BILL ANALYSIS Ó
AB 88
Page A
Date of Hearing: April 20, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 88
(Gomez) - As Amended April 6, 2015
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use taxes: exemption: energy or water
efficient home appliances
SUMMARY: Establishes a sales and use tax (SUT) exemption for
any "energy or water efficient home appliance" purchased by a
"public utility" that is provided at no cost to a "low-income
participant" in a federal, state, or ratepayer-funded energy
efficiency program for use by that "low-income participant" in
the energy efficiency program. Specifically, this bill:
1)Provides that any amounts that would have been paid as sales
tax reimbursement or use tax by the "public utility" but for
AB 88
Page B
the exemption must be used by the public utility to purchase
additional "energy or water efficient home appliances" to be
provided at no cost to "low-income participants" in the energy
efficiency program.
2)Defines an "energy or water efficient home appliance" as a
refrigerator, dishwasher, washer, dryer, or other appliance
that meets performance requirements under the ENERGY STAR
program, established pursuant to Section 6294a of Title 42 of
the United States Code.
3)Defines a "public utility" as an entity defined in Public
Utilities Code (PUC) Section 216 or 224.3.
4)Defines a "low-income participant" as any person who is, or
who is residing in a home with a person who is:
a) A recipient of Medi-Cal, CalFresh, CalWORKs,
Supplemental Security Income, Special Supplemental
Nutrition Program for Women, Infants, and Children,
Low-Income Home Energy Assistance Program, State Utility
Assistance Supplement, or some other state or federal means
tested program; or,
b) Able to certify that their gross income, not including
any amount of food assistance, is less than 200% of the
federal poverty guidelines.
5)Provides that, notwithstanding Revenue and Taxation Code
Section 2230, the state shall not reimburse any local agency
for any SUT revenues lost as a result of this exemption.
AB 88
Page C
6)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW establishes ENERGY STAR as a voluntary
program within the Department of Energy and the Environmental
Protection Agency to identify and promote energy-efficient
products and buildings in order to reduce energy consumption,
improve energy security, and reduce pollution. (42 United
States Code Section 6294a.)
EXISTING STATE LAW:
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Imposes a complimentary use tax on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax is imposed on the purchaser, and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must generally be
remitted to the State Board of Equalization (BOE).
3)Defines a "public utility" to include every common carrier,
toll bridge corporation, pipeline corporation, gas
corporation, electrical corporation, telephone corporation,
telegraph corporation, water corporation, sewer system
corporation, and heat corporation, where the service is
performed for, or the commodity is delivered to, the public or
any portion thereof. (PUC Section 216.)
4)Defines a "local publicly owned electric utility" as a
municipality or municipal corporation operating as a "public
utility" furnishing electric service as provided in PUC
Section 10001, a municipal utility district furnishing
AB 88
Page D
electric service formed pursuant to PUC Section 11501 et seq.,
a public utility district furnishing electric services formed
pursuant to the Public Utility District Act, an irrigation
district furnishing electric services formed pursuant to the
Irrigation District Law, or a joint powers authority that
includes one or more of these agencies and that owns
generation or transmission facilities, or furnishes electric
services over its own or its member's electric distribution
system. (PUC Section 224.3.)
FISCAL EFFECT: The BOE estimates that this bill would reduce
state and local revenues by $12.8 million annually.<1>
COMMENTS:
1)The author has provided the following statement in support of
this bill:
AB 88 seeks to provide a sales and use tax exemption for
energy or water efficient appliances provided free of cost
to eligible low-income utility consumers. This bill helps
further California's environmental and energy efficiency
goals by reducing energy and water consumption, while
reducing costs for a greater number of low-income
Californians.
2)Proponents of this bill note the following:
---------------------------
<1> The BOE has provided the following qualifying remarks in
connection with this fiscal estimate: "The revenue estimate is
based on expenditure data of the four major IOUs and two major
POUs. At the time of this estimate, data was unavailable for
other public utilities' appliance expenditures that may be
exempted under this bill's provisions. To that extent, this
estimate may be understated."
AB 88
Page E
A Board of Equalization (BOE) audit completed in July of
2014 discovered that there is no specific tax exemption for
an energy or water efficient appliance that is purchased by
a public utility and provided, at no cost, to a qualified
low-income customer participating in the energy efficiency
program. The BOE has established that a sales tax, of
approximately $54 for a $600 refrigerator, must now be
levied on appliances distributed for free through these
local programs. AB 88 would exempt the new tax when the
energy efficient appliance replacement programs target
low-income customers.
