BILL ANALYSIS �
AB 1077
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Date of Hearing: June 10, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1077 (Muratsuchi and Ting) - As Amended: June 6, 2013
SUSPENSE
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: vehicle license fee: exclusion:
alternative fuel motor vehicles
SUMMARY : Provides a partial Sales and Use Tax (SUT) exemption
for qualified motor vehicles (QMV), as specified. Reduces the
amount of vehicle license fee (VLF) imposed on an owner of a
QMV. Specifically, this bill :
1)Exempts from the determination of market value of a QMV, for
purposes of computing the VLF, the sum of the following
amounts:
a) The amount allowed as a credit under the Qualified
Plug-in Electric Drive Motor Vehicle under Internal Revenue
Code (IRC) Section 30D, and
b) Any state incentive amount received, awarded, or allowed
under:
i) The Clean Vehicle Rebate Project;
ii) The California Hybrid and Zero-Emission Truck and
Bus Voucher Incentive Project (HVIP); or,
iii) The On-Road Heavy-Duty Voucher Incentive Program
(VIP) under the Carl Moyer Program.
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2)Provides a partial SUT exemption for the purchase or use,
whichever is applicable, of a QMV. Specifies that the SUT
exemption amount shall be equal to the greater of the
following:
a) The sum of any amount allowed under:
i) The Qualified Plug-in Electric Drive Vehicle tax
credit;
ii) The Clean Vehicle Rebate Project;
iii) The California HVIP; and,
iv) The VIP under the Carl Moyer Program.
b) The gross receipts measured by the value of a motor
vehicle traded in for a QMV.
3)Provides that, notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, the exclusion shall not apply with respect to any
tax levied by a county, city, or district pursuant to those
laws.
4)The exemption established by this bill does not apply with
respect to any tax levied pursuant to either Section 6051.2 or
6201.2, or pursuant to Section 35 of Article XIII of the
California Constitution.
5)Defines a QMV as a vehicle that receives, or is awarded or
allowed, any of the following:
a) A credit for a Qualified Plug-in Electric Drive Motor
Vehicle under Section 30D of the IRC; or,
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b) A state incentive under the Clean Vehicle Rebate
Project, the California HVIP, or the VIP under the Carl
Moyer Program.
6)Provides that the exemption shall apply on or after January 1,
2014, and sunsets on January 1, 2022.
7)Takes effect immediately as a tax levy.
EXISTING STATE LAW :
1)Imposes a SUT on the sale of, or the storage, use, or other
consumption of, tangible personal property (TPP), unless
specifically exempted.
2)Provides that the SUT must be computed based on the sales
price of the good sold.
3)Imposes a VLF upon vehicle owners for each vehicle owned and
computes the VLF based upon the market value of the vehicle.
4)Provides that the annual amount of the VLF for any vehicle is
0.65% of the market value of the vehicle.
5)Authorizes counties and cities to impose local SUTs on TPP.
6)Provides rebates of up to $2,500 for the purchase of
zero-emission and plug-in hybrid electric vehicles under the
Clean Vehicle Rebate Project. The rebates are available for
light-duty cars and trucks, low-speed neighborhood electric
cars, and zero-emission motorcycles.
7)Offers vouchers from $8,000 to $45,000, on a first-come,
first-served basis, to offset approximately half of the
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additional cost of eligible new hybrid and electric trucks and
buses under the California HVIP.
8)Offers vouchers from $10,000 to $45,000 for 10 or fewer
vehicle fleets to quickly replace or retrofit older heavy-duty
diesel vehicles under the Carl Moyer Program - VIP.
EXISTING FEDERAL LAW provides an income tax credit of up to
$7,500 for purchases of electric and plug-in hybrid electric
vehicles, which include passenger vehicles and light trucks.
The credit amount varies based on the capacity of the battery
used to fuel the vehicle. Small neighborhood electric vehicles
do not qualify.
FISCAL EFFECT : Unknown.
COMMENTS :
1)The authors have provided the following statements in support
of this bill:
Assemblymember Muratsuchi states that "[a]lternative fuel
vehicles provide benefits to California citizens that are
external to the cost to the purchaser. These benefits
include: increasing our national independence from foreign
energy sources; providing more economical and sustainable
transportation choices for consumers and businesses, thus
reducing our economic vulnerability to sudden fuel price
increases caused by external events; reducing air pollutants,
climate change pollutants and toxic emissions from mobile
sources; reducing future pressures for additional
environmental controls on existing and new businesses and
industries in California; and creating new advanced
transportation technology jobs and industries in California.
These benefits should be reflected in state tax policy and
fees."
