BILL ANALYSIS Ó
AB 945
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Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 945
(Ting) - As Amended April 27, 2015
Majority vote. Fiscal committee. Tax levy.
SUBJECT: Sales and use taxes: exemption: low-emission
vehicles.
SUMMARY: Provides a partial Sales and Use Tax (SUT) exemption
for the purchase or use of a qualified motor vehicle (QMV).
Specifically, this bill:
1)Provides a partial SUT exemption for the purchase or use of a
QMV. Specifies that the SUT exemption amount shall be equal
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to the greater of the following:
a) The trade-in value of a motor vehicle that is traded in
for a qualified motor vehicle if the value of the trade
in-value motor vehicle is separately stated on the new
motor vehicle invoice or bill of sale or similar document
provided to the purchaser; or,
b) The sum of both the following:
i) The Qualified Plug-in Electric Drive Motor Vehicle
tax credit;
ii) The Clean Vehicle Rebate Project;
iii) The California Hybrid and Zero-Emission Truck and
Bus Voucher Incentive Project; or,
iv) The On-Road Heavy Duty Voucher Incentive Program
under the Carl Moyer Program.
2)Defines a "qualified motor vehicle" as a motor vehicle that
receives, or is awarded or allowed, the following:
3)A Qualified Plug-in Electric Drive Motor Vehicle tax credit
pursuant to Internal Revenue Code (IRC) Section 30D; or,
4)A state incentive amount under the Clean Vehicle Rebate
Project, the California Hybrid and Zero-Emission Truck and Bus
Voucher Incentive Project, or the On-Road Heavy-Duty Voucher
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Incentive Program under the Carl Moyer Program.
5)Provides that, notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, the extension shall not apply with respect to any
tax levied by a county, city, or district pursuant to those
laws.
6)Provides that the exemption shall not apply to the Local
Revenue Fund (Revenue and Taxation Code [R&TC] Sections 6051.2
and 6201.2), Fiscal Recovery Fund (R&TC Sections 6051.5 and
6201.5), Local Public Safety Fund (California Constitution,
Article XIII, Section 35), Education Protection Account
(California Constitution, Article XIII, Section 36), or the
Local Revenue Fund of 2011 (R&TC Sections 6051.15 or 6201.15).
7)Provides that this section shall become operative on January
1, 2016; sunsets on January 1, 2020; and as of that date, is
repealed.
8)Takes effect immediately as a tax levy.
EXISTING FEDERAL LAW provides an income tax credit of up to
$7,500 for purchases of electric and plug-in hybrid electric
vehicles, which include passenger vehicles and light trucks.
The credit amount varies based on the capacity of the battery
used to fuel the vehicle. Small neighborhood electric vehicles
do not qualify.
EXISTING STATE LAW:
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1)Imposes a SUT on the sale of, or the storage, use, or other
consumption of, tangible personal property (TPP), unless
specifically exempted.
2)Provides that the SUT must be computed based on the sales
price of the good sold.
3)Authorizes counties and cities to impose local SUTs on TPP.
4)Provides rebates of up to $2,500 for the purchase of
zero-emission and plug-in hybrid electric vehicles under the
Clean Vehicle Rebate Project. The rebates are available for
light-duty cars and trucks, low-speed neighborhood electric
cars, and zero-emission motorcycles.
5)Offers vouchers from $8,000 to $45,000, on a first-come,
first-served basis, to offset approximately half of the
additional cost of eligible new hybrid and electric trucks and
buses under the California HVIP.
6)Offers vouchers from $10,000 to $45,000 for 10 or fewer
vehicle fleets to quickly replace or retrofit older heavy-duty
diesel vehicles under the Carl Moyer Program - VIP.
FISCAL EFFECT: The Board of Equalization (BOE) estimates an
annual General Fund revenue loss of $16.8 million.
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COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
AB 945 seeks to help California reach its greenhouse gas
reduction goals by incentivizing clean vehicles at the point of
sale with a state sales tax exemption. In California, the
transportation sector constitutes the greatest of source of
pollution, accounting for 40% percent of the state's greenhouse
gas emissions. According to the US [Environmental Protection
Agency], electric vehicles emit only one quarter of pollutants
of an average new car.
After buying a home, the purchase of a car is the most
expensive purchase for most people. We must make electric
vehicles more affordable for more people. We cannot
confront climate change without changing the cars we drive.
Governor Brown has set a high bar for change and it needs
a powerful jump start to be achieved. There are more clean
cars are on the market today than ever before but consumers
need greater incentive to buy them. AB 945 seeks to get
more clean cars on the road by reducing sticker shock and
putting money immediately back into Californians' pockets.
