BILL ANALYSIS Ó
AB 1577
Page 1
ASSEMBLY THIRD READING
AB
1577 (Eggman)
As Amended May 27, 2016
Majority vote
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ridley-Thomas, | |
|Taxation | |Brough, Dababneh, | |
| | |Gipson, Mullin, | |
| | |O'Donnell, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |20-0 |Gonzalez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Roger | |
| | |Hernández, Holden, | |
| | |Jones, Obernolte, | |
| | |Quirk, Santiago, | |
| | |Wagner, Weber, Wood | |
| | | | |
| | | | |
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AB 1577
Page 2
SUMMARY: Expands the existing tax credit program under the
Personal Income Tax (PIT) Law and Corporation Tax (CT) Law for
contributions of qualified donation items to a food bank and
extends the program until January 1, 2022. Specifically, this
bill:
1)Broadens the definition of a "qualified taxpayer" (QT) to
include persons responsible for growing or raising a qualified
donation item, or harvesting, packing, or processing a
qualified donation item.
2)Expands the definition of "qualified donation item" (QDI) to
include, in addition to fresh fruits and vegetables, the
following raw agricultural products and processed foods, as
specified:
a) "Fruit, nuts or vegetables" as defined in Food and
Agricultural Code (F&AC) Section 42510;
b) "Meat food product" as defined in F&AC Section 18665;
c) "Poultry" as defined in F&AC Section 18675;
d) "Eggs" as defined in F&AC Section 75027;
e) "Fish" as defined in F&AC Section 58609; and,
f) All of the following food items as defined in Health and
Safety Code (H&SC) Section 109935:
AB 1577
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i) Rice;
ii) Beans;
iii) Fruit, nuts, and vegetables in canned, frozen,
dried, dehydrated, and 100% juice forms;
iv) Any cheese, milk, yogurt, butter, or
dehydrated milk meeting the requirements in Division
15 (commencing with Section 32501) of the F∾
v) Vegetable oil and olive oil;
vi) Soup, pasta sauce, and salsa;
vii) Infant formula subject to H&SC Section
114094.5;
viii) Bread and pasta; and,
ix) Canned meats and canned seafood.
3)Provides that the allowed credit would be calculated, not
according to inventory costs, but rather as 10% of the
qualified value of the QDI.
4)Defines "qualified value" as either of the following:
AB 1577
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a) The weighted average wholesale sale price based on the
qualified taxpayer's total like grade wholesale sales of
the donated item sold within the calendar month of the
qualified taxpayer's donation; or,
b) The nearest regional wholesale market price for the
calendar month of the donation based upon the same grade
products as published by the United States Department of
Agriculture's Agricultural Marketing Service, or its
successor. This qualified value may be used only if no
wholesale sales of the donated item have occurred in the
calendar month of the qualified taxpayer's donation.
5)Provides that the credit amount may not be less than what
would otherwise be available as per existing law - Chapter
503, of the Statutes of 2011.
6)Requires the donor to provide the food bank the qualified
value and information regarding where the donation items were
grown and/or processed.
7)Upon receipt and acceptance of the donations, the food bank is
required to sign and provide to the donor a certificate, which
shall include certain information, as specified, including the
acceptance, grade, origin and qualified value of the donated
items.
8)Requires the Franchise Tax Board to include in its annual
report to the Legislature, among other things, the estimated
value and the origin of the QDIs.
AB 1577
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9)Requires a qualified taxpayer to claim the credit only on a
timely filed original return.
10) Extends the tax credit program until January 1, 2022,
and repeals it on December 1, 2022.
11) Renames the State Emergency Food Assistance Program
(SEFAP) as the CalFood Program (CFP), effective on or after
January 1, 2017.
12) Specifies the goals, purpose and objective of this tax
credit program as well as the performance indicators, data
collection requirements and baseline measurements, as required
by Revenue and Taxation Code Section 41.
