BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1335|
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THIRD READING
Bill No: SB 1335
Author: Leno (D)
Amended: 4/2/14
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 4-2, 4/30/14
AYES: Wolk, DeSaulnier, Hernandez, Liu
NOES: Knight, Walters
NO VOTE RECORDED: Beall
SUBJECT : Income and corporation taxes: credits: information
SOURCE : Author
DIGEST : This bill provides that any bill that enacts a credit
against the Personal Income Tax Law or Corporation Tax Law for
taxable years beginning on or after January 1, 2015, apply
performance measurement standards to the tax expenditures, as
specified.
ANALYSIS : Existing law allows various income tax credits,
deductions, and sales and use tax exemptions to provide
incentives to compensate taxpayers that incur certain expenses,
such as child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits. The Legislature typically enacts such tax
incentives to encourage taxpayers to do something that but for
the tax credit, they would not do. The Department of Finance
(DOF) is required to annually publish a list of tax expenditures
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This bill provides that any bill that enacts a credit against
the Personal Income Tax Law or Corporation Tax Law for taxable
years beginning on or after January 1, 2015, contain:
Specific goals, purposes, and objectives that the tax credit
will achieve.
Detailed performance indicators for the Legislature to use
when measuring whether the tax credit met its specific goals,
purposes, and objectives.
Data collection requirements to enable the Legislature to
determine whether the tax credit is meeting, failing to meet,
or exceeding its goals, purposes, and objectives. The
requirements shall include specific data and baseline data to
be collected and remitted in each year the credit is
effective, and the specific taxpayers, state agencies, or
other entities required to collect and remit data.
This bill also makes legislative findings regarding tax
preferences generally and their current fiscal impact on federal
and state governments.
Prior Legislation
This bill is similar to SB 1272 (Wolk, 2010), lacking only the
latter bill's mandatory sunset requirement on new tax
expenditures. Governor Schwarzenegger vetoed SB 1272, stating:
I am returning Senate Bill 1272 without my signature. While
the sponsors seem intent on eliminating measures that will
generate jobs and stimulate the economy, the average
California taxpayer would probably be better served if the
Legislature were willing to automatically sunset every new
spending entitlement, program expansion and business mandate
after 7 years.
SB 1272 was almost identical to SB 508 (Wolk, 2012), which
Governor Brown vetoed, stating:
While I agree that we should consider sunset clauses for
personal income and corporate tax credits, one size does not
fit all. The legislature should examine all its bills to
determine how long they should exist or, indeed, whether they
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should exist at all.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 5/1/14)
California Conference of Machinists
California Conference of the Amalgamated Transit Union
California School Employees Association
Engineers & Scientists, IFPTE Local 20
International Longshore and Warehouse Union, Coast Division
Professional & Technical Engineers, IFPTE Local 21
UNITE HERE
Utility Workers Union of America, Local 132
ARGUMENTS IN SUPPORT : According to the author's office, tax
expenditures are spending programs implemented through the tax
code. These programs give people and businesses special tax
credits, deductions, exclusions, exemptions, deferrals, and
preferential rates in support of various government policies.
National and state public finance experts recommend that tax
preferences be evaluated alongside direct spending programs, as
both are public initiatives meant to accomplish specified goals.
For example, families in our state who receive child care,
health care, and other state supports are subject to strict
reporting and eligibility requirements. Businesses that work
with the state are subject to strict performance based contracts
to ensure they meet goals set out by the state. Tax
expenditures, however, do not include similarly stringent
accountability measures and face less oversight than many
activities on the direct spending side of the budget. The lack
of scrutiny makes it difficult for government to demonstrate
transparency and accountability when investing public dollars in
economic incentives such as tax preferences.
Revenue losses attributable to federal tax preferences exceed
any other category of federal spending, including defense,
Medicaid and Medicare, Social Security, debt service, or
discretionary spending. According to DOF, California now
forgoes more than $47 billion in revenue from tax preferences.
Many current tax preferences do not contain goals or objectives
to measure the performance of the tax preference, making it
difficult for the Legislature to evaluate their effectiveness.
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This bill provides the Legislature with the tools to apply the
same level of review and performance measure to tax preference
programs that it applies to spending programs.
AB:k 5/1/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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