BILL ANALYSIS Ó AB 1399 Page 1 Date of Hearing: April 13, 2015 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair AB 1399 (Baker) - As Introduced February 27, 2015 Majority vote. Fiscal committee. Tax levy. SUBJECT: Corporation tax law: credits: domestic violence shelters SUMMARY: Provides a credit under the Corporation Tax (CT) Law in the amount of 50% of the contributions made to a domestic violence shelter service provider or emergency shelter, not to exceed $200,000. Specifically, this bill: 1)Provides, beginning on or after January 1, 2016, and before January 1, 2021, a credit against the "tax," as defined under the CT Law, in the amount of 50% of contributions made to a domestic violence shelter service provider or emergency AB 1399 Page 2 shelter. 2)Provides that the credit shall not exceed $200,000 per taxpayer, per taxable year. 3)Provides that the credit is in lieu of any other credit or deduction that the taxpayer may otherwise claim for contributions made to a domestic violence shelter service provider or emergency shelter. 4)Provides that the credit shall be claimed on a timely filed original return. 5)Requires the Franchise Tax Board (FTB), upon application by the taxpayer, to certify contributions meeting the requirements of this bill. 6)Provides that if the credit exceeds the taxpayer's liability, the excess credit amount may be carried over to the following year, and succeeding five years, if necessary until the credit is exhausted. 7)Provides that the credits shall be awarded on a first-come-first-serve basis, and that the aggregate amount of credit shall not exceed $50 million for each calendar year. 8)Defines a "domestic violence shelter service provider" as having the same meaning as provided for under the Comprehensive Statewide Domestic Violence Program. 9)Defines an "emergency shelter" as having the same meaning, and AB 1399 Page 3 eligible for financial or technical assistance pursuant to the Comprehensive Statewide Domestic Violence Program. 10)Defines a "program" as having the same meaning under the Comprehensive Statewide Domestic Violence Program. 11)Provides that the FTB and the Office of Emergency Services (OES) shall administer the credit provided for by this bill. 12)Provides that the FTB shall perform all of the following: a) Adopt rules and regulations as necessary or appropriate to implement this credit. b) Establish application forms and procedures. c) Track credits claimed. d) Post aggregate totals of the credits claimed on the Internet Web site of the FTB. e) Determine when the aggregate total of credits reaches $50,000,000 for a calendar year. f) Certify that a contribution meets the requirements as set forth in this bill based on the list provided by the OES. 13)Requires that the OES annually submit to the FTB a list of AB 1399 Page 4 those domestic violence shelter service providers and emergency shelters eligible for a grant award or technical and financial assistance pursuant to the Comprehensive Statewide Domestic Violence Program. 14)Provides that the Administrative Procedures Act shall not apply to the rules or regulations adopted pursuant to this section. 15)Provides that this section shall remain in effect only until December 1, 2021, and as of that date is repealed. 16)Provides that it is the intent of the Legislature to make the findings required by the Revenue & Tax Code (RTC) Section 41. 17)Provides that, as a tax levy, this act go into effect immediately. EXISTING LAW: 1)Provides various tax credits to encourage socially-beneficial behavior or to provide relief to taxpayers who incur specified expenses. Or to influence behavior, including business practices and decisions. These credits generally are designed to provide incentives for taxpayers to perform various actions or activities that they may not otherwise undertake. 2)Allows generally for, taxpayers engaged in a trade or business may deduct all expenses considered ordinary and necessary in conducting that trade or business. 3)Allows corporations that are members of the same unitary combined reporting group to assign "eligible" credits to other AB 1399 Page 5 members of the group. An "eligible" credit is any credit earned by the taxpayers in a taxable year beginning on or after July 1, 2008, or any credit earned in any taxable year beginning before July 1, 2008, that was eligible to be carried forward to the first taxable year beginning on or after July 1, 2008. The credit assignment is made by an irrevocable election. The assignor and assignee taxpayers must be members of the same combined reporting for the taxable year in which the credit is earned and the taxable year the credit is assigned. 4)Applies performance measurement standards to any new tax credit under either the Personal Income Tax (PIT) or CT Law if enacted by a bill introduced on or after January 1, 2015. Specifically, existing law requires the all of the following: a) Specific goals, purposes, and objectives that the tax 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, including a requirement to specify both of the following: i) The baseline data, to be collected and remitted in each year the credit is effective, for the Legislature to measure the change in performance indicators; and, ii) The taxpayers, state agencies, or other entities required to collect and remit data FISCAL EFFECT: The FTB estimates a revenue loss of $11 million in fiscal year (FY) 2015-16, $38 million in FY 2016-17, and $46 million in 2017-18. AB 1399 Page 6 COMMENTS: 1)Author's Statement . The Author has provided the following statement in support of this bill: On just one day in 2013, 5,263 victims and their children received services as domestic violence programs throughout the state. On that same day 872 requests for services went unmet, of which 80% were for housing, largely due to lack of resources. That means 872 individuals, children, and families, could not secure a safe place to stay, or receive vital counseling or resources. Emergency shelter, transitional housing, and nonresidential services could not be provided because of lack of resources. Of those unmet needs, approximately 40% of programs report that victims return to their abuser, 37% report that victims become homeless, and 16% report that families end up living in their car. AB 1399 will increase available resources to victims of domestic violence by providing that local business and corporations who make charitable contributions to domestic violence programs can receive a 50% tax credit for that donation. The recipients of the contribution must be non-profit domestic violence organizations who are grant recipients under the OES Comprehensive Statewide Domestic Violence Program. AB 1399 Page 7 2)Arguments in Support . YWCA of Glendale states that, "Every day, domestic violence programs . . . struggle to meet the needs of domestic violence survivors, their children and communities with limited financial resources at their disposal. . . . Domestic violence programs rely on a wide range of funding sources to support their programs, including corporate donations. Allowing corporations to claim a tax credit for their donations would help to encourage these businesses to increase donations to the domestic violence programs serving their communities. This bill will benefit domestic violence programs and the businesses that choose to donate." 