BILL ANALYSIS Ó
AB 1710
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1710
(Calderon) - As Amended April 5, 2016
Majority vote. Fiscal committee.
SUBJECT: Vehicular air pollution: zero-emission and
near-zero-emission vehicles
SUMMARY: Requires the State Air Resources Board (ARB), on or
before January 1, 2019, to develop and implement a comprehensive
program comprised of a portfolio of incentives to promote
zero-emission and near-zero-emission vehicle deployment in the
state. Specifically, the tax-related provisions of this bill:
1)Provide, on or after January 1, 2017, an exemption under the
Sales and Use Tax (SUT) Law, for the portion of the cost of a
new or used near-zero or zero-emission vehicle purchased by a
"low-income purchaser" that does not exceed $40,000. For
purposes of the SUT exemption, this bill:
a) Defines a "near-zero-emission vehicle" as a vehicle that
utilizes zero-emission technologies, enables technologies
that provide a pathway to zero-emission operations, or
incorporates other technologies that significantly reduce
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criteria pollutants, toxic air contaminants, and greenhouse
gas emissions, as defined by the ARB in consultation with
the State Energy Resources Conservation and Development
Commission consistent with meeting the state's mid-and
long-term air quality standards and climate goals.
b) Defines a "zero-emission vehicle" as a vehicle that
produces no emissions of criteria pollutants, toxic air
contaminants, and greenhouse gases when stationary or
operating, as determined by the ARB.
c) Defines a "low-income purchaser" as an individual or
individuals whose household income does not exceed 80% of
the median income of the county in which they reside as
determined by the United States Department of Housing and
Urban Development.
d) Provides that, notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, the exemption shall not apply with respect to
any tax levied by a county, city, or district pursuant to
either of those laws.
2)Allow a Personal Income Tax (PIT) credit to a "qualified
taxpayer" equal to $2,500. For purposes of the PIT credit,
this bill:
a) Specifies that the credit shall be available for taxable
years beginning on or after January 1, 2017, and before
January 1, 2026.
b) Defines a "qualified taxpayer" as an individual or
individuals who meet the income eligibility requirements
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specified by the ARB under Health and Safety Code Section
44258.4(c)(3)(B) and who purchased a near-zero or
zero-emission vehicle during the taxable year.
c) Defines a "near-zero-emission vehicle" as a vehicle that
utilizes zero-emission technologies, enables technologies
that provide a pathway to zero-emissions operations, or
incorporates other technologies that significantly reduce
criteria pollutants, toxic air contaminants, and greenhouse
gas emissions, as defined by the ARB in consultation with
the State Energy Resources Conservation and Development
Commission consistent with meeting the state's mid- and
long-term air quality standards and climate goals.
d) Defines a "zero-emission vehicle" as a vehicle that
produces no emissions of criteria pollutants, toxic air
contaminants, and greenhouse gases when stationary or
operating, as determined by the ARB.
e) Provides that, in cases where the credit amount exceeds
the taxpayer's tax liability, the excess credit amount may
be carried over in the following year, and succeeding six
years if necessary, until the credit is exhausted.
f) States that it is the Legislature's intent to enact
legislation providing that the credit shall be refundable,
upon appropriation by the Legislature.
g) Requires the qualified taxpayer to make an irrevocable
election to claim the credit in lieu of the deduction
allowed by this bill.
h) Repeals the credit provisions on December 1, 2026.
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3)Allow a PIT deduction of $2,500 to a "qualified taxpayer" who,
during the taxable year, purchased a near-zero or
zero-emission vehicle. For purposes of the PIT deduction,
this bill:
a) Specifies that the deduction shall be available for
taxable years beginning on or after January 1, 2017, and
before January 1, 2026.
b) Provides that the deduction shall be allowed in
determining adjusted gross income.
c) Defines a "qualified taxpayer" as an individual or
individuals who meet the income eligibility requirements
specified by the ARB pursuant to Health and Safety Code
Section 44258.4(c)(3)(B).
d) Defines a "near-zero-emission vehicle" as a vehicle that
utilizes zero-emission technologies, enables technologies
that provide a pathway to zero-emissions operations, or
incorporates other technologies that significantly reduce
criteria pollutants, toxic air contaminants, and greenhouse
gas emissions, as defined by the ARB in consultation with
the State Energy Resources Conservation and Development
Commission consistent with meeting the state's mid- and
long-term air quality standards and climate goals.
e) Defines a "zero-emission vehicle" as a vehicle that
produces no emissions of criteria pollutants, toxic air
contaminants, and greenhouse gases when stationary or
operating, as determined by the ARB.
