BILL ANALYSIS Ó
AB 1269
Page 1
ASSEMBLY THIRD READING
AB
1269 (Dababneh)
As Introduced February 27, 2015
2/3 vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+---------------------+---------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+---------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 1269
Page 2
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.
FISCAL EFFECT: According to the Assembly Appropriations
Committee, expected decreases in General Fund revenue of
approximately $15-20 million per fiscal year.
Existing law limits the aggregate allowable sales and use tax
exclusions for all projects approved by CAEAFTA to $100 million
per calendar year. According to data provided by the Treasurer's
office, from November 2010 to March 1, 2015, approximately $290
million in sales and use tax exclusions were approved by CAEATFA,
and approximately $82 million in exclusions have been claimed, or
approximately $19 million in claimed exclusions on an annualized
rate.
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
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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)Arguments in Opposition: None submitted.
4)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 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),
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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 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.
5)Partial Sales and Use Tax Exemption: The passage of AB 93
(Budget Committee), 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
AB 1269
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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.)
6)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 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.
7)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
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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.
Analysis Prepared by:
Carlos Anguiano / REV. & TAX. / (916) 319-2098
FN: 0000651