BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1422 HEARING: 7/3/13
AUTHOR: Committee on Jobs, Economic Development & the
Economy
VERSION: 6/19/13 FISCAL: Yes
CONSULTANT: Miller TAX LEVY: No
CALIFORNIA ALTERNATIVE ENERGY & ADVANCED TRANSPORTATION
FINANCING AUTHORITY: PARTICIPATING PARTY
Makes several changes to the CAEATFA program within the
Treasurer's Office.
Background and Existing Law
The California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA) provides
financing through conduit or revenue bonds, loan
guarantees, loan loss reserves and a sales and use tax
exemption for facilities that use alternative energy
sources and technologies. CAEATFA also provides these
financing mechanisms for facilities needed to develop and
commercialize advanced transportation technologies that
conserve energy, reduce air pollution, and promote economic
development and jobs. CAEATFA's board, composed of the
Treasurer, Controller, Director of Finance, Chairperson of
the Energy Commission, and President of the Public
Utilities Commission, decides which projects to assist. On
March 24, 2010, Governor Arnold Schwarzenegger signed SB 71
(Padilla) which authorizes the CAEATFA to provide eligible
projects financial assistance in the form of a sales and
use tax exemption on property used for the "design,
manufacture, production, or assembly" of either advanced
transportation technologies or alternative energy source
products, components or system. Prior to the passage of SB
71, Governor Schwarzenegger used CAEATFA to assist a joint
venture between Tesla Motors and Toyota Motors to purchase
the NUMMI assembly plant in Fremont, California where the
two companies focus on manufacturing hybrid and electric
vehicles, including the TESLA brand.
AB 1422 -- 6/19/13 -- Page 2
The SB 71 program promotes the creation of California-based
manufacturing, California-based jobs, and the reduction of
greenhouse gases, air and water pollution, or energy
consumption. To date, CAEATFA has approved financial
assistance for private entities in the following fields:
electric vehicle manufacturing, solar photovoltaic
manufacturing, landfill gas capture and production, biogas
capture and production (dairies and waste water treatment
plants), demonstration hydrogen fuel production, electric
vehicle battery manufacturing, biomass processing and fuel
production, and others. Last year, the Legislature added
"advanced manufacturing" to the list of projects eligible
for the exemption, and capped the amount of exemptions
awarded annually to $100 million. The Legislature also
approved a study by GO-Biz in conjunction with the study
(SB 1128, Padilla).
The Treasurer's office provides the following estimates of
awards "drawn down" or actually used:
2010: $16.8 M
2011: $21.7 M
2012: $10.5 M
2013: $4.2 M
Eligibility Criteria . Applicants must show the property to
be purchased will be used to design, manufacture, produce
or assemble an eligible advanced transportation technology
or alternative source product - including energy efficiency
- component or system. Each applicant must pass the "net
benefits test," by showing that the new project's
environmental and economic benefits exceed the fiscal loss
of granting the exemption. Applicants are awarded the
sales and use tax exemption by CAEATFA and are all publicly
disclosed on their website and in annual report documents.
This definition includes manufacturers of alternative
source electricity generation equipment such as solar
panels or wind turbines, but it excludes the purchase of
that equipment for power generation.
Sales & Use Tax Exemption for manufacturing . AB 93
(Committee on Budget,
2013) passed by the Senate on June 25, 2013 allows for an
exemption from the
state portion (4.19%) of the sales and use tax, beginning
July 1, 2014 and before
AB 1422 -- 6/19/13 -- Page 3
January 1, 2019 for state wide purchases or before July 1,
2121 for purchases
made in the former enterprise zones or areas of high
unemployment and poverty
according the US Census. The exemption will be limited
annually to the first
$200 million of eligible purchases by a qualified purchaser
defined as manufac
turers or processors engaged in manufacturing, research &
development or
processing according to the North American Industry
Classification System (NA
ICS), but excluding extractive industries:
NAICS Codes 3111 through 3399 include all
establishments primarily engaged in manufacturing
activities. This encompasses manufacturers in the
aerospace sector, textiles, pharmaceuticals,
printing, food and others.
