BILL ANALYSIS Ó
AB 515
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Date of Hearing: April 27, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 515
Eggman - As Amended April 20, 2015
Majority vote. Fiscal committee.
SUBJECT: Income taxes: credits: food bank donations
SUMMARY: Expands the existing tax credit program under the
Personal Income Tax (PIT) Law and Corporation Tax (CT) Law for
contributions of qualified donation items to a food bank and
extends the program until January 1, 2021. Specifically, this
bill:
1)Revises the definition of a "qualified taxpayer" (QT) to
include persons responsible for growing or raising a qualified
donation item, or harvesting, packing, or processing a
qualified donation item.
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2)Revises the definition of "qualified donation item" (QDI) to
include, in addition to fresh fruits and vegetables, the
following raw agricultural products or processed foods, as
specified:
a) "Fruit, nuts or vegetables" as defined in Food and
Agricultural Code (F&AC) Section 42510;
b) "Meat food product" as defined in F&AC Section 18665;
c) "Poultry" as defined in F&AC Section 18675;
d) "Eggs" as defined in F&AC Section 75027;
e) "Fish" as defined in F&AC Section 58609; and,
f) Any cheese, milk, yogurt, butter, and dehydrated milk
meeting the requirements in F&AC Division 15.
g) All of the following food items as defined in Health and
Safety Code Section 109935:
i) "Rice";
ii) "Beans";
iii) "Fruit, nuts, and vegetables in canned, frozen,
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dried, dehydrated, and 100 percent juice forms";
iv) "Vegetable oil and olive oil";
v) "Soup, pasta sauce, and salsa";
vi) "Infant formula";
vii) "Bread and pasta"; and,
viii) "Canned meats and canned seafood."
3)Increases the allowed credit from 10% to 20%.
4)Provides that the allowed credit would be calculated, not
according to inventory costs, but rather as 20% of the
qualified value (QV) of the QDI.
5)Defines QV as, either:
a) The QV shall be calculated by using the weighted average
wholesale sale price based on the QT's total wholesale
sales of the donated item sold within the calendar month of
the QTs donation; or
b) If no wholesale sales of the donated item have occurred
in the calendar month of the QT's donation, the QV shall be
equal to the nearest regional wholesale market price for
the calendar month of the donation based upon the same
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grade products as published by the United States Department
of Agriculture's Agricultural Marketing Service, or its
successor.
6)Provides that the credit amount may not be less than what
would otherwise be available as per existing legislation
(Chapter 503, of the statutes of 2011).
7)Requires the donor to provide the food bank the QV and
information regarding where the donation items were grown
and/or processed. Upon receipt and acceptance of the
donations, the food bank will provide to the donor a
certificate with information, as specified.
8)Requires the FTB to include in its annual report the estimated
value of the QDIs, the origin of the QDIs, and the month the
donations were made. The report must be submitted in
compliance, as specified.
9)Repeals the tax credit program on December 1, 2021.
10) Renames, on or after January 1, 2016, the State
Emergency Food Assistance Program (SEFAP) as the CalFood
Program (CFP).
11) Requires the CFP to provide food and funding for the
provision of emergency food to food banks established pursuant
to the federal Emergency Food Assistance Program.
12) Specifies that all monies received by the CFA, upon
appropriation by the Legislature, must be allocated to the
State Department of Social Services (SDSS) for allocation to
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the CFP.
EXISTING LAW:
1)Allows a tax credit, under PIT law and the CT law, to
qualified taxpayers (defined as the person(s) responsible for
planting a crop, managing the crop, and harvesting the crop
from the land) in an amount equal to 10% of the cost that
would otherwise be included in, or required to be included in,
inventory costs, as specified under federal law, with respect
to the donation of fresh fruits or fresh vegetables to food
banks located in California. (Chapter 503, of the statutes of
2011).
2)Requires the State Department of Social Services to establish
and administer the SEFAP to provide food and funding to food
banks.
3)Allows corporations that are members of the same unitary
combined reporting group to assign "eligible" credits to other
members of the group. An "eligible" credit is any credit
earned by the taxpayers in a taxable year beginning on or
after July 1, 2008, or any credit earned in any taxable year
beginning before July 1, 2008, that was eligible to be carried
forward to the first taxable year beginning on or after July
1, 2008. The credit assignment is made by an irrevocable
election. The assignor and assignee taxpayers must be members
of the same combined reporting for the taxable year in which
the credit is earned and the taxable year the credit is
assigned.
