BILL ANALYSIS Ó
AB 1329
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Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 1329
(Patterson) - As Amended May 5, 2015
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal Income Tax Law: credit: fuel management
activities
SUMMARY: Allows, for taxable years beginning on or after
January 1, 2016, a credit under the Personal Income Tax (PIT)
Law equal to the "qualified costs" paid by a "qualified
taxpayer" for "fuel management activities" performed on
"qualified real property", as specified. Specifically, this
bill:
1)Defines "qualified costs" as 25% of the costs paid or incurred
by a "qualified taxpayer" for labor or services performed for
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"fuel management activities" by a "licensed contractor" or
"professional forester", which costs are evidenced by records
and documents, including a "written certification".
2)Defines a "qualified taxpayer" as a taxpayer who owns
"qualified real property." A taxpayer who owns a share of
"qualified real property" may be allowed a share of the credit
based on the taxpayer's share of the qualified costs.
3)Defines "fuel management activities" as the creation of a
"defensible space" around structures, the establishment of
fuel breaks, the thinning of woody vegetation for the primary
purpose of reducing risk to structures from "wildfire", or the
secondary treatment of woody fuel by looping, scattering,
piling, chipping, removing from the site, or prescribed
burning, provided these activities meet or exceed the
requirements of the 2015 California Forest Practice Rules.
4)Defines "qualified real property" as real property located
within a "hazardous fire area" or a "very high fire hazard
severity zone" in California.
5)Defines a "licensed contractor" as a contractor licensed under
the Contractors' State License Law with a license that relates
to the duties necessary to provide fuel management activities.
6)Defines a "professional forester" as a person licensed under
the Professional Foresters Law.
7)Defines a "written certification" as a written evaluation by
the State Board of Forestry and Fire Protection or local fire
department that certifies the establishment of "defensible
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space", provided that the certification shall be obtained
within 30 days after completion of the work establishing the
"defensible space". The qualified taxpayer must retain a copy
of the certification and provide it to the Franchise Tax Board
(FTB) upon request.
8)Defines "defensible space" as the area adjacent to a structure
or dwelling where wildfire prevention or protection practices
are implemented to provide defense from an approaching
wildfire or to minimize the spread of a structure fire to
wildlands or surrounding areas.
9)Defines a "wildfire" as an unplanned, unwanted wildland fire,
including unauthorized human-caused fires, escaped wildland
fire use events, escaped prescribed fire projects, and all
other wildland fires where the objective is to extinguish the
fire.
10)Defines a "hazardous fire area" by reference to the
definition contained in Public Resources Code (PRC) Section
4251.
11)Defines a "very high fire hazard severity zone" by reference
to the definition contained in Government Code (GC) Section
51177(i).
12)Limits the credit amount to the lesser of:
a) $2,500 per qualified taxpayer per taxable year; or,
b) 50% of a qualified taxpayer's total tax liability for
the previous taxable year.
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13)Disallows a deduction for any amount paid or incurred for
which a credit is allowed.
14)Requires the FTB to establish a procedure "to verify that the
amount was paid or incurred by the qualified taxpayer for fuel
management activities on qualified property."
15)Provides that it is the Legislature's intent to enact
legislation to comply with the requirements of Revenue and
Taxation Code (R&TC) Section 41.
16)Provides that, in cases where the credit exceeds the
taxpayer's tax liability, the excess may be carried over to
reduce the net tax in the following year, and the succeeding
six years, if necessary, until the credit is exhausted.
17)Takes immediate effect as a tax levy.
EXISTING LAW:
1)Allows various tax credits under the PIT Law. These credits
are generally designed to encourage socially beneficial
behavior or to provide relief to taxpayers who incur specified
expenses.
2)Requires any bill authorizing a new credit to contain all of
the following:
a) Specific goals, purposes, and objectives that the tax
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credit will achieve;
b) Detailed performance indicators for the Legislature to
use when measuring whether the tax credit meets the goals,
purposes, and objectives stated in the bill; and,
c) Data collection requirements to enable the Legislature
to determine whether the tax credit is meeting, failing to
meet, or exceeding those specific goals, purposes, and
objectives. The requirements shall include the specific
data and baseline measurements to be collected and remitted
in each year the credit is in effect, for the Legislature
to measure the change in performance indicators, and the
specific taxpayers, state agencies, or other entities
required to collect and remit data. (R&TC Section 41.)
