BILL ANALYSIS Ó
AB 199
Page A
(Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB
199 (Eggman)
As Amended September 10, 2015
2/3 vote. Urgency
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|ASSEMBLY: |77-0 |(August 27, |SENATE: | |(September 11, |
| | |2015) | | |2015) |
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| | | | | | |
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(vote not available)
Original Committee Reference: NAT. RES.
SUMMARY: Expands the sales and use tax (SUT) exclusion under
the California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) by revising the definition of a
"project" to include tangible personal property (TPP) that
primarily processes or uses "recycled feedstock."
AB 199
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The Senate amendments add double jointing language to address
possible chaptering out issues with Assembly Bill 1269
(Dababneh) of the current legislative session.
FISCAL EFFECT: According to BOE, "Existing law limits the
allowable sales and use tax exclusion for all projects approved
by CAEAFTA, including this bill's described projects, to $100
million each calendar year. Between November 2010 and July
2015, CAEATFA has approved tax exclusions of about $318 million,
but only $81.8 million in tax has actually been claimed."
AS PASSED BY THE ASSEMBLY, this bill expanded the SUT exclusion
under CAEATFA by revising the definition of a "project" to
include TPP that primarily processes or uses "recycled
feedstock."
COMMENTS:
Author's Statement: The author states that "California exports
20 million tons of recyclables annually, worth nearly $8
billion. With AB 199, the state would help incentivize the
recycling sector to invest more in manufacturing. Keeping more
of these valuable materials in-state would allow Californians to
share in both the environmental and economic benefits of their
recycling."
CAEATFA Background: The California Alternative Energy Source
Financing Authority was established in 1980 with an
authorization of $200 million in revenue bonds to finance
projects utilizing alternative or renewable energy sources, such
as wind, solar, cogeneration and geothermal. In 1994, the
authority was renamed "CAEATFA" and its charge was expanded to
include the financing of "advanced transportation" technologies.
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During the energy crisis of 2001, CAEATFA's authority was
expanded again to provide financial assistance to public power
entities, independent generators, and others for new and
renewable energy sources, and to develop clean distributed
generation. The CAEATFA board consists of five members: the
Treasurer, Controller, Director of Finance, Chairperson of the
Energy Commission, and President of the Public Utilities
Commission.
CAEATFA may provide financial assistance to approved projects
via the issuance of bonds, loans, loan guarantees and credit
enhancements. CAEATFA may authorize up to $1 billion in revenue
or prepayment bonds to fund projects. Over the last few years,
CAEATFA has provided financial assistance through various
programs, including qualified energy conservation bonds for
projects that promote the use of alternative energy and energy
efficiency in state, local and tribal government facilities, as
well as clean renewable energy bonds for renewable energy
projects. In addition, with the passage of SB 71 (Padilla),
Chapter 10, Statutes of 2010, CAEATFA is allowed to grant a SUT
exemption to provide financial assistance for the purchase of
equipment that is used for the design, manufacture, production,
or assembly of "advanced transportation technologies" or
"alternative source" products, components, or systems (SB 71
Program). Alternative source products include cogeneration
technology, energy conservation, solar, biomass, wind,
geothermal, specified hydro-electric, or any other energy
efficient technologies that reduce the use of fossil and nuclear
fuels. Alternative sources also include advanced electric
distributive generation technology and energy storage
technology. The SB 71 Program will sunset on January 1, 2021.
In 2012, SB 1128 (Padilla), Chapter 677, Statutes of 2012, again
expanded the SUT exclusion program to include advanced
manufacturing projects.
Benefits Analysis: As noted above, CAEATFA may provide a SUT
exclusion for the purpose of promoting the creation of
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California-based manufacturing, California-based jobs, advanced
manufacturing, the reduction of greenhouse gases, or the
reduction in air and water pollution or energy consumption.
Before a SUT exclusion can be awarded, CAEATFA is required to
determine the eligibility of individual projects based on a
number of factors relating to a reduction in greenhouse gases
and the creation of manufacturing jobs. An important factor
that CAEATFA is required to consider is the extent to which the
anticipated benefit to the state from the project equals or
exceeds the loss of sales and use tax.
What Does this Bill Do? This bill expands the types of projects
that may qualify for the SUT exclusion to include TPP that is
either: 1) primarily used to process recycled feedstock
intended to be reused in the production of another product, or
2) primarily utilizes recycled feedstock in the production of
another product or soil amendment. "Recycled feedstock" is
defined as materials that would otherwise be destined for
disposal, having completed its intended end use and product
lifecycle.
