BILL ANALYSIS Ó AB 54 Page A Date of Hearing: May 11, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair AB 54 (Olsen) - As Amended April 22, 2015 Majority vote. Fiscal committee. Tax levy. SUBJECT: Public accommodations: construction-related accessibility standards: tax credit. SUMMARY: Modifies the Disability Access for Eligible Small Business Credit (Disabled Access Credit) to include the amount paid or incurred for a site to be inspected by a certified access specialist (CAS). Specifically, this bill: 1)Modifies, for taxable years beginning on or after January 1, 2016, under the Personal Income Tax (PIT) and Corporations Tax (CT) Law, the Disability Access credit to include the amount paid or incurred for a site to be inspected by a CAS. AB 54 Page B 2)Defines the terms "CAS," "inspected by a CAS," and "site" as having the same meaning as provided for by Civil Code Section 55.52. 3)Makes findings and declarations. 4)Takes effect immediately as a tax levy. EXISTING FEDERAL LAW: 1)Allows a credit to eligible small businesses related to costs paid or incurred for complying with the Americans with Disabilities Act (ADA). An eligible small business means an electing taxpayer with either gross receipts for the preceding taxable year of $1 million or less, or not more than 30 full-time employees during the preceding taxable year. The credit is computed as 50% of the eligible access expenditures for the taxable year in excess of $250 but not more than $10,250. 2)Provides that eligible access expenditures must be made to enable the qualified small business to comply with the ADA requirements, including costs to remove the architectural, communication, physical, or transportation barriers of persons with disabilities. Costs also include qualified interpreters or equipment to make materials available to person with hearing impairments, costs of qualified readers or equipment to make material available to persons with visual impairments, and costs to acquire or modify equipment for persons with disabilities. AB 54 Page C 3)Provides that the tax credit may be used against the net tax of the taxpayer and the excess, while not refundable, is available for carryback to the immediately preceding tax year and may be carried forward to the following 20 taxable years or until exhausted. Taxpayers may not increase the adjusted basis of property or claim any deduction for eligible access expenditures that qualify for the credit. EXISTING STATE LAW: 1)Allows, in modified conformity to federal law, a tax credit for the amount paid or incurred by eligible small business for the improvements to the property in order to provide access to disabled individuals of up to 50% of the eligible access expenditures for the taxable year, but not to exceed $250. The maximum allowed to a small business is $125. 2)Defines a "CAS" as a person that has met the certification requirements as provided for by the State Architect. FISCAL EFFECT: The Franchise Tax Board (FTB) estimate General Fund revenue loss of $1,000 in fiscal year (FY) 2015-16, $4,000 in FY 2016-17, and $4,000 in FY 2017-18. COMMENTS: 1)Arguments in Support : According to the California Chamber of Commerce, "small businesses have, unfortunately, been targeted by a limited group of attorneys to leverage extortion-type settlements for technical construction-related standards, which do not actually impeded physical access to the facility for disabled patrons. For example, the California Commission on Disability Access has a top 10 list of construction-related AB 54 Page D accessibility claims set forth in demand letters or complaints, which includes alleged violations for failure to have the appropriate signage or symbol. Such violations do not necessarily impede physical access to the facility and could easily be resolved. However, businesses are pressured into paying settlements for these lawsuits instead of focusing their financial resources on improving access at their place of business." 2)Tax Expenditure vs. Direct Expenditure : Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. 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). Former Federal Reserve Chairman Alan Greenspan has stated that tax expenditures are "misclassified" because they are identical to outlays. Additionally, Gregory Mankiw, who led President George W. Bush's Council of Economic Advisers, calls expenditures "stealth spending implemented through the tax code."<1> 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. While this affords taxpayers greater financial predictability, 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 -------------------------- <1> Ezra Klein, Wonkbook: Tax Spending vs. Government Spending, Washington Post, 2012. AB 54 Page E existing tax expenditure absent a sunset date, effectively resulting in a "one-way ratchet" whereby tax expenditures can be conferred by a majority vote, but cannot be rescinded, irrespective of their cost or efficacy, without a supermajority vote. This bill creates an appropriation of funds, in the form of a tax credit, as a way of encouraging individuals to move forward with a site inspection. 