3)Defines a "hazardous fire area" as any area so designated by
the State Board of Forestry and Fire Protection or the
Director of Forestry and Fire Protection pursuant to PRC
Section 4252 or 4253. (PRC Section 4251.) PRC Section 4252
provides that, upon the written petition of the owners or
authorized agents of more than 50% of the land, including
public land, within the exterior boundaries of any area of not
less than 10,000 acres, upon which a fire hazard exists due to
the presence of flammable material or cover, the board may
designate such area as a hazardous fire area, and shall
declare the period of time during which the area shall be so
designated. PRC Section 4253, in turn, provides that whenever
the director determines that a fire hazard exists in any other
area due to the presence of flammable material or cover, he
may by regulation designate such area to be a hazardous fire
area.
4)Defines a "very high fire hazard severity zone" as an area
designated by the director pursuant to GC Section 51178 that
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is not a state responsibility area. (GC Section 51177(i).)
GC Section 51178, in turn, requires the director to identify
areas in the state as very high fire hazard severity zones
based on consistent statewide criteria and based on the
severity of fire hazard that is expected to prevail in those
areas. Very high fire hazard severity zones shall be based on
fuel loading, slope, fire weather, and other relevant factors
including areas where Santa Ana, Mono, and Diablo winds have
been identified as a major cause of wildfire spread.
5)Requires any person who owns, leases, controls, operates, or
maintains an occupied dwelling or occupied structure in or
adjoining a mountainous area, forest-covered land,
brush-covered land, grass-covered land, or land that is
covered with flammable material, which area or land is within
a very high fire hazard severity zone to maintain defensible
space of 100 feet from each side of the structure. (GC
Section 51182.)
FISCAL EFFECT: The FTB estimates that this bill would reduce
General Fund revenues by $170 million in fiscal year (FY)
2016-17, and by $180 million in FY 2017-18.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
In California, fire season is year round. One of the most
integral components in protecting the state's lands, its
residents, and their structures from wildfire damage is
proper defensible space management, which includes the
thinning of woody vegetation, establishment of fuel breaks,
and creation of fire-resilient landscaping in the first 100
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feet surrounding a home. The state requires certain
residents to conduct this maintenance, and strongly
encourages it for others, depending on the resident's
location. However, the high cost of this vegetation
management can discourage landowners from taking important
steps to defend their homes and ensure their property is
fire-resistant.
Instituting a state tax credit to help offset the costs of
fuel management activities in hazardous fire areas and very
high fire hazard severity zones will encourage the creation
of fire-safe homes and landscapes and incentivize these
landowners to do the right thing and make sure their land
is fire-resistant. This will protect our lands from
catastrophic wildfires, saving taxpayer money by freeing up
public funds that might otherwise be used to contain and
fight these destructive fires.
2)Proponents of this bill note the following:
AB 1329 would help offset high costs [of] fuel management
activities to help reduce the severity of wildfires by
incentivizing landowners to make sure their land is more
fire resistant, thus reducing the cost of fire suppression
in the case of a fire. Such activities would include
creation of defensible space, establishment of fuel breaks,
thinning woody vegetation, and other fire safe practices.
3)Opponents of this bill note the following:
The incentive for maintaining a defensible space around
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one's property is enormous. Every property owner already
has a huge incentive to maintain the property's safety, not
to mention the strong incentive insurance companies have to
make sure this work is done. CalFire also does substantial
management of combustible forests and fuels. The state's
taxpayers should not be held responsible for this cost.
4)The FTB has identified the following implementation concerns
in its staff analysis of this bill:
a) "Because the bill fails to specify otherwise, the FTB
would be subject to the rulemaking procedures required
under the Administrative Procedures Act (APA). Following
these procedures may delay the immediate implementation of
this bill. To prevent any delay, it is recommended that
the author add a provision exempting the FTB from the APA
when the FTB is prescribing rules, guidelines, or
procedures necessary or appropriate to carry out the
purpose of this bill.
b) "It is unclear how the credit limitation would be
determined when a property is owned by more than one
qualified taxpayer. Would the limit be determined
individually by each qualified taxpayer or would the limit
be based on the total of all the qualified taxpayers'
previous year's tax liability?
c) "The amount of the credit allowed by this bill could not
exceed the lesser of two thousand five hundred dollars
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($2,500) per qualified taxpayer per taxable year or 50
percent of a qualified taxpayer's total tax liability for
the previous taxable year.
i) "It is unclear how the credit limit would be
determined for a qualified taxpayer that filed jointly in
the prior year and not jointly in the current year.