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f) Requires the qualified taxpayer to make an irrevocable
election to claim the deduction in lieu of the credit
allowed by this bill.
g) Repeals the deduction provisions on December 1, 2026.
4)Provide that, in accordance with Revenue and Taxation Code
(R&TC) Section 41, on or before January 1, 2018, and each
January 1 thereafter until January 1, 2027, the Franchise Tax
Board (FTB), in consultation with the State Board of
Equalization (BOE), shall annually prepare a written report to
the Legislature regarding the efficacy of the SUT exemption,
PIT credit, and PIT deduction. This report shall be submitted
in compliance with Government Code Section 9795.
EXISTING LAW:
1)Establishes the Air Quality Improvement Program that is
administered by the ARB for the purposes of funding projects
related to, among other things, reduction of criteria air
pollutants and improvement of air quality. Pursuant to the
Air Quality Improvement Program, the ARB has established the
Clean Vehicle Rebate Project to promote the production and use
of zero-emission vehicles.
2)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
3)Imposes a complimentary use tax on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax is imposed on the purchaser; and
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unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must generally be
remitted to the BOE.
4)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.
5)Requires any bill authorizing a new credit to contain 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. 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.)
FISCAL EFFECT: Unknown. Fiscal estimates from both the BOE and
the FTB are currently pending. Based on preliminary estimates,
however, it appears that the PIT provisions would result in
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reduced General Fund (GF) revenues of $60 million in fiscal year
(FY) 2016-17, $130 million in FY 2017-18, and $170 million in FY
2018-19.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
In California, the transportation sector constitutes the
greatest source of pollution, accounting for 40% percent of
the state's greenhouse gas emissions. If the state is to
meet its climate change goals, it must do more to
incentivize the purchase of zero and near-zero emission
vehicles. While the existing incentive program, the Clean
Vehicle Rebate Project program, has been successful in
providing over 137,000 rebates for zero and near-zero
emission vehicles, including electric, plug-in hybrid
electric, and fuel cell vehicles, the growing consensus is
that the current program needs modification to ensure its
long-term sustainability and to attract additional customer
classes, specifically, low to moderate income families. AB
1710 would achieve this by offering multiple incentives to
buy zero and near-zero emission vehicles, including: sales
tax exemption for qualified new and used cars, a tax credit
and deduction for qualified purchasers and a more targeted
program that will help advance the clean vehicle market and
reach the state's zero-emission vehicle requirement.
2)Committee staff comments:
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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).
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. 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. 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 or cost, without a
supermajority vote.
c) This bill's SUT exemption :
i) An overview of the SUT Law : California's SUT Law
imposes a sales tax on retailers for the privilege of
selling TPP, absent a specific exemption. The tax is
based upon a retailer's gross receipts from TPP sales in
California. The SUT Law also imposes a mirror "use tax"
on the storage, use, or other consumption of TPP
purchased out-of-state and brought into California. The
use tax is imposed on the purchaser, and unless the
purchaser pays the use tax to an out-of-state retailer
registered to collect California's use tax, the purchaser
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remains liable for the tax. The use tax is set at the
same rate as the state's sales tax and must generally be
remitted to the BOE.
The SUT represents the state's second largest source of
GF revenues. Nevertheless, the past 60 years have seen a
dramatic reduction in the state's reliance on the SUT and
a corresponding increase in its reliance on PIT revenues.
In FY 2014-15, SUT revenues were estimated to comprise
23% of the state's GF revenues, down from nearly 60% in
FY 1950-51.
ii) What accounts for the state's reduced reliance on
SUT revenues ? The SUT Law was enacted in a very
different era. In the 1930s, California's economy was
largely dominated by manufacturing, and residents mostly
bought and sold tangible goods. Thus, in establishing
the base for a new consumption tax, it made sense to
impose the tax on sales of TPP, defined as personal
property that may be "seen, weighed, measured, felt, or
touched." Over the past 80 years, however, California's
economy has seen dramatic growth in the service and
information sectors, resulting in a significant erosion
of the SUT base. For example, the Commission on the 21st
Century Economy noted that spending on taxable goods
represented 34.6% of personal income in 2008, down from
55.4% in 1980. As a result, tax experts and economists
from across the political spectrum argue that California
should expand its SUT base.