3)Arguments in Opposition . The California Tax Reform Association (CTRA) notes that, "[t]his bill's proposed way of accomplishing that end is, however, not as meritorious as its laudable aim." CTRA continues on to say that, "given the magnitude of the contemplated expenditure, a more targeted and more accountable approach would be a bill that appropriates this money from the General Fund to those programs that the bill already identifies as legitimate recipients. Second, the bill would provide that the credit would not exceed $200,000 per corporate taxpayer. However, many corporations have already zeroed out their tax liability. Third, and relatedly, the loss of up to $50 million to the General Fund means that other worthy programs may not be as well funded. Fourth, the exemption from the Administrative Procedures Act for regulations promulgated under the legislation is confounding. 4)Domestic Violence Shelters (DVS) . One in four women will experience domestic violence in their lifetime. (Tjaden, Patricia & Thoennes, Nancy. National Institute of Justice and the Centers of Disease Control and Prevention, Extent, Nature and Consequences of Intimate Partner Violence: AB 1399 Page 8 Findings from the National Violence Against Women Survey, 2000.) DVSs are essential in supporting victims of domestic violence because they answer incoming calls, provide emergency shelters for women and children, and provide much needed counseling. (Safehorizon. Facts and Stats About Safehorizon. Web. April 1, 2015.) Moreover, according to a recent article in Forbes magazine, "Domestic violence costs $8.3 billion in expenses annually: a combination of higher medical costs ($5.8 billion) and lost productivity ($2.5 billion)." (Robert Pearl. Forbes. Domestic Violence: The Secret Killer That Costs $8.3 Billion Annually. December, 5, 2013. Web. April 1, 2015.) 5)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 would enact a new tax expenditure program, in the form of a tax credit for corporations who make contributions to qualified DVS. 6)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. 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 AB 1399 Page 9 tax expenditure absent a sunset date. This bill shall remain in effect until December 1, 2021. 7)Considerations . A tax credit for 50% of the monetary contributions to a DVS service provider or emergency shelter is relatively high as compared to other credits in existing law. Therefore, it is reasonable to assume that this would indeed incentivize corporations to continue/increase their contributions to DVSs; however, the incentive is only temporary and the increased available funding would also be highly volatile depending on the amount of contributions made throughout the year. This variability could eventually lead to planning complications and potential underfunding for shelters that have over-expanded their services in response to a temporary increase in funding. Moreover, simply creating a greater incentive for corporations to make donations does not necessarily address the issue regarding the lack of funding; this bill does not consider where funding is needed most or how an increase in funding would be most efficiently utilized. Larger DVS would most likely receive the lion's share of the increased funding solely due to their notoriety. However, smaller and newer shelters (who may have a greater need for funding) may be entirely neglected and unable to meet their demands. Therefore, regardless of the aggregate increase in funding, if the funding is not distributed efficiently the intended purpose of the author could be met with frustration. 8)Compliance with Section 41 of the RTC . It is unclear as to whether the requirements under Section 41, have been met to the required extent. First, although the author states that the this bill's effect will be an increase in funding available to DVSs, this bill does not articulate any specific goal, purpose or objective of this bill. Second, AB 1399 Page 10 although this bill requires the FTB's to administer this credit, it does not provide for the required performance indicators or data collection necessary to measure the success of the tax credit. 9)Alternatives : The author states the effect of this bill is to increase the available funding to the DVS. Whereas this tax credit may incentivize corporations to that end, the revenue loss associated with this tax credit may be better justified and the assumed goal of the bill more efficiently achieved through a direct expenditure. 10)Implementation Considerations : The FTB noted the following: This bill lacks [the] administrative details necessary to implement the bill and determine its impacts to the department's systems, forms, and processes. The bill is silent on the following issues: When and what information would the OES report to the FTB? Would the first-come, first-served basis of allocating the credit be based on contribution date? Date the application was filed with the FTB? AB 1399 Page 11 How and when would a taxpayer request and receive notification of an allocation? Would a reallocation of any unallocated amount or unused allocated amount for a fiscal year be allowed? A funding mechanism for the FTB's start-up and on-going costs to administer the certification and reporting process provisions of this bill. Absence of a funding mechanism could delay implementation or require diversion of resources from existing revenue generating workloads. REGISTERED SUPPORT / OPPOSITION: Support Alliance for Community Transformation California Partnership to End Domestic Violence California Communities United Institute AB 1399 Page 12 Family Services Supporting Tulare County Los Angeles Center for Law and Justice Member of Domestic Violence Services Monarch Services Mountain Crisis Services in Mariposa Safe Alternatives to Violent Environments Shepherd's Door Domestic violence Resource Center STAND! For Families Free of Violence WEAVE, Inc Wild Iris Family Counseling & Crisis Center YWCA of Glendale 41 private individuals Opposition AB 1399 Page 13 American Federation of State, County, and Municipal Employees California Tax Reform Association Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916) 319-2098