Would 100 percent of the prior year's joint liability be
subject to the 50 percent limit? One half of the prior
year's joint liability?
ii) "The credit available to a qualified taxpayer with
zero or negative taxable income, or no filing requirement
in the prior year would be zero because this bill limited
the credit to the lesser of 50 percent of the qualified
taxpayer's prior year tax liability or $2,500.
d) "Because the bill specifies that prescribed burning
would be allowed 'provided these activities meet or exceed
the requirements of the 2015 California Forest Practice
Rules,' the rules as they exist for 2015 would be the only
rules considered in future years. If this is contrary to
the author's intent, the bill should be amended."
5)Committee Staff Comments
a) What is a "tax expenditure" ? Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
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).
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b) 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. While this affords taxpayers greater financial
predictability, 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, effectively resulting
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy or cost, without a
supermajority vote.
c) The fire prevention fee : On July 7, 2011, Governor
Brown signed legislation enacting a new fire prevention
fee. Specifically, ABx1 29 (Blumenfield), Chapter 8,
Statutes of 2011, declared that "[t]he costs of fire
prevention activities aimed at reducing the effects of
structures in state responsibility areas should be borne by
the owners of these structures." Thus, under the new law,
the Board of Forestry was directed to establish a fire
prevention fee of no more than $150 to be applied to each
habitable structure on a parcel within a state
responsibility area. ABx1 29 also directed the Board of
Forestry, beginning on July 1, 2013, to adjust annually the
fire prevention fee amount pursuant to a specified formula.
d) What exactly are we incentivizing ? Generally, tax
credits are provided as a matter of
legislative grace to encourage socially beneficial behavior
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that likely would not occur
absent a financial incentive. Current law, however,
already requires specified landowners to maintain a
defensible space around their structures. If the desire to
comply with existing law and prevent one's home from being
destroyed in a wildfire is an insufficient incentive to
maintain adequate defensible space, it is questionable
whether a $2,500 tax credit would prove adequate. It could
be argued that such an incentive would be akin to providing
a tax credit for purchasing automobile insurance, which is
both mandated by law and designed primarily to protect the
policyholder.
e) R&TC Section 41 : On September 29, 2014, Governor Brown
signed SB 1335 (Leno), Chapter 845, Statutes of 2014, which
added R&TC Section 41. SB 1335 recognized that the
Legislature should apply the same level of review used for
government spending programs to tax preference programs,
including tax credits. Thus, R&TC Section 41 requires any
bill introduced on or after January 1, 2015 that allows a
new income tax credit to contain specific goals, purposes,
and objectives that the tax credit will achieve. In
addition, Section 41 requires detailed performance
indicators for the Legislature to use when measuring
whether the tax credit meets the goals, purposes, and
objectives so-identified. This bill, in turn, provides
that it is the Legislature's intent "to enact legislation
to comply with the requirements of Section 41."
f) Absence of a sunset date : In its current form, this
bill's proposed tax expenditure lacks an automatic sunset
provision. This Committee has a longstanding policy
favoring the inclusion of sunset dates to allow the
Legislature periodically to review the efficacy and cost of
such programs. The author may wish to consider the
addition of appropriate sunset provisions.
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g) Related legislation :
i) AB 294 (Anderson), of the 2009-10 Legislative
Session, would have allowed a deduction for qualified
costs paid to create a defensible space around a
qualified property. AB 294 was never heard by this
Committee.
ii) AB 363 (Miller), of the 2009-10 Legislative Session,
would have allowed a credit for 50% of the "qualified
costs" paid or incurred by a taxpayer for bringing a
qualified home into compliance with specified fire safety
requirements. AB 363 (Miller) was held on this
Committee's Suspense File.
iii) AB 424 (Gaines), of the 2007-08 Legislative Session,
would have allowed a tax credit, under both the PIT Law
and the Corporation Tax Law, for costs paid for the
creation of a defensible space. AB 424 defined the term
"defensible space" as that area created by removing all
brush, flammable vegetation, and combustible growth
located within 100 feet from the structural components of
a dwelling, as specified. AB 424 was heard by the Senate
Committee on Revenue and Taxation, but no further action
was taken.
iv) AB 1853 (Anderson), of the 2007-08 Legislative
Session, would have allowed a deduction for qualified
costs paid to create a defensible space around a
qualified property. AB 1853 was held on this Committee's
Suspense File.
v) AB 1912 (Plescia), of the 2007-08 Legislative
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Session, would have allowed a credit equal to 15% of the
cost paid, as specified, for the purchase and
installation of any wildfire risk reduction improvement
installed on existing property in California. AB 1912
was held on this Committee's Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
Associated California Loggers
California Farm Bureau Federation
Opposition
California Tax Reform Association
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098
AB 1329
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