Appliance replacement programs already serve too few of
those who qualify and the programs do not have the funds to
come up with additional taxes that will now be required by
the BOE. Meanwhile, reduction of greenhouse gasses and
water conservation are goals that all Californians wish to,
in fact need to, participate in.
3)This bill is opposed by the California State Association of
Counties, which notes:
While we appreciate the intent of this bill and the recent
amendments to provide greater specificity to the program,
CSAC opposes AB 88 as currently written because of the
negative impact to counties. After the past thirty years
of changes to sales and use tax allocations, counties now
receive almost half of sales and use tax revenues. About
two-thirds of that revenue is constitutionally dedicated to
providing local public safety services and federal and
state programs, including social services, incarceration,
and rehabilitation.
Therefore, we respectfully request that the local portions
AB 88
Page F
of sales and use tax be untouched by AB 88 and vital
dollars continue to flow to critical service needs. We
have no concern with the state's portion being used for
this program in an effort to further statewide energy
conservation goals.
4)The BOE notes the following in its staff analysis of this
bill:
a) Bill should define "home appliance" : "Most recognize
common household appliances as refrigerators, dishwashers,
clothes washers, etc., however, the term can also mean any
instrument, apparatus, or device for a particular purpose
or use (see Dictionary.com). Many utility companies make
no-cost energy improvements to qualified low-income homes
that include things like compact fluorescent lights,
in-ground pool pumps, attic insulation, and showerheads.
It appears that under the broader 'appliance' definition,
these items could be included within the exemption's scope,
since many of these items are qualified ENERGY STAR
products. A definition should be added to eliminate any
ambiguity and avoid any unanticipated revenue loss."
b) The bill provides no lead time : "The proposed exemption
takes effect immediately, which provides the BOE with no
lead time to notify retailers. In order for retailers to
properly claim a sales tax exemption under this bill,
retailers must accept in good faith an exemption
certificate from a utility company that certifies that the
utility company's purchase qualifies for the exemption.
The bill should provide adequate lead time to allow the BOE
to notify and educate retailers of their sales tax
responsibilities associated with this new exemption."
AB 88
Page G
5)Committee Staff Comments
a) What is a "tax 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).
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. 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 existing
tax expenditure absent a sunset date. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy or cost, without a
supermajority vote.
c) The Energy Savings Assistance Program : The Energy
Savings Assistance Program (ESAP) provides no-cost
weatherization services to low-income households meeting
specified income guidelines. For example, the income
eligibility upper limit for a household of four is
currently $47,700. Services provided include attic
insulation, weather-stripping, caulking, and door and
AB 88
Page H
building envelope repairs to reduce air infiltration.
Qualified ESAP customers may also be eligible to receive
energy-efficient replacement appliances. For example,
Pacific Gas & Electric (PG&E) notes that energy-saving
measures through ESAP can include the repair or replacement
of the customer's refrigerator. In addition, furnace and
water heater repair or replacement may be available to
eligible customers if PG&E determines that existing natural
gas units are inoperable or unsafe. The author notes that
ESAP helps to reduce energy and water consumption, while at
the same time reducing gas and electricity costs for
low-income customers. In addition, the author states:
ESAP leads to the safe recycling of old inefficient
appliances[,] which helps to reduce illegal dumping and
ensures that hazardous components and materials including
PCB-containing capacitors, CFC/HFC/HCFC refrigerants,
polyurethane foam insulation, and recyclable materials
such as ferrous and nonferrous metals, plastics, and
glass are properly handled.
According to the California Public Utilities Commission,
preliminary 2014 ESAP expenditures for the four largest
investor-owned utilities amount to $230 million. This
total reflects expenditures for a broad range of appliances
and devices, including clothes washers, refrigerators,
microwaves, central air conditioners, evaporative coolers,
and compact fluorescent lights, among other items. It
should be noted that these expenditures also include exempt
installation costs.
d) The ENERGY STAR program : This bill defines an eligible
"energy or water efficient home appliance" as a
refrigerator, dishwasher, washer, dryer, or other appliance
that meets performance requirements under the ENERGY STAR
program.