Additionally, Assemblymember Ting states that "[i]n the last
quarter century, California has taken the lead in reducing
greenhouse gas emissions through its development of innovative
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technologies and driving markets toward more efficient and
effective lifestyle choices for the health of our communities
and our planet. This is due in part to the policies enacted
by this legislature to reward those who make these choices
that, in turn, are an investment in a cleaner, healthier
future for all of us. This bill enhances an existing program
that encourages those who make an investment in a clean air
vehicle by making these cars most affordable to the consumer."
2)Committee Staff Comments:
a) Vehicles covered : This bill provides tax incentives for
vehicles covered under specified federal and state
incentive programs. The vehicles eligible for the
Qualified Plug-in Electric Drive Motor Vehicle federal tax
credit are electric and plug-in hybrid electric vehicles,
which include passenger vehicles and light trucks.
Vehicles eligible for the Clean Vehicle Rebate Project
include light-duty zero-emission vehicles, light-duty
plug-in hybrid electric vehicles, neighborhood electric
vehicles, and zero-emission motorcycles. Some of the car
models eligible for the federal and state subsidies include
the Honda Accord Plug-In Hybrid, the Tesla Model S, the
Nissan Leaf, the Chevrolet Volt, the Ford Fusion Energi,
and the Fiat 500e. Vehicles under the California HVIP and
the VIP programs include clean, low-carbon hybrid and
electric trucks and buses.
b) What does this Bill Do? : The first provision of this
bill provides a partial exemption from the SUT by reducing
the sales price of a QMV by a value equal to any applicable
federal and state incentive program or the value of a
trade-in vehicle, whichever is greater. As an example, the
Nissan Leaf would qualify for a $7,500 credit under the
Qualified Plug-in Electric Drive Motor Vehicle and a $2,500
credit under the Clean Vehicle Rebate Project. The partial
sales tax exemption would be computed based on the sales
price of the Nissan Leaf, which has a manufacturer's
suggested retail price (MSRP) of $28,800, minus the $10,000
in federal and state credits. In this example, the SUT
would be computed based on a sales price of $18,800.
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However, if a person trades in their old BMW and receives
$12,000 for the car, the partial sales tax exemption would
be computed based on the $28,800 MSRP minus the $12,000,
for a total sales price of $16,800.
The second provision of this bill would reduce the VLF
amount by decreasing the market value of the QMV. The
reduction in market value of the QMV is equal to any amount
received under federal or state incentive programs. Under
this provision, a person purchasing a Nissan Leaf would pay
the VLF based on a market value of $18,800 ($28,800 MSRP -
$10,000 federal and state credit = $18,800). It should be
noted that this bill, as currently written, would only
allow the VLF reduction in the year of the purchase. The
author may wish to amend this bill to provide this
exemption for subsequent years.
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, 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 partial SUT exemption and a VLF exemption for QMVs.
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 bill includes a sunset date of
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January 1, 2022.
c) More subsidies than homeownership? : Both federal and
state and local governments provide a myriad of subsidies
for alternative fuel vehicles (AFVs). The federal
government provides an income tax credit of up to $7,500
for electric vehicles, depending on its battery capacity.
California provides tax credits of up to $2,500 for the
purchase of zero-emission and plug-in hybrid electric
vehicles under the Clean Vehicle Rebate Project.
California also provides vouchers from $8,000 to $45,000 to
offset approximately half of the additional cost of
eligible new hybrid and electric trucks and buses under the
California HVIP. The state also offers vouchers from
$10,000 to $45,000 for 10 or fewer vehicle fleets to
quickly replace or retrofit older heavy-duty diesel
vehicles under the Carl Moyer Program - VIP. Additionally,
state and local governments provide non-cash incentive
programs for purchasing specified AFVs. Under a white or
green sticker designation, certain vehicles are allowed to
use the carpool lane regardless of number of occupants.
Finally, cities like Sacramento provide free parking and
recharging at designated parking facilities for specified
AFVs.
d) Addressing environmental concerns : California provides
strong regulations with respect to fuel and automobiles.
According to the California Air Resources Board, the
California Reformulated Gasoline Program set stringent
standards that produced cost-effective emissions reductions
from gasoline powered cars. Over the last 20 years, a
number of chemicals and additives, including lead, have
been removed from California gasoline to make fuel cleaner.
Automobiles are also required to use catalytic converters
and pass periodic smog checks. The federal government has
also required automakers to produce cars and trucks with an
average fuel economy of 54.5 miles per gallon by 2025.
e) Negative externalities : In economics, a negative
externality is a cost which results from an activity or
transaction which affects an otherwise uninvolved party who
did not choose to incur that cost. With respect to the
environment, externalities are generally considered
negative because the use of certain resources impose a cost
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on society, but the user of that resource is not charged
the price equal to the cost imposed. For example, the
smoke emitted by a gasoline engine worsens the air quality
for neighbors, but the operator of the gasoline engine only
pays for the price of fuel, not the use of the clean air.