4)Applies performance measurement standards to any new tax
credit under either the PIT or CT Law if enacted by a bill
introduced on or after January 1, 2015. Specifically,
existing law requires the all of the following:
a) Specific goals, purposes, and objectives that the tax
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credit will achieve:
b) Detailed performance indicators for the Legislature to
use when measuring whether the tax credit meets the goals,
purposes, and objectives stated in the bill; and,
c) Data collection requirements to enable the Legislature
to determine whether the tax credit is meeting, failing to
meet, or exceeding those specific goals, purposes, and
objectives, including a requirement to specify both of the
following:
i) The baseline data, to be collected and remitted in
each year the credit is effective, for the Legislature to
measure the change in performance indicators; and,
ii) The taxpayers, state agencies, or other entities
required to collect and remit data
FISCAL EFFECT: The Franchise Tax Board (FTB) estimates that
this bill will reduce General Fund revenue by $.6 million in
fiscal year (FY) 2015-16, $1.5 million in FY 2016-17, and $2
million in 2017-18.
COMMENTS:
1)Author's Statement : The Author has provided the following
statement in support of this bill:
California is the leader agricultural producer in the U.S.,
yet many Californians still suffer from hunger and poor
nutrition. AB 515 will broaden the existing state tax
credit offered to agricultural producers for donations to
qualified California non-profits, such as food banks. It
expands the list of eligible products to include other
fresh items and a limited set of core shelf-stable items.
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It also moves the tax credit to 20% of the donation items
wholesale value, and extends the sunset of this program to
2021.
2)Committee Staff Comments .
a) Existing Tax Credit . Under PIT and the CT laws, a
qualified taxpayer is allowed a tax credit, in an amount
equal to 10% of the inventory costs of the fresh fruits
or fresh vegetables donated to food banks located in
California. (Chapter 503, statutes of 2011.)
b) Food Banks . According to the CAFB's Web site,
California is ranked 19th for food insecurity in the
nation with a food insecurity rate of 16.2%, translating
into 6.1 million Californians with, on average, 1 out of
6 people in California not knowing where their next meal
will come from. All the more troubling is that the child
food insecurity rate is 26.3%, meaning 2.4 million, or
more than 1 in 4 children, in California may go to bed
hungry each night. CAFB represents 42 food banks
throughout California that provide food to soup kitchens
and food pantries in schools, churches, and community and
senior centers. CAFB partners with over 100 California
growers and packers and distributed 140 million pounds of
food to people in need.
c) Tax Credits . Tax credits are generally used to
encourage socially beneficial behavior, to provide relief
to taxpayers who incur specified expenses, or to
influence behavior (including business practices). In
contrast to the value of a deduction to a taxpayer, the
value of a tax credit is the same, regardless of the tax
rate. Thus, a tax credit is generally more appealing to
taxpayers. Furthermore, charitable deductions allowed to
corporate taxpayers are limited to 10% of the taxpayer's
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net income and thus a tax credit for the same donations
will be more valuable to a corporate taxpayer.
The author states that qualifying for the tax credit is
cumbersome because of the difficulties associated with
valuation of the products and categorical limitation.
This bill addresses those issues by broadening the scope
of what would be considered as a QDI and the product
valuation issue by redefining how the product is to be
valued. This bill also proposes a very generous 20% tax
credit. However, increasing the allowable credit may not
be necessary; at the very least, it may be premature.
This bill expands the applicable QDIs and definition of a
QT, which would theoretically already increase donations
simply by widening the available pool of both
participants and products.
Moreover, in some cases a qualified taxpayer may be more
inclined to contribute a QDI simply because he/she is not
able to turn a profit by selling his/her products. In
those instances, receiving the current 10% credit would
be enough of an incentive. Receiving a larger credit may
go beyond what is needed to encourage the desired result.
Finally, increasing the "incentive" available for food
donations does little to help a QT who is unable to
navigate the cumbersome regulatory fields to become
eligible in the first place. Alternatively, funding
could potentially be more efficiently utilized by
incentivizing other related programs, such as gleaning.
Gleaning entails collecting leftover crops from farmer's
fields after they have been commercially harvested or
where it is not economically profitable to harvest. For
these reasons, the Committee may wish to reduce the 20%
tax credit provided for in this bill.
