AB 922 Page 4 This bill: This bill would apply the provisions of IRC Section 165(i) to losses sustained in the County of San Diego as a result of the May 2014 wildfires. IRC Section 165(i), in turn, provides that any loss attributable to a federally declared disaster may, at the taxpayer's election, be taken into account for the taxable year immediately preceding the taxable year in which the disaster occurred. As the author notes, this would allow for expedited refund payments to impacted taxpayers. This bill further specifies that this election may be made on a return or amended return filed on or before the due date of the return for the taxable year in which the disaster occurred. These provisions would apply to taxpayers under both the Personal Income Tax Law and the Corporation Tax Law. Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0005532