BILL ANALYSIS Ó AB 88 Page 1 ASSEMBLY THIRD READING AB 88 (Gomez) As Amended May 20, 2015 Majority vote. Tax levy ----------------------------------------------------------------------- |Committee |Votes |Ayes |Noes | | | | | | | | | | | |----------------+------+-----------------------+-----------------------| |Revenue & |9-0 |Ting, Brough, | | |Taxation | |Dababneh, Gipson, | | | | |Roger Hernández, | | | | |Mullin, Patterson, | | | | |Quirk, Wagner | | | | | | | |----------------+------+-----------------------+-----------------------| |Appropriations |17-0 |Gomez, Bigelow, Bonta, | | | | |Calderon, Chang, Daly, | | | | |Eggman, Gallagher, | | | | |Eduardo Garcia, | | | | |Gordon, Holden, Jones, | | | | |Quirk, Rendon, Wagner, | | | | |Weber, Wood | | | | | | | | | | | | ----------------------------------------------------------------------- SUMMARY: Establishes a sales and use tax (SUT) exemption for any "energy or water efficient home appliance" purchased by a "public AB 88 Page 2 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 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 or clothes washer that meets performance requirements under the ENERGY STAR program, established pursuant to United States Code Title 42, Section 6294a. 3)Defines a "public utility" as an entity defined in Public Utilities Code (PUC) Section 216 or Section 224.3. 4)Defines a "low-income participant" as any person who is a participant in the California Alternate Rates for Energy program, also known as the CARE program, as established by PUC Section 739.1. 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. 6)Takes immediate effect as a tax levy, but only becomes operative on the first day of the first calendar quarter commencing more than 90 days after this bill's effective date. AB 88 Page 3 7)Sunsets on January 1, 2021. 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. 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). FISCAL EFFECT: According to the Assembly Appropriations Committee: 1)Minor and absorbable costs to the BOE to update systems and procedures; and, 2)Estimated revenue decreases for the state and local jurisdictions of $4.5 million per year, $2.1 million of which is from the General Fund. AB 88 Page 4 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)Assembly Revenue and Taxation Committee Comments: a) 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 building envelope repairs to reduce air infiltration. Qualified ESAP customers may also be eligible to receive energy-efficient replacement appliances. For example, Pacific Gas and 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: AB 88 Page 5 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[Chloro-Flouro-Carbon]/HFC[Hydroflurocarons]/HCFC[hy drochlorofluorocarbon] 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. b) The ENERGY STAR program: This bill defines an eligible "energy or water efficient home appliance" as a refrigerator or clothes washer that meets performance requirements under the ENERGY STAR program. 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. AB 88 Page 6 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. c) 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 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." d) Related legislation: AB 816 (Hall), of 2014, 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 Governmental Organization Committee to the Senate Rules Committee. AB 88 Page 7 Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0000640