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d) Tax Expenditure . Existing law provides various
credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, United
States Treasury officials began arguing that these
features of the tax law should be referred to as
"expenditures" since they are generally enacted to
accomplish some governmental purpose and there is a
determinable cost associated with each (in the form of
foregone revenues).
e) Tax Expenditure vs. Direct Expenditure . As the
Department of Finance notes in its annual Tax Expenditure
Report, there are several key differences between tax
expenditures and direct expenditures. First, tax
expenditures are reviewed less frequently than direct
expenditures once they are put in place. Second, there
is generally no control over the amount of revenue losses
associated with any given tax expenditure. Finally,
absent a sunset date, a two-thirds vote is required to
rescind an existing tax expenditure once enacted.
f) Section 41 . On September 29, 2014, Governor Brown
signed 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, Section 41
requires any bill that is introduced on or after January
1, 2015 and allows a new PIT credit to contain specific
goals, purposes, and objectives that the tax credit will
achieve. In addition, Section 41 requires detailed
performance indicators for the Legislature to use when
measuring whether the tax credit meets the goals,
purposes, and objectives so-identified.
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While this bill does not create a new tax credit program
per se, it does substantially expand the existing one.
Thus, the author may wish to amend this bill to
articulate the specific goal, purpose or objective of the
bill. Performance indicators are critical in measuring
the effectiveness of the tax credit, especially in light
of doubling the amount of the credit.
g) Qualified Taxpayers Outside California . This bill
provides that a credit equal to 20% of the QV will be
given to QTs that donate QDIs to food banks in
California. However, whereas the donee must be in
California, qualified taxpayers outside of California
would be able to claim the credit as long as they meet
the requirements of a QT and donate QDIs. Therefore, it
is possible that General Fund money may be used to
subsidize QTs outside of California. The Committee may
wish to consider whether the benefits of potentially
increasing the amount of donated food outweighs the costs
of subsidizing producers located, and economic activities
performed, outside of California.
h) Qualified Taxpayer . Under the existing tax credit
program, a qualified taxpayer is defined as a person
responsible for planting a crop, managing the crop, and
harvesting the crop from the land. The FTB noted the
following implementation consideration when analyzing the
previous bill [AB 152 (Fuentes), Chapter 503, Statutes of
2011] that implemented the existing program:
The definition of a qualified taxpayer as the person
that is responsible for planting a crop, managing the
crop, and harvesting the crop from land is silent on
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requiring the person to be engaged in the business of
farming and specifying that the crop is the source of
the donated fresh fruits or fresh vegetables. As a
result, "qualified taxpayer" could be more broadly
interpreted than the author intends.
This bill's provision mirrors the definition of a QT used
in AB 152 that created the program with additional
language expanding the definition to persons "harvesting,
packing, or processing a qualified donation item." The
Committee may wish to consider whether the existing
definition of "qualified taxpayer" may have unintended
consequences (especially, considering the bill's
considerable expansion of the existing credit).
3)Prior Legislation :
a) AB 152 (Fuentes), Chapter 503, Statues of 2011,
required the State Department of Social Services to
establish and administer a State Emergency Food
Assistance Program, as specified.
b) AB 727 (Correa), of the 2001-02 Legislative Session,
would have established a tax credit equal to 10% of the
normal inventory costs for the donation of agricultural
products to a food bank in Fresno, Orange, or Santa Cruz
Counties. AB 727 failed passage in the Senate Committee
on Revenue and Taxation.
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c) AB 287 (Strickland), of the 1999-2000 Legislative
Session, would have established a credit equal to 10% of
the wholesale value of agricultural products donated by a
taxpayer to a nonprofit charitable organization or food
bank. AB 287 was held on the Assembly Committee on
Appropriations' Suspense File.
d) AB 196 (Thomson), of the 1997-98 Legislative Session,
would have established a tax credit equal to 20% of the
cost of agricultural products donated to a nonprofit
charitable organization. AB 196 was held on the Senate
Committee on Appropriations' Suspense File.
e) AB 364 (Cannella), of the 1995-96 Legislative Session,
would have, among other things, established a tax credit
equal to 10% of the cost of food donated to nonprofit
charitable organizations. AB 364 was held on the Senate
Committee on Appropriations' Suspense File.
f) AB 2346 (Kelley), Chapter 1248, Statues of 1989,
established a very similar tax credit for the donation of
agricultural products to certain nonprofit charitable
organizations. This credit was repealed by its own terms
on December 1, 1992.
REGISTERED SUPPORT / OPPOSITION:
AB 515
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Support
None on file
Opposition
None on file
Analysis Prepared by:Paul Kim / REV. & TAX. / (916) 319-2098