BILL ANALYSIS Ó
AB 976
Page 1
ASSEMBLY THIRD READING
AB
976 (Steinorth)
As Amended May 7, 2015
Majority vote. Tax levy
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+-----------------------+--------------------|
|Revenue & |7-2 |Brough, Dababneh, |Ting, Quirk |
|Taxation | |Gipson, Roger | |
| | |Hernández, Mullin, | |
| | |Patterson, Wagner | |
| | | | |
|----------------+------+-----------------------+--------------------|
|Appropriations |15-1 |Gomez, Bigelow, Bonta, |Gordon |
| | |Calderon, Chang, Daly, | |
| | |Eggman, Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Holden, Jones, Rendon, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Allows a deduction, not to exceed $100, for qualified
costs paid or incurred adopting a pet from a qualified animal
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rescue organization. Specifically, this bill:
1)Allows, for taxable years beginning on or after January 1, 2016,
and before January 1, 2021, a deduction, under the Personal
Income Tax (PIT) Law, equal to the "qualified costs" paid or
incurred by a taxpayer for the adoption of a "qualified pet"
from a "qualified animal rescue organization."
2)Limits the deduction allowed for a taxable year to $100.
3)Defines a "qualified pet" as either of the following animals
adopted from a qualified animal rescue organization that is not
used by the taxpayer in a trade or business or for the
production of income:
a) A pet over the age of four, as determined by the qualified
animal rescue organization; or,
b) A cat.
4)Defines a "qualified animal rescue organization" as a public
animal control agency or shelter, humane society shelter, or
rescue group.
5)Defines "qualified costs" as amounts paid or incurred to a
qualified animal rescue organization to adopt a pet, not to
exceed $100.
6)Defines "rescue group" as an organization exempt from federal
income taxation, pursuant to Internal Revenue Code (IRC) Section
501(c)(3), whose primary purpose is the placement of dogs, cats,
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or other animals that have been removed from a public animal
control agency or shelter, society for the prevention of cruelty
to animals shelter, or humane society, or that have been
surrendered or relinquished to the rescue group by the previous
owner.
7)Repeals the statutory provision authorizing the deduction on
December 1, 2021.
8)Takes effect immediately as a tax levy.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, estimated annual General Fund revenue decrease of
approximately $100,000.
COMMENTS:
1)Authors Statement. The author has provided the following
statement in support of this bill:
AB 976 represents a modest investment towards
supporting our local governments and animal shelters.
California taxpayers currently spend over $120 million
to support local animal shelters for the approximately
800,000 pets they serve each year. Overcrowding poses
constant pressure upon shelters to reduce their intake
and holding time; the simplest way to combat the
problem is to increase adoption rates.
Shelters have testified that providing discounted
prices for adoption have effectively increased their
adoption rates. While not an identical offer, it is
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reasonable to infer that an ongoing financial
incentive in the form of a tax deduction will have a
similarly positive effect in increasing animal
adoptions.
Increasing animal adoptions will help to relieve local
governments of the substantial cost pressure placed
upon them to support shelters. Rather than
distributing additional local government dollars to
animal shelters, a tax deduction places the power in
the taxpayer's hands to reduce their cost share. It
is critical that the state do its part in encouraging
animal adoptions in an effort to both reduce the cost
to the public and save lives.
2)Arguments in Support: The Humane Society states that "[w]hile
the tax deduction provision that AB 976 would create cannot
address all that ails our state's homeless pets and the agencies
vested with looking out for their interests, it is a relatively
inexpensive and efficient way to send a strong message to
California taxpayers: that never before has their compassion
been more critical to improving the chances for animals who have
done nothing wrong other than prove too expensive for their
downtrodden owners. AB 976 asks Californians to help out, and
by promoting the benefits - to the animals and to the government
and charitable sectors - of adopting rather than purchasing dogs
and cats, the deduction would increase the ability of municipal
and charitable animal protection organizations to continue their
life-saving work." The Humane Society further states that "the
cost associated with AB 976's provisions is modest when compared
to the potential for increased economic activity, reduced animal
sheltering costs and improved agency revenues, and lower health
and welfare expenses. Only very small increases in the number
of pet adoptions would be necessary to demonstrate the
investment value of providing this deduction."
3)Arguments in Opposition: The California Tax Reform Association
states that "[w]hile the intention of this bill is reasonable,
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the legislature has previously rejected the use of tax credits
and deductions for animal adoption. Promoting the adoption of
animals from animal rescue organizations through the mechanism
of a tax deduction is poor public policy." The California Tax
Reform Association further states that the deduction is poor
public policy because the deduction is only relevant to those
who earn enough income to itemize, and the choice of adopting a
pet is properly motivated by compassion, not finances.
4)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 enacts a new tax expenditure program, in
the form of a PIT deduction, to encourage the adoption of pets
from qualified animal rescue organizations.
5)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
effectively results in a "one-way ratchet" whereby tax
expenditures can be conferred by majority vote, but cannot be
rescinded, irrespective of their efficacy, without a
supermajority vote.
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6)Above/Below the Line Deduction: An above-the-line deduction is
a deduction that allows a taxpayer to subtract amounts from
gross income when calculating their "adjusted gross income." If
the deduction is taken above the line, it is used to determine
the taxpayer's adjusted gross income (AGI). An above-the-line
deduction can be taken by any taxpayer regardless of whether the
taxpayer itemizes. Moreover, an above-the-line deduction
reduces AGI, and having a smaller AGI can lower many subsequent
calculations which will further reduce taxes. As a result,
above-the-line deductions are more advantageous than those taken
below the line. Once AGI is determined, a taxpayer can either
itemize deductions or take the standard deduction, whichever is
greater. Once itemized deductions exceed the standard
deduction, other smaller deductions, such as miscellaneous
expenses, can be applied to increase tax savings. However, in
order to take advantage of a miscellaneous deduction, total
expenses must exceed 2% of AGI. Other deductions provide their
own AGI threshold.
7)Incentive or reward? Generally, tax expenditures are enacted to
encourage socially beneficial behavior that would not take place
without a financial incentive. As noted above, this bill
establishes a deduction to encourage the adoption of pets from
qualified animal rescue organizations. It would be difficult to
find a person who did not consider this a worthy goal. At the
same time, however, this bill limits the deduction amount to
$100 per taxable year. Applying a marginal tax rate of 9.3%,
this would translate to a tax break of less than $10. The
Legislature may wish to consider whether such an incentive is
likely to encourage people to engage in "new" behavior, or
whether it would simply reward people who would have adopted a
pet in the absence of a deduction. Additionally, given that
less than one-half of individual California taxpayers itemize
their deductions; and given the overall cap on total itemized
deductions under the personal income tax law, this clarification
would result in many fewer taxpayers being eligible to claim the
deduction, and therefore significantly lower impact to General
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Fund revenue.
8)Prior Legislation:
a) AB 2326 (Dickinson) of the 2013-14 Regular Session, would
have allowed a deduction for qualified costs paid or incurred
adopting a pet from a qualified animal rescue organization.
AB 2326 was held on the Assembly Appropriations Committee's
Suspense File.
b) AB 233 (Smyth) of the 2009-10 Regular Session, would have
allowed a deduction for qualified costs paid or incurred by a
taxpayer for the adoption of a pet from a qualified animal
rescue organization. AB 233 was held on the Assembly
Appropriations Committee's Suspense File.
Analysis Prepared by:
Carlos Anguiano / REV. & TAX. / (916) 319-2098
FN: 0000541
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