EXISTING LAW:
1)Allows a tax credit, under PIT law and the CT law, to
qualified taxpayers (defined as the person(s) responsible for
planting a crop, managing the crop, and harvesting the crop
from the land) in an amount equal to 10% of the cost that
would otherwise be included in, or required to be included in,
inventory costs, as specified under federal law, with respect
to the donation of fresh fruits or fresh vegetables to food
banks located in California.
2)Authorizes a deduction for charitable contributions, subject
to certain limitations that depend on the type of taxpayer,
the property contributed and the donee organization. The
deduction amount for charitable contributions of inventory is
generally limited to the taxpayer's basis in the inventory,
usually its cost. The amount of deduction for corporate
taxpayers may not exceed 10% of the corporation's net income.
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3)Requires the State Department of Social Services to establish
and administer the SEFAP to provide food and funding to food
banks.
4)Applies performance measurement standards to any new tax
credit under either the 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: According to the Assembly Appropriations
Committee, estimated annual General Fund revenue loss of
$400,000, $900,000, and $1.9 million in Fiscal Year (FY)
2016-17, FY 2017-18, and FY 2018-19, respectively.
COMMENTS:
AB 1577
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1)Author's Statement: The Author has provided the following
statement in support of this bill:
California is the leader agricultural producer in the
[United States] U.S., yet many Californians still suffer
from hunger and poor nutrition. AB 1577 will broaden the
existing state tax credit offered to agricultural
producers for donations to qualified California
non-profits, such as food banks. It expands the list of
eligible products to include other fresh items and a
limited set of core shelf-stable items. It also moves
the tax credit to 15% of the donated items' wholesale
value, and extends the sunset of this program to 2022.
2)Existing Tax Credit: Food Banks and Food Insecurity.
According to the California Association of Food Banks'
(CAFBs) Web site, California is ranked 19th for food
insecurity in the nation with a food insecurity rate of
16.2%, translating into 6.1 million Californians with, on
average, one out of six people in California not knowing
from where their next meal will come. All the more
troubling is that the child food insecurity rate is 26.3%,
meaning 2.4 million, or more than 1 in 4 children, in
California may go to bed hungry each night. In 2011, a
state tax credit program was enacted into law to allow a
qualified taxpayer, under both the PIT and CT laws, a tax
credit in an amount equal to 10% of the inventory costs of
the fresh fruits or fresh vegetables donated to food banks
located in California. (AB 152 (Fuentes), Chapter 503,
Statutes of 2011.)
3)Tax Credit vs. Grant Program. Each year, more and more
interest groups are seeking ways to increase funding through
alternative means, such as tax check-offs and tax credits.
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However, 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, which can offer
taxpayers greater certainty but can also result in tax
expenditures remaining a part of the tax code in perpetuity
without demonstrating any public benefit. Second, there is
generally no control over the amount of revenue losses
associated with any given tax expenditure. Finally, while a
new tax expenditure measure may be enacted by a simple
majority vote, it generally takes a two-thirds' vote to
rescind an existing tax expenditure. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
Although well intentioned, this bill represents an attempt
to use the tax code to accomplish a public policy objective
that may be more efficiently addressed through a direct
outlay of state funds. To this end, this bill proposes to
deliver a tax subsidy to taxpayers that donate fresh produce
as well as processed foods to food banks. However, a direct
grant program - funding the SEFA program - may be a better
vehicle to achieve these goals. According to the California
Association of Food Banks, each $1 million appropriated to
the SEFA program, which provides food and funding to food
banks, would enable California food banks to offer roughly
five million meals to individuals. Furthermore, SEFAP funds
must be used to purchase and distribute foods grown or
produced in California, benefiting California's agricultural
sector. In contrast, this bill would allow the tax credit
for foods produced or grown outside of California,
benefitting out-of-state producers. Finally, the existing
infrastructure within the California Department of Social
Services may be used efficiently to administer the SEFA
program.
AB 1577
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Analysis Prepared by:
Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN:
0003198