2)Arguments in Support : According to California Electric
Transportation Coalition, "[t]he existing California state
sales and use taxes on the sale or lease of alternative-fuel
vehicles are higher than for comparable conventional-fuel
vehicles because alternative-fuel vehicles currently cost
more. The higher cost is largely due to the fact that these
vehicles are currently produced in low volumes using newer
and/or advanced technologies; therefore, their production has
not yet achieved the economies of scale relative to
conventional vehicles. As alternative-fuel vehicle production
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increases, the costs associated with these vehicles will
decline." The California Electric Transportation Coalition
goes on to say that "[t]he current sales and use tax system
unfairly penalize the alternative-fuel vehicles the state
encourages through a number of monetary and non-monetary
incentive programs. In some cases, consumers are penalized as
a result of their choosing to purchase alternative-fuel
vehicles that have been mandated by the state because they are
paying higher rates of sales tax in amounts that reduce the
benefits of the monetary incentives that they receive."
Finally, the California Electric Transportation Coalition
makes note of the fact that "[a]lternative-fuel vehicles
provide benefits to all Californians, including Californians
that do not choose to purchase these vehicles. These benefits
include diversifying of the transportation fuels sector
creating jobs and benefiting the economy; providing more
transportation choices for consumers and businesses, thus
reducing our economic vulnerability to fuel price volatility;
reducing air pollutants, climate change pollutants and toxic
emissions from mobile sources; saving Californians $7-$8
billion in avoided health, climate change and societal damages
associated with conventional vehicles."
3)Arguments in Opposition : The California Tax Reform
Association states that "there are both federal and state
benefits for buying a low-emission vehicle. Beyond that,
these high-mileage vehicles provide savings on gasoline costs
and the cost of the gas tax. Buyers purchasing low-emission
vehicles for a variety of reasons, including lowering their
expenditures on fuel. In addition, rising fuel mileage
standards, mandated by the federal government, will add
greatly to the low emission fleet, through regulation, not tax
incentives. And, current cap-and-trade revenues on fuels
should be a source of assistance to the low-emission fuel
fleet? Thus, given other revenue sources, the regulatory
environment, and other benefits to purchases of these
vehicles, we do not believe that the general fund should be
footing the bill for this program, as this bill would
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provide."
4)Background : The California Alternative and Renewable Fuel,
Vehicle Technology, Clean Air, and Carbon Reduction Act of
2007 created the California Air Resources Board's Air Quality
Improvement Program (AQIP). AQIP administers the Clean
Vehicle Rebate Project (CVRP) and the California Hybrid and
Zero-Emission Truck and Bus Voucher Inventive Project (HVIP).
Under the CVRP, $2,500 is provided to offset the cost of
purchasing a zero-emission and plug-in hybrid electric
vehicles. Under the HVIP, California also provides vouchers
from $8,000 to $45,000 to offset approximately one-half of the
additional cost of eligible new hybrid and electric trucks and
buses. The state also offers vouchers from $10,000 to $45,000
for 10 or fewer vehicle fleets to quickly replace or retrofit
older heavy duty diesel vehicles under the Carl Moyer Program.
Additionally, state and local governments provide non-cash
incentive programs for purchasing specified AFVs. Under a
white or green sticker designation, certain vehicles are
allowed to use the carpool lane regardless of number of
occupants. Finally, cities such Sacramento provide free
parking and recharging at designated parking facilities for
specified AFVs.
5)Scope of Bill : This bill provides a SUT incentive for
vehicles covered under specified federal and state incentive
programs. The vehicles eligible for the Qualified Plug-in
Electric Drive Motor Vehicle federal tax credit are electric
and plug-in hybrid electric vehicles, which include passenger
vehicles and light trucks. Vehicles eligible for the Clean
Vehicle Rebate Project include light-duty, zero-emission
vehicles; light-duty, plug-in hybrid electric vehicles;
neighborhood electric vehicles; and zero-emission motorcycles.
Some car models eligible for the federal and state subsidies
include the Honda Accord Plug-In Hybrid, the Tesla Model S,
the Nissan Leaf, the Chevrolet Volt, the Ford Fusion Energi,
and the Fiat 500e. Vehicles under the California HVIP and the
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VIP programs include clean, low-carbon hybrid and electric
trucks and buses.
6)What Does this Bill Do ? This bill provides a partial
exemption from the SUT<1> by reducing the sales price of a QMV
by a value equal to any applicable federal and state incentive
program or the value of a trade-in vehicle, whichever is
greater. As an example, the Nissan Leaf would qualify for a
$7,500 credit under the Qualified Plug-in Electric Drive Motor
Vehicle and a $2,500 credit under the Clean Vehicle Rebate
Project. The partial sales tax exemption would be computed
based on the sales price of the Nissan Leaf, which has a
manufacturer's suggested retail price (MSRP) of $28,800, minus
the $10,000 in federal and state credits. In this example,
the SUT would be computed based on a sales price of $18,800.
