BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                         AB 88|
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                                   THIRD READING 


          Bill No:  AB 88
          Author:   Gomez (D), et al.
          Amended:  7/15/15 in Senate
          Vote:     21  

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-1, 7/8/15
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley
           NOES:  Moorlach

           SENATE APPROPRIATIONS COMMITTEE:  6-1, 8/27/15
           AYES:  Lara, Bates, Beall, Hill, Leyva, Mendoza
           NOES:  Nielsen

           ASSEMBLY FLOOR:  78-0, 6/1/15 - See last page for vote

           SUBJECT:   Sales and use taxes: exemption: energy or water  
                     efficient home appliances


          SOURCE:    Author

          DIGEST:   This bill provides a 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.

          ANALYSIS: 
          
          Existing law:

          1)Imposes a sales and use tax on the sale, storage, or use of  
            tangible personal property unless exempted by state law. 









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          2)Imposes sales and use tax on nonprofits, public agencies, and  
            charities are subject to sales and use tax, unless otherwise  
            exempted.  

          3)Allows cities and counties to 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.

          This bill:

          1)Provides a 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.  

          2)Specifies that any savings from the exemption must be used by  
            the public utility to purchase additional energy or water  
            efficient home appliances.  

          3)Defines "energy or water efficient home appliance" as a  
            refrigerator or clothes washer that meets performance  
            requirements under the ENERGY STAR program.  This 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.

          4)Applies to federal, state, or ratepayer-funded energy or water  
            efficiency programs.

          5)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.

          Comments
          
          1)Author's statement.  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  







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            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 main proponent of AB 88, Appliance Recycling  
            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  
            the Board of Equalization (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.  

          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  







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            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 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.

          Related Legislation
          
          AB 816 (Hall, 2013) 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 Committee.

          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No

          According to the Senate Appropriations Committee:

          1)BOE estimates that this bill will result in an annual state  
            and local revenue loss of $4.5 million, $2.1 million of which  
            would be General Fund.

          2)BOE would incur some absorbable administrative costs related  
            to notifying affected retailers, developing and publishing  
            applicable guidelines, and answering inquiries from the  
            general public and affected retailers.


          SUPPORT:   (Verified8/27/15)


          Appliance Recycling Centers of America 
          Asian Pacific Environmental Network; California Apartment  
          Association







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          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 for Humane Immigrant Rights of Los Angeles
          Coalition of California Welfare Rights Organization
          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
          Proteus Inc.
          San Diego County Water Authority 
          Sierra Club California; State Board of Equalization
          Western Center on Law and Poverty


          OPPOSITION:   (Verified8/27/15)


          California State Association of Counties
          League of California Cities


          ARGUMENTS IN SUPPORT:  The supporters of this bill argue that  
          this bill will allow additional low income individuals to  
          participate in appliance replacement programs. Further,  
          supporters of this bill argue that energy efficient appliance  
          replacement will result in the reduction of greenhouse gasses  
          and water conservation, which are goals that all Californians  
          wish to, in fact need to, participate in. 








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          ARGUMENTS IN OPPOSITION:      The opponents of this bill argue  
          that this bill will restrict an increasingly limited revenue  
          source that cities depend upon to fund basic services.  Cities  
          already face an accelerating decline in local sales tax  
          revenues, and an increasing concentration in a limited number of  
          taxable activities that do not reflect recent changes in our  
          economy. Also, this bill sets a dangerous precedent. This bill  
          allows the Legislature to use increasingly scarce local  
          government revenues to achieve a statewide policy objective.  


          ASSEMBLY FLOOR:  78-0, 6/1/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,  
            Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang,  
            Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle,  
            Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,  
            Gordon, Gray, Grove, Harper, Roger Hernández, Holden, Irwin,  
            Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon,  
            Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark  
            Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,  
            Wood, Atkins
          NO VOTE RECORDED:  Hadley, Obernolte

          Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119
          8/30/15 19:49:00


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