AB 88
Page I
The ENERGY STAR program, in turn, is a voluntary federal
program designed to identify and promote energy-efficient
products and buildings in order to reduce energy
consumption, improve energy security, and reduce pollution
through voluntary labeling of products and buildings that
meet the highest energy conservation standards. ENERGY
STAR has grown to include products in more than 70
different categories, with more than 4.8 billion products
sold since 1992.
Transitioning to ENERGY STAR-certified appliances has many
advantages. By way of example, there are an estimated 170
million refrigerators and refrigerator-freezers currently
in use in the United States. More than 60 million
refrigerators are over 10 years old, costing consumers $4.7
billion per year in energy costs. ENERGY STAR-certified
refrigerators, in turn, are roughly 9 to 10% more energy
efficient than models meeting the federal minimum energy
efficiency standard. By properly recycling an old
refrigerator and replacing it with a new ENERGY
STAR-certified model, the average consumer could save
between $35 and $300 on energy costs over the lifetime of
the appliance. Cumulatively, if all refrigerators sold in
the United States were ENERGY STAR-certified, the energy
cost savings would grow to more than $400 million each year
and eight billion pounds of annual greenhouse gas emissions
would be prevented. This is equivalent to the emissions
from 750,000 vehicles.
e) Everything's great until you get audited : The author
notes that, in the summer of 2014, a BOE audit determined
that there is no specific exemption for an energy- or
water-efficient appliance purchased by a public utility and
provided at no cost to a qualified low-income customer.
The author notes that, without a statutory exemption, fewer
AB 88
Page J
financial resources will be available to serve low-income
families. To this end, the author states, "The goal of AB
88 is to make sure that the maximum number of families are
served in a federal, state, or ratepayer-funded energy
efficiency program."
f) Absence of a sunset date : In its current form, this
bill's proposed tax expenditure lacks an automatic sunset
provision. This Committee has a longstanding policy
favoring the inclusion of sunset dates to allow the
Legislature periodically to review the efficacy and cost of
such programs. The author may wish to consider the
addition of appropriate sunset provisions.
g) Getting specific : This bill defines an "energy or water
efficient home appliance" as a refrigerator, dishwasher,
washer, dryer, or other appliance that meets performance
requirements under the ENERGY STAR program (emphasis
added). As the BOE notes in its staff analysis, the
generic term "appliance" could be read to include a
sweeping array of devices and provides little
administrative guidance. To ease administration of this
exemption and prevent potential disputes, the author may
wish to provide a detailed but limited enumeration of
appliances qualifying for the exemption.
The very term "energy or water efficient home appliance"
raises another issue. The term would seem to suggest that
this bill's exemption is designed to achieve both energy
and water conservation goals. While some ENERGY STAR
appliances, such as front-loading washing machines, may
achieve ancillary water efficiency goals, the ENERGY STAR
program is concerned first and foremost with the
conservation of energy. The United States Environmental
Protection Agency does administer a similar program,
"WaterSense", for water conservation purposes. While
AB 88
Page K
beyond the purview of this Committee's expertise, the
author may wish to consider a reference to this or a
similar program in the bill's definition of qualifying
appliances.
Finally, this bill includes a rather detailed definition of
a "low-income participant". Committee staff questions
whether it might be administratively easier to simply
define such individuals by reference to the ESAP program
itself.
h) Related legislation : AB 816 (Hall), of the 2013-14
Legislative Session, would have provided a SUT exemption
for energy- or water-efficient home appliances purchased by
a public utility and provided at no cost to a participant
in a federal, state, or ratepayer-funded energy efficiency
program. AB 816 originally related to alcoholic beverages,
was gutted and amended with the SUT exemption, and was
withdrawn from the Senate Government Organization Committee
to Senate Rules.
REGISTERED SUPPORT / OPPOSITION:
Support
Appliance Recycling Centers of America
BOE Member Jerome E. Horton
California Apartment Association
AB 88
Page L
California League of Conservation Voters
Californians Against Waste
California Retailers Association
California Rural Legal Assistance Foundation
Center on Race, Poverty & the Environment
Coalition for Humane Immigrant Rights of Los Angeles
La Cooperativa Campesina de California
Los Angeles Area Chamber of Commerce
Los Angeles Mayor Eric Garcetti
Sierra Club California
Western Center on Law and Poverty
Opposition
AB 88
Page M
California State Association of Counties
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098