BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 428 (Nazarian) - Income taxes: credit: seismic retrofits.
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|Version: June 17, 2015 |Policy Vote: GOV. & F. 6 - 1 |
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|Urgency: Yes |Mandate: No |
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|Hearing Date: July 13, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 428 would allow a tax credit equal to 30 percent of
a qualified taxpayer's qualified costs incurred for seismic
retrofit construction.
Fiscal
Impact:
The Franchise Tax Board (FTB) estimates that the bill
would result in General Fund revenue losses of $700,000 in
2016-17, $2.7 million in 2017-18, and $4.6 million in
2018-19.
FTB staff estimate that the bill would result in
increased costs of $255,000 in 2015-16 and $128,000
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annually thereafter (General Fund), resulting from new
administration and information technology workload.
Background: Current law requires the reassessment of property based on fair
market value, upon either a change in ownership or new
construction. The determination of fair market value is
referred to as the "base year value" and is adjusted annually
for inflation. The adjustment is capped at two percent per year.
The term "new construction" includes additions to the real
property, or the alteration of real property that amounts to a
rehabilitation or conversion to a different use since the
preceding lien date. County assessors are required to determine
the added value of the new construction when completed and add
that amount to the assessed value of the property. In general,
if the new construction replaces existing improvements, the
value attributable to the existing improvements is deducted from
the base year value of the property. In 2010, voters approved
Proposition 13, which excludes from the definitions of newly
constructed and new construction, the construction or
reconstruction of seismic retrofitting components of an existing
structure.
Proposed Law:
This bill would allow a credit equal to 30 percent of a
qualified taxpayer's qualified costs incurred for seismic
retrofit construction. The credit is capped at $12 million
annually, plus any carryover of previously unused credits.
To obtain the credit, a qualified taxpayer must obtain
certification, as specified. The certification shall identify
what part of the completed construction, if any, is not seismic
retrofit construction. Each jurisdiction with authority for
building code enforcement in which a qualified building is
located must enter into an agreement with the State to provide
certifications and to not seek reimbursement for any costs
incurred during the certification process. A taxpayer must then
request and be granted an allocation of the credit from FTB, as
specified.
The bill defines a qualified taxpayer as an owner of a qualified
building located in California. A taxpayer that owns a
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proportional share of a qualified building may claim the credit
based on the taxpayer's share of the qualified costs.
Qualified costs are defined 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 do not include
any of the following:
Maintenance, including abatement of deferred or
inadequate maintenance, and correction of violations
unrelated to the seismic retrofit construction.
Repair, including repair of earthquake damage.
Seismic retrofit construction required by local building
codes as a result of addition, repair, building relocation,
change of use, or occupancy.
Other work or improvement required by local building or
planning codes as a result of the intended seismic retrofit
construction.
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.
Replacement of existing building components, including
equipment, except as needed to complete the seismic
retrofit construction.
Bracing or securing nonpermanent building contents.
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The offset of costs, reimbursements, or other costs
transferred from the qualified taxpayers to others.
Amounts paid to the jurisdiction with authority for
building code enforcement for issuing the certification
required by this bill.
The bill defines "seismic retrofit construction" as alteration
of a qualified building or its components to substantially
mitigate seismic damage. Seismic retrofit construction refers
only to work performed voluntarily, and for which qualified
costs were paid or incurred, on or after January 1, 2017.
Seismic retrofit construction includes the following:
Anchoring the structure to the foundation.
Bracing cripple walls.
Bracing hot water heaters.
Installing automatic gas shutoff valves.
Repairing or reinforcing the foundation to improve the
foundation's integrity against seismic damage.
Anchoring fuel storage.
Installing an earthquake-resistant bracing system for
mobile homes registered with the California Department of
Housing and Community Development.
The bill defines a qualified building as a building that has
been certified as an at-risk property by the local building code
enforcement. A qualified building specifically includes a mobile
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home registered by the Department of Housing and Community
Development.
The bill 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,
non-ductile concrete residential buildings, and pre-1994
concrete residential buildings.
The tax credit amount allowed is 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. 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. This
credit shall be in lieu of any other credit or deduction that
the qualified taxpayer may otherwise claim with respect to
qualified costs.
As a tax levy, the bill would take effect immediately, and apply
to taxable years 2017 through 2021.
Related
Legislation:
AB 1510 (Nazarian, 2013/2014) would have allowed a
credit equal to 30 percent of the qualified taxpayer's
qualified costs for retrofitting at-risk property. AB 1510
did not pass out of the Assembly Revenue and Taxation
Committee.
SB 677 (McPherson, 2001/2002) would have allowed a
credit equal to an unspecified percentage of the final cost
of seismic retrofitting to comply with the seismic retrofit
building standards for hospitals. SB 677 did not pass out
of the Senate Revenue and Taxation Committee.
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Staff
Comments: Based on discussions with industry experts and 2013
U.S. Census data on buildings in earthquake areas, FTB estimates
that approximately 2,150 buildings would annually undergo
retrofitting. Data provided by the California Seismic Safety
Commission indicates the retrofitting cost is approximately
$20,000 for residential housing, $10,000 for mobile homes, and
$100,000 for commercial buildings. These data result in an
estimated $83 million dollars in 2013 retrofitting costs. This
amount was then grown (to $89 million) through 2017, but then
reduced to reflect an estimated $10 million in annual
retrofitting grants. Consequently, FTB estimates a total of $79
million in qualified retrofitting costs would be incurred in
2017.
Because the credit is equal to 30 percent of qualified costs,
about $24 million in credits would be generated in 2017. This
credit amount exceeds the $12 million maximum credit allocation
for 2017. The same is true for the four subsequent years.
Because the credit must be taken evenly over the five-year
period, the credit would be $2.4 million available in 2017, and
would peak at $12 million in 2021. FTB assumes that 70 percent
of the available credit will be used in the year the credit is
generated and the remaining 30 percent of the credit will be
used over the subsequent four years. This results in an
estimated credit usage beginning at approximately $1.7 million
in 2017 and peaking in 2021 at approximately $10.6 million. FTB
then made a downward adjustment to reflect the decreased
depreciation deduction allowed when the credit is claimed.
To the extent that property owners wait until 2017 to
seismically retrofit buildings, the bill's tax credit could
delay retrofitting activity relative to the timeline that would
have occurred on the natural.
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