BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1269


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          Date of Hearing:  April 20, 2015





                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                                 Philip Ting, Chair





          AB 1269  
          (Dababneh) - As Introduced February 27, 2015


          


          SUBJECT:  Alternative energy


          SUMMARY:  Extends the authority of the California Alternative  
          Energy and Advanced Transportation Financing Authority (CAEATFA)  
          to grant financial assistance in the form of a sales and use tax  
          (SUT) exclusion for projects that promote the use of advanced  
          manufacturing until January 1, 2021.


          EXISTING LAW:  


          1)Creates CAEATFA for the purpose of promoting the development  
            and utilization of alternative energy sources and the  
            development and commercialization of advanced transportation  
            technologies. 








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          2)Authorizes CAEATFA to provide financial assistance to certain  
            facilities that use alternative energy sources and  
            technologies, develop advanced manufacturing, or are needed to  
            develop and commercialize advanced transportation technologies  
            that conserve energy, reduce air pollution, and promote  
            economic development and jobs. 

          3)Allows CAEATFA to provide eligible projects financial  
            assistance in the form of a SUT exemption on property used for  
            the "design, manufacture, production, or assembly" of either  
            advanced manufacturing, advanced transportation technologies,  
            or alternative energy source products, components or system,  
            as defined.

          4)Requires a project to demonstrate that the benefits to the  
            state from the project equals or exceeds the projected benefit  
            to the participating party from the SUT exclusion.

          5)Requires CAEATFA to provide 20-day notice to the Legislature  
            once the value of SUT exemptions approved by CAEATFA exceeds  
            $100 million.  The notification must be provided prior to  
            grating additional approvals.  

          6)Sunsets the CAEATFA's expanded authority to promote the use of  
            advanced manufacturing on July 1, 2016.

          7)Imposes a sales tax on a retailer's gross receipts from the  
            retail sale of tangible personal property (TPP) in this state,  
            unless the sale is specifically exempt from taxation by  
            statute.  It is presumed that gross receipts from a particular  
            sale of TPP are subject to tax, unless the seller can  
            establish either that the sale was not a retail transaction or  
            that the sale is subject to an exemption.

          FISCAL EFFECT:  According to the BOE, "[e]xisting law limits the  
          allowable sales and use tax exclusion for all projects approved  
          by CAEAFTA, including this bill's described projects, to $100  
          million each calendar year.  Between November 2010 and February  








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          2015, CAEATFA has approved tax exclusions of over $283 million,  
          but only $75 million has actually been claimed.


          COMMENTS:  


           1)Author's Statement  :  The author states that "[t]he [sales and  
            use tax exclusion] program for advanced manufacturing under  
            CAEATFA is critical for attracting and retaining cutting edge  
            high tech jobs and companies in California.  To date the  
            program has created an estimated 1,356 jobs and generated a  
            net benefit to the state of $168,022,862.  Extending the  
            sunset date of this successful program will allow business to  
            plan investments and help further grow the state's high tech  
            manufacturing industry."


           2)Arguments in Support  :  The Large-Scale Solar Association  
            states that "[t]he Advanced Manufacturing Sales and Use Tax  
            exemption program administered by [CAEATFA] promotes the  
            creation of California-based manufacturing and  
            California-based jobs.  The program has approved financial  
            assistance for solar photovoltaic manufacturing, biogas  
            capture and production, electric vehicle and battery  
            manufacturing, landfill gas capture and production, biomass  
            process and fuel production and for conventional manufacturing  
            in the state."


           3)CAEATFA Background  :  The California Alternative Energy Source  
            Financing Authority was established in 1980 with an  
            authorization of $200 million in revenue bonds to finance  
            projects utilizing alternative or renewable energy sources,  
            such as wind, solar, cogeneration and geothermal.  In 1994,  
            the authority was renamed "CAEATFA" and its charge was  
            expanded to include the financing of "advanced transportation"  
            technologies.  During the energy crisis of 2001, CAEATFA's  
            authority was expanded again to provide financial assistance  








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            to public power entities, independent generators, and others  
            for new and renewable energy sources, and to develop clean  
            distributed generation.  The CAEATFA board consists of five  
            members:  the Treasurer, Controller, Director of Finance,  
            Chairperson of the Energy Commission, and President of the  
            Public Utilities Commission.


            CAEATFA may provide financial assistance to approved projects  
            via the issuance of bonds, loans, loan guarantees and credit  
            enhancements.  CAEATFA may authorize up to $1 billion in  
            revenue or prepayment bonds to fund projects.  Over the last  
            few years, CAEATFA has provided financial assistance through  
            various programs, including qualified energy conservation  
            bonds for projects that promote the use of alternative energy  
            and energy efficiency in state, local and tribal government  
            facilities, as well as clean renewable energy bonds for  
            renewable energy projects.  In addition, with the passage of  
            SB 71 (Padilla), Chapter 10, Statutes of 2010, CAEATFA is  
            allowed to grant a SUT exemption to provide financial  
            assistance for the purchase of equipment that is used for the  
            design, manufacture, production, or assembly of "advanced  
            transportation technologies" or "alternative source" products,  
            components, or systems (SB 71 Program).  Alternative source  
            products include cogeneration technology, energy conservation,  
            solar, biomass, wind, geothermal, specified hydro-electric, or  
            any other energy efficient technologies that reduce the use of  
            fossil and nuclear fuels.  Alternative sources also include  
            advanced electric distributive generation technology and  
            energy storage technology.  The SB 71 Program will sunset on  
            January 1, 2021.