NAICS Code 541711 includes establishments
primarily engaged in conducting biotechnology
research and experimental development. This
encompasses industries using microorganisms and
cellular and bio-molecular processes to develop or
alter materials.
NAICS Code 541712 includes establishments
primarily engaged in conducting research and
experimental development in the physical, engineering
and life sciences. This encompasses activities in
agriculture, electronics, environmental biology,
botany, computers, chemistry, food, fisheries,
forest, geology, health, mathematics, medicine,
oceanography, pharmacy, physics, veterinary and other
allied fields.
Qualified tangible personal property must be used at least
50% of the time by the qualified purchaser in any stage of
manufacturing, processing, refining, fabricating, or
recycling of tangible personal property; for purposes of
research and development; to maintain, repair, measure, or
test tangible personal property; and, if purchased by a
contractor, used as an integral part of the manufacturing,
processing, refining, fabricating, or recycling process, or
AB 1422 -- 6/19/13 -- Page 4
as a research and storage facility for use in connection
with those processes.
Qualifying purchases that are removed from the state, or
used for unqualified activities, within one year of the
purchase will be subject to a 'claw-back' equal to the
value of the SUT exemption. The purchaser of the
property will be liable for the payment of the sales or
use tax that would otherwise have been collected from
the seller absent the provision of the exemption.
Proposed Law
Assembly Bill 1422 makes several changes to the CAEATFA
statute to clarify existing law, broaden aspects of the
program within the cap, and changes aspects of the cap.
AB 1422 clarifies that an entity that is located outside
the state, including those located overseas, is considered
a "participating party" for the purpose of the Finance
Authority's sales tax exemption program if the equipment is
purchased and utilized within the state (as amended).
AB 1422 deletes a requirement that GO-Biz review and
identify efficient and cost-effective methods for the state
to create jobs in advanced manufacturing and report their
findings to the Legislature by January 1, 2017.
AB 1422 modifies the definition of advanced manufacturing
to include either of the following rather than both of the
following.
1. Systems that result from substantive
advancement, beyond the current industry standard,
in the production of materials and products.
2. Sustainable manufacturing systems and
manufacturing technologies that minimize the use of
resources while maintaining or improving cost and
performance. These systems and manufacturing
technologies may not include those required to be
undertaken pursuant to state or federal law or
regulations.
AB 1422 requires that any portion of the $100 million not
AB 1422 -- 6/19/13 -- Page 5
granted through the sales and use tax exclusion be
available in the subsequent calendar year, but provides
that the amount shall not exceed $200 million.
State Revenue Impact
Unknown.
Comments
1. Purpose of the bill . AB 1422 is the Assembly Committee
on Jobs, Economic Development, and the Economy's code
maintenance and technical clean-up bill for programs
administered through the California Alternative Energy and
Advanced Transportation Financing Authority. Each of the
issues has been brought forward by one or more stakeholder
groups. Language in the bill has been developed in
consultation with the Senate and Assembly policy committees
which also oversee the programs of the Authority.
2. Amendments . The author will take amendments in
committee to clarify that property must be purchased and
used in this state as follows:
(8)(A)"Project" means a land, building, improvement to the
land or building, rehabilitation, work, property, or
structure, real or personal, stationary or mobile,
including, but not limited to, machinery and equipment
purchased and utilized in the state , whether or not in
existence or under construction, that utilizes, or is
designed to utilize, an alternative source, or that is
utilized for the design, technology transfer, manufacture,
production, assembly, distribution, or service of advanced
transportation technologies or alternative source
components.
(B)"Project," for purposes of Section 26011.8 and Section
6010.8 of the Revenue and Taxation Code, means tangible
personal property that is utilized purchased and utilized
in the state for the design, manufacture, production, or
assembly of advanced manufacturing, advanced transportation
technologies, or alternative source products, components,
or systems.
AB 1422 -- 6/19/13 -- Page 6
Assembly Actions
Assembly Jobs, Economic Development & the Economy9 -0
Assembly Revenue & Taxation 8-0
Assembly Appropriations 17-0
Assembly Floor 70-0
Support and Opposition (6/27/13)
Support : Unknown.
Opposition : Unknown.