BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          SB 355 (Beall) - Conservation: Tax Credits
          
          Amended: May 7, 2013            Policy Vote: G&F 7-0, NR&W 8-1
          Urgency: No                     Mandate: No
          Hearing Date: May 20, 2013      Consultant: Robert Ingenito
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: SB 355 would allow taxpayers to transfer their  
          Natural Heritage Preservation Tax Credit to an unrelated  
          taxpayer upon approval and certification by the Wildlife  
          Conservation Board (WCB). 

          Fiscal Impact: The Franchise Tax Board (FTB) estimates that this  
          measure would result in revenue losses (General Fund) of  
          $700,000 million in 2013-14, $3.4 million in 2014-15, and $4.5  
          million in 2015-16. FTB indicates that the bill would not  
          significantly impact its own costs. Costs to WCB are unknown,  
          but likely minor.

          Background: The Legislature enacted the Natural Heritage  
          Preservation Tax Credit to compensate landowners who donate land  
          to the state for preservation purposes.  To qualify for the  
          credit, landowners must apply to WCB for approval to donate a  
          parcel of property and for certification that the property meets  
          certain requirements.  If WCB approves the contribution, the  
          landowner may claim a tax credit equal to 55 percent of the  
          property's fair market value, and carryover the credit for eight  
          years.   

          After its enactment in 2000, the Legislature suspended the  
          program for budgetary reasons, but also expanded and extended  
          the Credit program.  The Legislature suspended the credit for  
          the 2002 and 2003 taxable years, and again for the 2004 and 2005  
          taxable years unless WCB reimbursed the General Fund for the  
          credit's costs. The Legislature then allowed bond funds to  
          reimburse the General Fund for the tax credit's costs.  WCB  
          awarded $48.6 million in credits through 2006-07, but taxpayers  
          only claimed $23.4 million, for an average of $4 million per  
          year.  In 2010, the Legislature again reauthorized the credit  
          until 2015, but hasn't yet awarded any credits.








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          Generally, the State doesn't permit taxpayers to buy and sell  
          credits against its taxes; however, the motion picture  
          production tax credit allows taxpayers that make independent  
          films to sell tax credits. The California Tax Credit Allocation  
          Committee allocates Low Income Housing Tax Credit to housing  
          developers, who then form partnership agreements with private  
          investors who provide capital contributions necessary to build a  
          housing project in exchange for tax credits.

          Proposed Law: SB 355 would allow taxpayers approved for Natural  
          Heritage Preservation Tax Credits to transfer the entire tax  
          credit or parts of it to an unrelated taxpayer.  

          Taxpayers must indicate to WCB interest in transferring the  
          credit when applying.  WCB must maintain a list of parties  
          interested in acquiring a credit, and shall collect all required  
          information necessary to transfer the credit.  WCB shall match  
          projects with donors, but all parties must agree to a transfer.   
          WCB shall establish procedures as needed to facilitate  
          transfers, including escrow accounts, and shall supply the  
          Franchise Tax Board (FTB) with a certificate evidencing the  
          transfer.

          Staff Comments: This program acts as an economic incentive that  
          allows property owners to donate land or conservation easements  
          to the state to preserve fish and wildlife habitat, recreational  
          lands, open space, and agricultural and cultural lands.  The  
          advantage to the donor of participating in the NHPTC program  
          are: the 55 percent state tax credit that can be carried forward  
          to cover tax liabilities for up to eight years; a federal tax  
          credit for donating lands for these purposes; and the ability to  
          avoid paying federal capital gains taxes on the value of the  
          donated land.  The program also allows a donee (state or local  
          agency) to acquire conservation lands at 55% of the fair market  
          value.

          To the extent that taxpayers are transferring tax credits  
          because they lack sufficient tax liability to use them, the  
          State would lose money that it otherwise would have received.












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