BILL ANALYSIS                                                                                                                                                                                                    



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 976 (Steinorth) - Personal income tax:  deductions:   
          qualified pet adoption costs
          
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          |Version: May 7, 2015            |Policy Vote: GOV. & F. 7 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: July 6, 2015      |Consultant: Robert Ingenito     |
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          This bill meets the criteria for referral to the Suspense File.


          Bill  
          Summary:  AB 976 would allow an income tax deduction, not to  
          exceed $100, for qualified costs paid or incurred adopting a pet  
          from a qualified animal rescue organization, as defined.  


          Fiscal  
          Impact: The Franchise Tax Board (FTB) estimates that the bill  
          would result in annual General Fund revenue losses of $100,000  
          for fiscal years 2016-17 through 2018-19. The bill would not  
          impact FTB's administrative costs.


          Background: Current law permits various income tax credits, deductions, and  
          sales and use tax exemptions to provide incentives to compensate  
          taxpayers that incur certain expenses, such as child adoption,  
          or to influence behavior, including business practices and  
          decisions, such as research and development credits.  The  
          Legislature typically enacts such tax incentives to encourage  
          taxpayers to engage in some sort of behavior that would not have  







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          occurred on the natural. 
          California law allows various deductions under the personal  
          income tax (PIT), in modified conformity with federal income tax  
          laws, including miscellaneous itemized deductions that are  
          allowed only to the extent that the aggregate amount of those  
          deductions exceed 2 percent of adjusted gross income (AGI).   
          These deductions are referred to as "below-the-line" deductions.


          State law also allows for the deduction of certain expenses to  
          arrive at a taxpayer's adjusted gross income.  These expenses  
          include certain trade and business expenses, losses from the  
          sale or exchange of certain property, alimony, and moving  
          expenses.  Taxpayers with these types of expenses receive the  
          benefit of a deduction, regardless of whether the taxpayer  
          itemizes deductions or uses the standard deduction.  These  
          deductions are known as "above-the-line" deductions.




          Proposed Law:  
          This bill would allow a below-the-line deduction equal to the  
          qualified costs paid or incurred by a taxpayer for the adoption  
          of a qualified pet (as defined) from a qualified animal rescue  
          organization (as defined).  The deduction would be claimed as a  
          miscellaneous itemized deduction and would be limited to $100  
          per taxable year. The bill would (1) take effect immediately as  
          a tax levy, and (2) apply to taxable years 2016 through 2020.
          Related Legislation: AB 2326 (Dickinson, 2014), also would have  
          allowed taxpayers a


          miscellaneous itemized deduction, up to $100 per taxable year,  
          for the qualified costs paid or incurred for the adoption of  
          pets from a qualified animal rescue organization. AB 2326 was  
          held on suspense by the Assembly Appropriations Committee.




          Staff  
          Comments:  FTB's revenue estimate is based on an assumption that  
          100,000 qualified pets would be adopted in 2016. In addition,  








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          FTB assumes that (1) 60 percent of adopters would itemize their  
          deductions, and (2) 30 percent of itemizers exceed the two  
          percent floor for miscellaneous deductions. Consequently,  
          approximately 18,000 taxpayers would take the proposed  
          deduction.
          As noted above, Tax expenditures such as the one proposed in  
          this bill typically are enacted to encourage socially beneficial  
          behavior that would not exist without financial incentive.  
          However, because this bill caps its deduction at $100, the  
          decrease in a taxpayer's tax liability would be roughly $10,  
          which could limit its impact with respect to increased animal  
          adoptions over what would happen on the natural.




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