BILL ANALYSIS Ó
AB 428
Page 1
ASSEMBLY THIRD READING
AB
428 (Nazarian)
As Amended May 21, 2015
Majority vote. Tax levy
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+--------------------+---------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+--------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, | |
| | |Eggman, Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 428
Page 2
SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's"
"qualified costs" incurred for "seismic retrofit construction," as
specified. Specifically, this bill:
1)Allows the credit for taxable years beginning on or after
January 1, 2016, and before January 1, 2021.
2)Defines a "qualified taxpayer" as an owner of a "qualified
building" located in California. A taxpayer that owns a
proportional share of a "qualified building" may claim the
credit based on the taxpayer's share of the "qualified costs."
3)Defines "qualified costs" as costs paid or incurred by the
qualified taxpayer for any completed "seismic retrofit
construction" on a "qualified building," including any
engineering or architectural design work necessary to permit or
complete the "seismic retrofit construction." "Qualified costs"
shall not include any of the following:
a) Maintenance, including abatement of deferred or inadequate
maintenance, and correction of violations unrelated to the
"seismic retrofit construction";
b) Repair, including repair of earthquake damage;
c) "Seismic retrofit construction" required by local building
codes as a result of addition, repair, building relocation,
change of use, or occupancy;
d) Other work or improvement required by local building or
planning codes as a result of the intended "seismic retrofit
construction";
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e) Rent reductions or other associated compensation,
compliance actions, or other related coordination involving
the qualified taxpayer and any other party, including a
tenant, insurer, or lender;
f) Replacement of existing building components, including
equipment, except as needed to complete the "seismic retrofit
construction";
g) Bracing or securing nonpermanent building contents;
h) The offset of costs, reimbursements, or other costs
transferred from the qualified taxpayers to others; or,
i) Amounts paid to the jurisdiction with authority for
building code enforcement for issuing the certifications
required by this bill.
4)Defines "seismic retrofit construction" as alteration of a
"qualified building" or its components to substantially mitigate
seismic damage. Seismic retrofit construction shall be for work
performed voluntarily, and for which qualified costs were paid
or incurred, on or after January 1, 2016. Seismic retrofit
construction shall include the following:
a) Anchoring the structure to the foundation;
b) Bracing cripple walls;
c) Bracing hot water heaters;
d) Installing automatic gas shutoff valves;
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e) Repairing or reinforcing the foundation to improve the
foundation's integrity against seismic damage;
f) Anchoring fuel storage; and,
g) Installing an earthquake-resistant bracing system for
mobile homes registered with the Department of Housing and
Community Development.
5)Provides that seismic retrofit construction does not include
construction performed to bring a building into compliance with
local building codes.
6)Defines a "qualified building" as a building that has been
certified as an "at-risk property," as specified. A qualified
building specifically includes a mobile home registered by the
Department of Housing and Community Development.
7)Defines an "at-risk property" as a building deemed hazardous and
in danger of collapse in the event of a catastrophic earthquake,
including soft story buildings, nonductile concrete residential
buildings, and pre-1994 concrete residential buildings.
8)Provides that, to be eligible for the credit, the following must
apply:
a) The qualified taxpayer must obtain certification, prior to
construction, that the building is an at-risk property.
b) The qualified taxpayer must obtain certification from the
appropriate jurisdiction with authority for building code
enforcement, upon a review of the building, that the
completed construction satisfies the definition of seismic
retrofit construction. The certification shall identify what
part of the completed construction, if any, is not seismic
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retrofit construction. Upon request of the Franchise Tax
Board (FTB), the qualified taxpayer must provide a copy of
the certification to the FTB.
c) 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.
9)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 allowed, and one-fifth of
the credit amount for each of the subsequent four taxable years.
10)Provides that, in cases where the credit amount exceeds the
taxpayer's tax liability, the excess credit amount may be
carried over to the following taxable year, and succeeding four
taxable years, until the credit has been exhausted.
11)Provides that, for purposes of computing the credit, the
qualified costs shall be reduced by any grant provided by a
public entity for the seismic retrofit construction.
12)Provides that this credit shall be in lieu of any other credit
or deduction that the qualified taxpayer may otherwise claim
with respect to qualified costs.
13)Allows the credit under both the Personal Income Tax Law and
the Corporation Tax Law.
14)Provides that Revenue and Taxation Code (R&TC) Section 41 shall
not apply to the credit.
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15)Takes immediate effect as a tax levy.
16)Sunsets the credit provisions on December 1, 2021.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)Potentially significant General Fund (GF) costs to the 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 fiscal year (FY) 2015-16, FY 2016-17, and FY
2017-18, respectively.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
The recent earthquakes, which shook Southern
California cities [in] 2014, remind us that an
earthquake can strike at any given moment and it is
imperative that we ensure our structures are suitable
to withstand a catastrophic earthquake. 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%. It is
imperative that we take every precaution to make sure
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that human life and property is saved in the event of
a catastrophic earthquake. This measure will improve
California's resilience against earthquakes, saving
the public money that would otherwise have been
required for disaster relief.
2)Revenue and Taxation Committee Comments:
a) What would this bill do? This bill would allow a credit
equal to 30% of a qualified taxpayer's qualified costs
incurred for seismic retrofit construction. According to the
United States Geological Survey, there is a 99.7% chance that
a major earthquake of 6.7 in scale will strike California in
the next 30 years. This bill's tax credit is designed to
lower the overall cost for property owners to improve the
seismic safety of their buildings. Proponents note that such
action, in turn, could save countless lives in the event of a
catastrophic earthquake, and would reduce the demand for
state and local emergency services by hopefully minimizing
structural damage. Older concrete structures are
particularly vulnerable to earthquake damage; last year, the
author noted that recent research has identified 1,500
concrete buildings that are seismically vulnerable in the Los
Angeles area alone.
b) R&TC Section 41 shall not apply: On September 29, 2014,
Governor Brown signed into law SB 1335 (Leno), Chapter 845,
Statutes of 2014, which added R&TC Section 41. SB 1335
recognized that the Legislature should apply the same level
of review used for government spending programs to tax
preference programs, including tax credits. Thus, R&TC
Section 41 requires any bill introduced on or after January
1, 2015, that allows a new credit to contain specific goals,
purposes, and objectives that the tax credit will achieve.
In addition, R&TC Section 41 requires detailed performance
indicators for the Legislature to use when measuring whether
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the tax credit meets the goals, purposes, and objectives
so-identified.
The present bill provides that R&TC Section 41 shall not
apply to this credit. The Legislature may wish to consider
the appropriateness of this R&TC Section 41 exemption.
Critics of an R&TC Section 41 exemption might argue that the
exemption exacerbates one of the primary problems inherent in
crafting tax expenditure measures - namely, it is often
unclear what objectives the Legislature is aiming to achieve.
Analysis Prepared by:
M. David Ruff / REV. & TAX. / (916) 319-2098 FN:
0000674