Thus, the negative externality is the pollution of the
clean air. The state can choose several avenues to
encourage environmental polluters to consider the negative
externalities when making choices about the pollution they
generate. The most common types of incentives are taxes,
subsidies, quotas, and tradable permits. The authors of
this bill express a need to reduce green-house gasses, air
pollutants, and toxic emissions by incentivizing consumers
to purchase QMVs that are better for the environment.
In a supply and demand model, the supply curve can be
thought of as marginal cost and the demand curve can be
thought of as marginal benefit. Equilibrium is reached
where the marginal cost equals marginal benefit.
Everything to the left of the equilibrium point and between
the marginal benefit and marginal cost curves is a benefit
to society because the marginal benefit is higher than the
marginal cost. However, in light of environmental
pollution, the marginal cost may not necessarily capture
the negative externalities (e.g., pollution, health
problems, global warming) borne by society. Therefore, the
marginal cost may actually be higher than expected.
Ideally, society would want the individual's marginal cost
and society's marginal cost to be the same. In other
words, it would be better if the person purchasing the
gasoline paid a price that includes the costs associated
with polluting clean air. This could be accomplished by
imposing a tax. In fact, California imposes an excise fuel
tax on gasoline at a rate of $0.36 a gallon. The rate will
increase to $0.39 per gallon effective July 1, 2013.
This tax lowers consumption of gasoline, mitigating some of
the pollutants expelled by gasoline powered vehicles.
The remedy seems relatively straight forward; the state can
either impose a tax, a subsidy, or a quota so that user may
internalize the cost borne by society, but how does one
accurately quantify the cost of pollution, damage to the
environment, the elimination of wild life, or increased
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health problems to society? Clearly, the task is
difficult, and without additional information, the
exemption amounts in this bill seem somewhat arbitrary.
Furthermore, in light of all the taxes, subsidies, and
governmental regulation already in place, it is unclear to
committee staff why a new subsidy is needed.
f) Who benefits? : AB 1077 provides a partial SUT and VLF
exemption to individuals purchasing vehicles like the
Chevrolet Volt ($39,145 MSRP), Toyota RAV4 EV ($49,800
MSRP), Ford Fusion Energi ($38,700 MSRP), and even the
Tesla Model S ($94,900 MSRP). Many of these vehicles will
likely be purchased by individuals with higher incomes.
This committee may wish to consider whether it is prudent
to reward higher income individuals who would have likely
purchased a QMV irrespective of this additional proposed
subsidy.
g) Similar Legislation :
i) AB 220 (Ting), introduced in the current legislative
session, provides a variety of incentives to encourage
the purchase and use of low-emission vehicles (LEVs) in
California. Among them, it exempts LEV purchases from
state SUT until January 1, 2018. The vehicle trade-in
provisions of AB 220 have been combined with the
provisions of AB 1077.
ii) SB 221 (Pavley), introduced in the current
legislative session, exempts from the SUT any amount
allowed as a federal tax credit, and any amount received,
awarded, or allowed under a state AFV incentive program.
SB 221 was not heard at the request of the author.
iii) AB 1304 (Saldana), introduced in the 2009
legislative session, would have exempted the sale and
purchase of electric vehicles, as defined, from state and
local SUTs. The exemption would have been limited to 100
electric vehicles per manufacturer. AB 1304 died in the
Assembly.
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iv) AB 554 (Campbell), introduced in the 2001
legislative session, would have exempted a specific
percentage of the gross receipts from sales of ultra-low
emission vehicles, super ultra-low emission vehicles,
partially zero emission vehicles, zero emission vehicles,
and advanced technology partial zero emission vehicles
from the state SUT. AB 554 died in the Assembly.
v) AB 2085 (Ortiz), introduced in the 1998 legislative
session, would have exempted the sale of a new
low-emission vehicle, as defined, from state and local
SUTs. AB 2085 was held in the Assembly Appropriations
Committee without further action.
vi) SB 1096 (Brulte), introduced in the 1997 legislative
session, would have exempted the incremental costs of
purchasing certain heavy motor vehicles whose engines
meet specific requirements. SB 1096 died in the Senate.
vii) AB 3162 (Burton), introduced in the 1996 legislative
session, would have exempted the incremental costs of
purchasing a new low-emission vehicle or the full cost of
purchasing a retrofit device to convert a conventional
vehicle into a low-emission vehicle. AB 3162 died in the
Assembly.
viii) SB 780 (Leonard), introduced in the 1995 legislative
session, would have exempted the incremental costs of
purchasing a low-emission vehicle or the full cost of
purchasing a retrofit device to make a vehicle
low-emission in its operation. SB 780 died in the
Senate.
h) Technical amendments : Committee staff suggests the
following technical amendments to this bill:
i) On page 4, line 5, insert "or" before the first word
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of the line.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098