However, if a person trades in their old BMW and receives
$12,000 for the car, the partial sales tax exemption would be
computed based on the $28,800 MSRP minus the $12,000, for a
total sales price of $16,800.
7)What is a "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). This bill would enact a new tax
expenditure program in the form of partial SUT exemption for
QMVs.
---------------------------
<1> QMVs would be subject to the Education Protection Account
(.25%), State Fiscal Recovery Fund (.25%), Local Revenue Fund
(0.5%), Local Public Safety Fund (0.5%), Local Revenue Fund of
2011 (1.0625%), and any tax levied pursuant to the Bradley-Burns
Uniform Local SUT Law or the Transactions and Use Tax.
Therefore, a purchaser of a QMV receives a SUT exemption for the
State's SUT portion equal to 3.9375%.
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8)How is a tax expenditure different from a 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. This can offer
taxpayers greater certainty, but it can also result in tax
expenditures remaining a part of the tax code without
demonstrating any public benefit. Second, there is generally
no control over the amount of revenue losses associated with
any given tax expenditure. Finally, it should also be noted
that, once enacted, it takes a two-thirds vote to rescind an
existing tax expenditure absent a sunset date. This bill
includes a sunset date of January 1, 2020.
9)Negative externalities : In economics, a negative externality
is a cost which results from an activity or transaction which
affects an otherwise uninvolved party who did not choose to
incur that cost. With respect to the environment,
externalities are generally considered negative because the
use of certain resources impose a cost on society, but the
user of that resource is not charged the price equal to the
cost imposed. For example, the smoke emitted by a gasoline
engine worsens the air quality for neighbors, but the operator
of the gasoline engine only pays for the price of fuel, not
the use of the clean air. Thus, the negative externality is
the pollution of the clean air. The state can choose several
avenues to encourage environmental polluters to consider the
negative externalities when making choices about the pollution
they generate. The most common types of incentives are taxes,
subsidies, quotas, and tradable permits. The author of this
bill expresses a need to reduce green-house gasses, air
pollutants, and toxic emissions by incentivizing consumers to
purchase QMVs that are better for the environment.
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In a supply and demand model, the supply curve can be thought
of as marginal cost and the demand curve can be thought of as
marginal benefit. Equilibrium is reached where the marginal
cost equals marginal benefit. Everything to the left of the
equilibrium point and between the marginal benefit and
marginal cost curves is a benefit to society because the
marginal benefit is higher than the marginal cost. However,
in light of environmental pollution, the marginal cost may not
necessarily capture the negative externalities (e.g.,
pollution, health problems, global warming) borne by society.
Therefore, the marginal cost may actually be higher than
expected. Ideally, society would want the individual's
marginal cost and society's marginal cost to be the same.
Assuming that society's marginal cost is greater than those
borne by the individual purchaser, a reduction in gasoline use
can be accomplished by imposing a tax or providing a subsidy.
California imposes an excise fuel tax on gasoline at a rate of
$0.36 a gallon and will be lowered to $0.30 per gallon
starting July 1, 2015. The tax lowers consumption of
gasoline, mitigating some of the pollutants expelled by
gasoline powered vehicles. Despite the excise tax applied to
gasoline, there appears to be additional need to reduce
pollutants. Thus, the subsidy provided for in this bill
should increase the number of fuel efficient vehicles on the
road, further reducing the negative effects associated with
the use of gasoline.
10)Prior Legislation :
a) AB 1077(Ting and Muratsuchi), of the 2013-14 Legislative
Session, provided a partial SUT exemption for QMV, as
specified, and reduced the amount of vehicle license fee
imposed on an owner of a QMV. AB 1077 was held on the
Assembly Appropriation Committee's Suspense File.
b) SB 221 (Pavley), of the 2013-14 Legislative Session,
exempts from the SUT any amount allowed as a federal tax
credit, and any amount received, awarded, or allowed under
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a state AFV incentive program. SB 221 was never heard by
the Senate Governance and Finance Committee.
c) AB 1304 (Saldana), introduced in the 2009-10 Legislative
Session, would have exempted the sale and purchase of
electric vehicles, as defined, from state and local SUTs.
The exemption would have been limited to 100 electric
vehicles per manufacturer. AB 1304 held on the Assembly
Appropriations Committee's Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
California Electric Transportation Coalition (Sponsor)
Bay Area Air Quality Management District
Blood Centers of California
California New Car Dealers Association
CalStart
California Trucking Association
First Priority Bus Sales
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Pacific Gas and Electric Company
Sacramento Municipal Utility District
San Diego Gas & Electric Company
Opposition
Tax Reform Association
Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)
319-2098