It could be argued that, while well-intentioned,
additional SUT exemptions further erode an already
shrinking SUT base. This, in turn, increases fiscal
pressures to maintain or even increase California's
relatively high SUT rate. High rates arguably promote
non-compliance and encourage out-of-state purchases,
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placing California retailers at a competitive
disadvantage. High rates also risk impacting consumer
decision-making, which runs counter to widely accepted
principles of sound tax policy.
iii) Potential questions concerning this bill's SUT
exemption : As noted above, this bill provides a SUT
exemption for the portion of the cost of a new or used
near-zero or zero-emission vehicle purchased by a
"low-income purchaser" that does not exceed $40,000.
Thus, the exemption would only be available when a
qualifying vehicle is purchased by a person whose
household income does not exceed 80% of the median income
of the county in which the purchaser resides.
The U.S. Census Bureau notes that in Marin County the
median household income for the period of 2010-14 was
$91,529 in 2014 dollars. Thus, assuming these figures
correspond with those maintained by the U.S. Department
of Housing and Urban Development, a Marin resident with a
household income of up to $73,223.20 would be able to
obtain this exemption. Of course, this raises the
question of how a qualifying vehicle dealer would verify
a purchaser's income. The author may wish to provide
specific direction for how this income data will be
verified.
In addition, this bill provides that the SUT exemption
shall become operative on January 1, 2017. Typically,
SUT exemption bills provide for a delayed operative date,
depending on the effective date of the implementing
legislation. This ensures that the BOE, as the
administering agency, will have sufficient time to inform
impacted retailers and accommodate the change in law. As
such, the author may wish to consider the inclusion of
delayed operative language.
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iv) Absence of a sunset date : In its current form, this
bill's SUT exemption 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 an appropriate sunset provision.
d) The PIT Provisions :
i) This bill's provisions : This bill allows a PIT
credit to a "qualified taxpayer" equal to $2,500. A
"qualified taxpayer", in turn, is defined as an
individual or individuals who meet the income eligibility
requirements specified by the ARB under Health and Safety
Code Section 44258.4(c)(3)(B) and who purchased a
near-zero or zero-emission vehicle during the taxable
year. Committee staff has identified the following
potential concerns with the current credit provisions:
(1) While this bill contains language stating
legislative's intent to make this credit refundable,
this bill currently provides for a non-refundable tax
credit. In other words, the credit will only benefit
those with a tax liability to offset. To the extent
low-income purchasers do not have such liability, the
credit, in its current form, may be of limited
utility.
(2) This bill would allow the credit irrespective
of the vehicle's purchase price. Thus, a qualified
taxpayer could purchase a used vehicle for less than
$2,500 and still receive the full credit amount. If
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this is contrary to the author's intent, clarifying
amendments should be taken.
(3) Typically, credits involving areas for which
the FTB lacks expertise are certified by another
agency or agencies possessing the relevant expertise.
The certification language would specify the
responsibilities of both the certifying agency and the
taxpayer. The author may wish to consider including
certification requirements in connection with this
credit.
(4) Finally, this bill's credit provisions lack
certain details necessary for proper implementation
and administration of the credit. For example, would
the vehicle need to be purchased in California to
qualify for the credit? Would the credit be available
for both new and used vehicles? How long would the
purchaser have to retain title to the vehicle? Could
the credit be claimed more than one time for the same
vehicle? Would the credit need to be taken on an
original return, or would a taxpayer unaware of the
credit be allowed to file an amended return later to
claim the credit? Committee staff is available to
work with the author's office on addressing these and
other administrative issues subsequently identified.
ii) 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
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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.
e) Suggested technical amendments : Committee staff
suggests adoption of the following technical amendments:
i) On page 4, in line 20, strike the first "near-zero"
and insert "near-zero-emission vehicle";
ii) On page 5, in line 20, strike "near-zero" and insert
"near-zero-emission vehicle"; and,
iii) On page 6, in line 29, strike "near-zero" and insert
"near-zero-emission vehicle".
REGISTERED SUPPORT / OPPOSITION:
Support
Global Automakers
Opposition
AB 1710
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None on file
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098