            In 2012, SB 1128 (Padilla), Chapter 677, Statutes of 2012,  
            expanded the SUT exclusion program to include advanced  
            manufacturing projects.  Under the SUT exclusion program,  
            CAEATFA evaluates all applicants to determine whether the  
            benefits received by the state will outweigh forgone SUT  
            revenue.  Specifically, the net benefits test established  








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            within the SUT exclusion program is primarily designed to  
            evaluate the fiscal and environmental benefits of the project  
            will produce for the state.  According to CAEATFA's annual  
            report, CAEATFA board began receiving applications for  
            advanced manufacturing projects in October of 2013, and  
            approved two advanced manufacturing projects as its December  
            2013 meeting.  


           4)Partial Sales and Use Tax Exemption  :  The passage of AB 93  
            (Committee on Budget), Chapter 69, Statutes of 2013, and SB 90  
            (Galgiani), Chapter 70, Statutes of 2013, created California's  
            first effort to grant a partial SUT exemption for taxpayers  
            performing manufacturing or research and development in the  
            state.  The rationale for providing a SUT exemption on  
            business inputs, even if partial, is to reduce the imposition  
            of a tax on a tax, otherwise known as "pyramiding".  The SUT  
            is paid when a business is considered to be the final consumer  
            of tangible item.  The tax paid on tangible personal items is  
            then incorporated into the cost of a consumer product, leading  
            to double taxation.  As noted by Joseph Henchman, "Ideally, a  
            sales tax should be levied on all goods and services sold at  
            retail, and to prevent distortions and hidden taxes, it should  
            be levied only once on each good or service sold at retail."   
            (Joseph Henchman, States Should Avoid Sales Taxes on Nonprofit  
            Hospital Purchases, Tax Foundation, April 2008.)  Ideally,  
            taxes should only be levied once because pyramiding may cause  
            consumers to favor goods and services that are provided by a  
            single company instead of those that require multiple  
            production steps.  (Id.)


           5)Differences  :  There are a few differences between CAEATFA's  
            SUT exclusion and the state's partial SUT exemption.  The  
            partial exemption rate is currently 4.1875%.  The partial  
            exemption provides that sales of the qualifying property sold  
            to a qualified person be taxed at a rate of 3.3125% (7.50%  
            current statewide tax rate - 4.1875% partial exemption) plus  
            any applicable district taxes.  Under CAEATFA, an approved  








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            project does not pay any SUT tax, including local and district  
            taxes.  Additionally, the state's SUT exemption is much  
            broader and more easily available.  So long as a business  
            meets all requirements, a qualifying manufacturer can receive  
            a partial SUT exemption.  CAEATFA, however, is a much  
            lengthier process, requiring an application and approval  
            process before the exclusion can apply.  Furthermore, the  
            programs appear to accomplish different goals.  Both programs  
            reduce the economic distortions related to taxing business  
            inputs, but CAEATFA appears to also be concerned with  
            encouraging projects that provide a greater return on  
            investment for the state.  As noted above, the anticipated  
            project benefits, measured by the fiscal and environmental  
            benefit to the state, must exceed the cost of forgone SUT.  No  
            such analysis is needed for the partial SUT exemption.  


           6)No Chance of Double Dipping  :  Assuming a manufacturer  
            qualifies under both the state's partial SUT exemption and  
            CAEATFA's SUT exclusion, the taxpayer can, at most, take the  
            full exclusion from SUT, and only after successfully  
            completing the application process.  However, a qualifying  
            manufacturer may take a partial SUT exemption on qualifying  
            purchases if those purchases meet all requirements under the  
            partial SUT exemption are not part of an approved project  
            under CAEATFA.  


           7)Prior Legislation :


             a)   SB 1128 (Padilla), Chapter 677, Statutes of 2012,  
               expands CAEATFA's SUT exclusion program to include advanced  
               manufacturing projects.


             b)   SB 71 (Padilla), Chapter 10, Statutes of 2010, allows  
               CAEATFA to grant a SUT exemption to provide financial  
               assistance for the purchase of equipment that is used for  








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               the design, manufacture, production, or assembly of  
               "advanced transportation technologies" or "alternative  
               source" products, components, or systems.


          REGISTERED SUPPORT / OPPOSITION:




          Support


          Treasurer, State of California (Sponsor)


          California Manufacturers & Technology Association 


          Large-Scale Solar Association




          Opposition


          None on file




          Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)  
          319-2098













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