BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                         AB 88


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       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  








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       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.









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       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.









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       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:









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              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. 









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            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


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       Analysis Prepared by:                                              M.  
                       David  Ruff / REV. & TAX. / (916) 319-2098  FN:  
       0000640