BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 88 |Hearing |7/1/15 |
| | |Date: | |
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|Author: |Gomez |Tax Levy: |Yes |
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|Version: |6/30/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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SALES AND USE TAXES: EXEMPTION: ENERGY OR WATER EFFICIENT
HOME APPLIANCES
Provides sales and use tax exemption for the sale of energy or
water efficient home appliances, purchased by a public utility
that is provided at no cost to a low income participant in an
energy efficiency program.
Background and Existing Law
State law imposes a sales and use tax on the sale, storage, or
use of tangible personal property unless exempted by state law.
Generally, nonprofits, public agencies, and charities are
subject to sales and use tax, unless otherwise exempted. Cities
and Counties may increase the sales and use tax rate up to 2% as
a transactions and use tax for either specific or general
purposes with a vote of the people.
Proposed Law
Assembly Bill 88 provides sales and use tax exemption for the
sale of energy or water efficient home appliances, purchased by
a public utility that is provided at no cost to a low income
participant in an energy efficiency program. The bill specifies
that any savings from the exemption must be used by the public
utility to purchase additional energy or water efficient home
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appliances. AB 88 applies to federal, state, or
ratepayer-funded energy or water efficiency programs.
The bill defines "energy or water efficient home appliance" as a
refrigerator or clothes washer that meets performance
requirements under the ENERGY STAR program. The bill defines a
low-income participant as a person who is a participant in the
California Public Utilities Commission's Energy Savings
Assistance Program (ESAP), or a similar energy or water
efficiency program, provided by a public utility with income
guidelines that do not exceed the income guidelines for ESAP
participants.
AB 88 becomes operative on the first day of the first calendar
quarter commencing more than 90 days after the effective date of
this act and shall remain in effect only until January 1, 2021.
State Revenue Impact
The Board of Equalization (BOE) estimates an annual loss of $4.5
million. This estimate only takes into account refrigerator and
clothes washer expenditures for four large investor-owned
utilities, and two large publicly-owned utilities. In
California, there are 6 investor-owned utilities, and 46
publicly-owned utilities.
Comments
1. Purpose of the bill. According to the author, "AB 88 creates
a tax exemption for Energy Star clothes washers and
refrigerators that are purchased through the Energy Savings
Assistance Program for low income utility customers. Maximizing
rate payer funds to benefit rate payers participating in ESAP is
another effective tool to helping California achieve energy
efficiency and water reduction goals. While the bill is a tax
levy, it has a delayed effective date to provide the Board of
Equalization a timeline for notifying businesses that would be
retailing the appliances. To provide appropriate review of the
legislation, AB 88 has a five year sunset to review its
effectiveness."
2. Legal woes. The sponsor of AB 88, Appliance Recycling
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Centers of America (ARCA), supplies and recycles ENERGY STAR
appliances for low income individuals in the Los Angeles area
through the Los Angeles Department of Water & Power's (LADWP),
and the Southern California Gas Company's low income programs.
ARCA bills LADWP and Southern California Gas Company after
delivering the new appliance, and recycling the old appliance.
Since 2006, ARCA has provided 140,533 refrigerators and clothes
washers in the Los Angeles area.
ARCA failed to assess, collect, or remit sales and use tax to
BOE for the sale of ENERGY STAR appliances to LADWP and Southern
California Gas Company, and underwent a BOE managed audit as a
result. The audit covered the period from January 1, 2011
through September 30, 2014, and was expected to be completed by
March 31, 2015. ARCA estimated that the audit will likely
result in a Notice of Determination from BOE of an assessment of
at least $4.0 million. In a press release dated February 11,
2014, ARCA stated the assessment is subject to protest and
appeal, would not need to be funded until the matter has been
fully resolved. The press release also stated the company was
pursuing Legislation to help resolve the matter.
In March of this year, a federal securities class action was
filed against ARCA. The complaint claims ARCA made false and/or
misleading statements in their financial statements concerning
sales tax related to its appliance replacement program, among
other allegations. Specifically, the complaint states ARCA knew
or recklessly disregarded that material facts were being
misrepresented or omitted in their financial statements
concerning sales tax. To ensure that legal disputes are
determined using the law in place at the time the sales and use
tax should have been collected and remitted, the Committee may
wish to consider amending the bill to include "no inference"
language so that any pending, or future litigation, does not
consider the bill's exemption.
3. Effect of exemption. AB 88's exemption aids low income
individuals and families by providing low or no cost
refrigerators and washing machines, but reduces revenues for
cities, counties, and the state, which means less funds for
programs that may also benefit low income individuals and
families. For example, if the City of Blue purchases $100,000
in refrigerators in neighboring City of Green, the City of Blue
will save $7,500 in sales and use tax, allowing the City of Blue
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to purchase additional refrigerators. The City of Green, where
the refrigerators were sold, will lose approximately $2,063.
The county City of Green is in will lose $1,000, and the State
General Fund will lose $4,438. In effect, the State, city, and
county governments would subsidize the purchase of tax-free
refrigerators.
4. Related legislation. AB 816 (Hall), of the 2013-14
Legislative Session, would have provided a sales and use tax
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 sales and use tax
exemption, and was withdrawn from the Senate Government
Organization Committee to Senate Rules.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 17-0
Assembly Floor 78-0
Support and
Opposition (7/2/15)
Support : Appliance Recycling Centers of America (ARCA); Asian
Pacific Environmental Network; California Apartment Association;
California Board of Equalization Chairman, Jerome Horton;
California Building Industry Association; California Contract
Cities Association; California League of Conservation Voters;
California Retailers Association; California Rural Legal
Assistance Foundation; Californians Against Waste; Center for
Employment Training; Center on Race Poverty and the Environment;
Central Basin Municipal Water District; City of Lancaster; City
of Long Beach; City of Oakland; Coalition of California Welfare
Rights Organization; Coalition for Humane Immigrant Rights of
Los Angeles; Community Water Center; Employers Training
Resource; Independent Cities Association; La Cooperativa
Campesina de California; Los Angeles Chamber of Commerce; Los
Angeles County Supervisor, Don Knabe; Los Angeles County
Supervisor, Michael Antonovich; Los Angeles Mayor Eric Garcetti;
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Proteus Inc.; San Diego County Water Authority ; Sierra Club
California; State Board of Equalization; Western Center on Law
and Poverty.
Opposition : California State Association of Counties; League of
California Cities.
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