3)Certified Access Specialist Program (CASP) : The CASP was created by SB 262 (Kuehl), Chapter 872, Statutes of 2003, and is designed to meet the public's need for experienced, trained, and tested individuals who can inspect buildings and sites for compliance with applicable state and federal construction accessibility standards. Federal and state disability laws are considered to be complicated and the CASP helps businesses become aware of potential violations. After reaching out to several certified specialists, it was found that a site inspection can cost anywhere between $500 and $3,000, depending on the workload. Some inspections are conducted early in the designs and construction process but others are conducted post-construction because of litigation or fear of litigation. 4)Encouraging Compliance : It is unclear to Committee staff if a nominal amount of $125 will have the desired effect of encouraging compliance with federal and state disability laws. As noted above, inspections can cost upwards of $3,000, and several certified specialists cited $1,500 as the average cost for an inspection. The $125 tax credit would be less than 10% of the average cost of inspecting a facility. Additionally, individuals may not be aware that a credit exists. According to the FTB, in 2012 taxpayers claimed a total of $40,000 in Disability Access Credits. If awareness is an issue, AB 54 Page F taxpayers may be less likely to be influenced by a tax credit, irrespective of the amount. Finally, according to several specialists, conducting a site inspection does not always lead to greater compliance. The cost may be too expensive for the owner to comply with recommendations, even though the modifications could qualify the taxpayer for a maximum federal Disability Access Credit of $5,125. As a result, accessibility is not always improved. If anything, having the site inspected by a CAS may serve only to put the owner on notice that the property fails to meet disability access standards. 5)Ignorance of the Law Excuses No One : When opening a business, an individual must become knowledgeable of extremely complicated areas of the law: environmental, employment, privacy, worker safety, health, intellectual property, advertising, and tax law to name a few. Despite the broad range of local, state, and federal laws effecting business owners, the legal system is based on the principle that ignorance of the law excuses no one. If ignorance was an excuse, individuals charged with criminal offenses or subject to civil suits could escape liability by claiming ignorance. The principal also holds that a person engaged in an activity outside what is common must make themselves aware of the law that is necessary to engage in that activity. Furthermore, the government does not, in general, subsidize a business owner's education of relevant laws. The government does not pay for a tax attorney to advise a business owner on how to properly structure his/her company, nor does the government pay for a certified public account to certify that a business owner's financial statements comply with generally accepted accounting principles. As such, the Committee may wish to consider whether it is appropriate to subsidize the education of relevant disability access laws, especially since it may not actually lead to greater disability access. 6)Double Referral : This bill was double-referred to the Assembly Committee on Judiciary, which passed this bill on April 21, 0215, with a vote of 10-0. For additional AB 54 Page G discussion of this bill, please refer to the analysis prepared by the Assembly Committee on Judiciary. REGISTERED SUPPORT / OPPOSITION: Support Auburn Chamber of Commerce Building Owners and Managers Association California California Apartment Association California Building Industry Association California Business Properties Association California Chamber of Commerce California Restaurant Association Camarillo Chamber of Commerce Chamber of Commerce Alliance Ventura and Santa Barbara Counties AB 54 Page H Chamber of Commerce Mountain View Chamber of the Santa Barbara Region Civil Justice Association of California Fairfield-Suisun City Chamber of Commerce Fullerton Chamber of Commerce Goleta Chamber of Commerce Greater Fresno Area Chamber of Commerce Half Moon Bay Coastside Chamber of Commerce International Council of Shopping Centers Lake Tahoe South Shore Chamber of Commerce Lodi Chamber of Commerce NAIOP - Commercial Real Estate Development Association North Lake Tahoe Chamber of Commerce AB 54 Page I Oxnard Chamber of Commerce Palm Desert Area Chamber of Commerce Rancho Cordova Chamber of Commerce Redondo Beach Chamber of Commerce & Visitors Bureau San Diego County Apartment Association San Diego Regional Chamber of Commerce Simi Valley Chamber of Commerce South Bay Association Chambers of Commerce Southwest California Legislative Council Torrance Area Chamber of Commerce Opposition None on file AB 54 Page J Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916) 319-2098