BILL ANALYSIS Ó
AB 428
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Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
428 (Nazarian) - As Amended May 12, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill allows a tax credit under the personal income tax and
corporate tax laws, for tax years beginning on or after January
1, 2016 and before January 1, 2021, equal to 30% of a qualified
taxpayer's costs incurred for seismic retrofit construction. In
summary, this bill:
1)Defines a "qualified taxpayer" as an owner of a qualified
building located in California; and allows a taxpayer that
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owns a proportional share of a qualified building to claim the
credit based on the taxpayer's share of the costs incurred for
seismic retrofit construction.
2)Defines a "qualified building" as a building that has been
certified by the local building code enforcement authority for
the area within which the building is located as an "at-risk
property," which is further defined as a building, including
certain mobile homes, deemed hazardous and in danger of
collapse in the event of a catastrophic earthquake, and
permits the Franchise Tax Board (FTB) to request a copy of
that certificate.
3)Defines "seismic retrofit construction" as specified changes
or additions to the structure of a qualified building to
mitigate seismic damage, and excludes from the definition
activities performed to bring a qualified building into
compliance with local building codes.
4)Provides that, to be eligible for the credit:
a) The qualified taxpayer must obtain certification from
the appropriate jurisdiction with authority for building
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code enforcement, upon a review of the building, that the
completed construction satisfies the definition of seismic
retrofit construction.
b) The jurisdiction with authority for building code
enforcement in which a qualified building is located has
entered into an agreement with the state to provide
certifications and to not seek reimbursement for any costs
incurred in providing those certifications.
5)Requires the credit amount allowed to be claimed by a
qualified taxpayer at the rate of one-fifth of the credit
amount for the taxable year in which the credit is allocated,
and one-fifth of the credit amount for each of the subsequent
four taxable years.
6)Provides that the credit shall be in lieu of any other credit
or deduction the taxpayer may otherwise claim with respect to
the qualified costs.
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FISCAL EFFECT:
1)Potentially significant GF costs to Franchise Tax Board (FTB)
to administer the changes to forms and systems.
2)Estimated GF revenue decreases of $1.4 million, $5.2 million,
and $9.1 million in FY 2015-16, FY 2016-17, and FY 2017-18,
respectively.
COMMENTS:
1)Purpose. According to the author, this measure will improve
California's preparedness for earthquakes, saving taxpayers
money that would otherwise be required for disaster relief.
According to the Southern California Earthquake Center,
California has a 99.7% chance of having a magnitude 6.7 or
larger earthquake during the next 30 years, and the likelihood
of an even more powerful quake of magnitude 7.5 or greater in
the next 30 years is 46%.
Proponents of the bill argue the cost of retrofitting
buildings can be very expensive, and this bill will encourage
owners of older properties to upgrade safety features,
protecting both owners and tenants from future earthquakes.
2)Opposition. The California Tax Reform Association (CTRA)
notes that property owners are already strongly incentivized
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to retrofit their buildings in order to preserve the value of
their investment. CTRA argues since an earthquake would
likely cause a total loss to property owner, there is no need
for an additional tax credit. Such credit would only reward
activity that would otherwise have been undertaken.
3)Is Section 41 Already Doomed? Tax credits are often used to
encourage or influence socially beneficial behavior, and
provide relief to taxpayers who incur expenses from desired
behavior. Tax credits are often more appealing than tax
deductions as the taxpayer may take the same credit regardless
of income. This is particularly true among corporate
taxpayers.
This bill ignores the requirements of Section 41 of the
revenue and taxation code, authorized just last year in SB
1335 (Leno), Statutes of 2014, which requires tax credits to
articulate specific goals, purposes, and objectives for the
credit, as well as establish performance indicators to measure
the credit's success in achieving those goals. While the
policy goals of this bill may be laudable, there is no
indication to suggest 30% of qualified expenses is the
appropriate credit to achieve the desired increase in seismic
upgrades, and that taxpayers seeking the credit would not have
performed the upgrades anyway. In addition, there are no
metrics proposed with which to evaluate whether the credit is
achieving its aims. Ensuring the Legislature conducts some
objective and dispassionate evaluation of tax credits was the
goal of SB 1335, and the committee might wish to consider
whether this is precisely the type of tax credit for which
Section 41 ought to apply.
4)Prior legislation. This bill is substantially similar to AB
1510 (Nazarian) of last year. AB 1510 was held on the
Suspense File of this committee.
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Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081