BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 88| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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. AB 88 Page 2 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 AB 88 Page 3 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 AB 88 Page 4 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 AB 88 Page 5 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. AB 88 Page 6 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 **** END ****