According to CalRecycle, between 6% (for multi-stream) and 81%
(for mixed waste) of the incoming material at a Materials
Recovery Facility (MRF) is usually sent to landfills for final
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disposal.<1> MRFs receive recyclables and sorts the materials
by type or grade to meet the commodity specifications. The
inability of the MRF to recycle a larger portion of the
materials is due, in part, to a lack of equipment capable of
sorting the various plastics, paper, metals, and glass. The
expansion of qualifying projects is meant to incentives the
purchase of machinery that is better able to sort recyclable
material, thereby reducing the amount of recyclable material
that ends up in landfills.
The second provision of this bill provides a SUT exclusion for
TPP that primarily utilizes recycled feedstock in the production
of another product or soil amendment. According to CalRecycle,
there are approximately 160 MRFs throughout the state, which
sort recyclable material. Once recoverable materials are
collected and sorted or processed, they are delivered to
recycling or manufacturing markets in California, domestically
and internationally. However, according to CalRecycle, there is
a minimal manufacturing infrastructure in California for
recycled glass, paper, plastic, and tires. If all of the
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<1>
"Multi-stream" refers to incoming recyclables that have usually
been collected separately from each other; for
example, a curbside program that separates paper
from glass or plastic prior to pick-up is
considered "multi-stream". "Single-stream"
refers to all incoming recyclables that have
been collected in one stream, such as in a
residential blue bin program. Recyclables
collected in a single-stream manner often have a
higher level of contamination than materials
received through a multi-stream process. (State
of Recycling in California, CalRecycle, March
2015.)
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reported material from processing facilities for glass, paper,
and plastics went to manufacturing facilities in California, the
supply would exceed the manufacturing capacity by more than
300%. Therefore, the inclusion of TPP that primarily utilizes
recycled feedstock is meant to increase the manufacturing
capacity of recycled material. Finally, within the second
provision, this bill also provides a SUT exclusion for TPP that
primarily uses recycled feedstock to create soil amendment.
Partial Sales and Use Tax Exemption: The rationale for
providing a SUT exemption on business inputs is to reduce the
imposition of a tax on a tax, otherwise known as "pyramiding".
The SUT is paid when a business is considered to be the final
consumer of tangible item. The tax paid on TPP is then
incorporated into the cost of a consumer product, leading to
double taxation. As noted by Joseph Henchman, "Ideally, a sales
tax should be levied on all goods and services sold at retail,
and to prevent distortions and hidden taxes, it should be levied
only once on each good or service sold at retail." (Joseph
Henchman, States Should Avoid Sales Taxes on Nonprofit Hospital
Purchases, Tax Foundation, April 2008.) Ideally, taxes should
only be levied once because pyramiding may cause consumers to
favor goods and services that are provided by a single company
instead of those that require multiple production steps. (Id.)
The passage of AB 93 (Budget Committee), Chapter 69, Statutes of
2013, and SB 90 (Galgiani), Chapter 70, Statutes of 2013,
created California's first effort to grant a partial SUT
exemption for taxpayers performing manufacturing or research and
development in the state. There are a few differences between
CAEATFA's SUT exclusion and the state's partial SUT exemption.
The partial exemption rate is currently 4.1875%. The partial
exemption provides that sales of the qualifying property sold to
a qualified person be taxed at a rate of 3.3125% (7.50% current
statewide tax rate - 4.1875% partial exemption) plus any
applicable district taxes. Under CAEATFA, an approved project
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does not pay any SUT tax, including local and district taxes.
Additionally, the state's SUT exemption is much broader and more
readily available. So long as a business meets all
requirements, a qualifying manufacturer can receive a partial
SUT exemption. CAEATFA, however, is a more robust process,
requiring the applicant to meet a set of criteria before the
exclusion can apply. Furthermore, the programs appear to
accomplish different goals. Both programs reduce the economic
distortions related to taxing business inputs, but CAEATFA
appears to also be concerned with encouraging projects that
provide a greater return on investment for the state. As noted
above, the anticipated project benefits, measured by the fiscal
and environmental benefit to the state, must exceed the cost of
forgone SUT. No such analysis is needed for the partial SUT
exemption.
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916)
319-2098 FN:
0002392