BILL ANALYSIS Ó
AB 1851
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Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1851
(Gray) - As Amended April 13, 2016
Majority vote. Fiscal committee.
SUBJECT: Vehicular air pollution: reduction incentives
SUMMARY: Creates and expands a broad array of incentive
programs to increase the sales and use of certain clean air
vehicles, funded by the Greenhouse Gas Reduction Fund (GGRF),
including increasing rebates offered by the Clean Vehicle Rebate
Project (CVRP), issuing rebates for the purchase and
installation of electric vehicle (EV) charging stations,
removing the cap on green high-occupancy vehicle (HOV) lane
stickers, and providing a partial Sales and Use Tax (SUT)
exclusion for the purchase of a qualified motor vehicle (QMV).
Specifically, the tax-related provisions of this bill:
1)Exclude, from the sales price or gross receipts on which SUT
is imposed, the value of a motor vehicle traded in for a QMV.
2)Specify that the value of the trade-in motor vehicle must be
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separately stated on the QMV invoice, bill of sale, or similar
document in order for the SUT exclusion to apply.
3)Define a QMV as a motor vehicle that meets either of the
following:
a) California's super ultra-low emission vehicle standard
for exhaust emissions and the federal inherently
low-emission vehicle evaporative emission standard, as
defined in Part 88 of Title 40 of the Code of Federal
Regulations as that part read on January 1, 2016; or,
b) California's enhanced advanced technology partial
zero-emission vehicle standard or transitional
zero-emission vehicle standard.
4)Provide that moneys from the GGRF, upon appropriation of the
Legislature, are available to reimburse counties and cities
for any SUT revenue losses resulting from the SUT exclusion.
5)Provide that the SUT exclusion will remain in effect until
January 1, 2026, and is repealed as of that date.
EXISTING LAW:
1)Imposes a SUT on the sale of, or the storage, use, or other
consumption of, tangible personal property (TPP), unless
specifically exempted.
2)Provides that the SUT must be computed based on the sales
price or gross receipts of the TPP, unless specifically
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excluded.
3)Specifies that a portion of the SUT fund city and county
government, and authorizes cities and counties to impose
additional Transactions and Use Taxes (TUTs).
4)Grants the California Air Resources Board (CARB) authority for
monitoring and regulating sources emitting greenhouse gases
(GHGs), including the use of market-based compliance
mechanisms (cap-and-trade).
5)Requires all moneys, except for fines and penalties, collected
by CARB from cap-and-trade, be deposited into the GGRF to be
available upon appropriation by the Legislature.
6)Establishes the Air Quality Improvement Program (AQIP)
administered by CARB for funding projects related to the
reduction of air pollutants and improvement of air quality.
Pursuant to the AQIP, CARB established the CVRP to promote the
production and use of zero-emission vehicles (ZEVs) and the
Hybrid and Zero-Emission Truck and Bus Voucher Incentive
Project to help California fleets purchase hybrid and
zero-emission trucks and buses.
7)Specifies goals, pursuant to the Charge Ahead California
Initiative administered by CARB, to place in service at least
one million ZEVs and near-zero-emission vehicles by January 1,
2023.
FISCAL EFFECT: The State Board of Equalization's (BOE) fiscal
estimate for this bill is currently pending.
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COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
California is at the forefront of battling climate change
and reducing greenhouse gas emissions. To achieve the
desired greenhouse gas emission reductions that policy
makers are striving to reach, a massive increase in zero
emission vehicles (ZEVs) sold by California's new car
dealers must also take place. Unfortunately California's
consumers are not purchasing ZEVs at a rate that will meet
the California Air Resources Board's ZEV mandate of 15.4
percent of new vehicles delivered for sale by 2025.
In 2015, California's new car dealers sold more than two
million new vehicles with a combined 3.1 percent of those
sales comprising ZEVs and plug-in hybrid vehicles. The
market share for these vehicles dropped from 3.2 percent in
2015. We estimate that 308,000 ZEVs must be delivered for
sale in California by 2025; in just nine years this
represents 25 percent of all vehicles other than SUVs,
pickups and vans. This would be an unprecedented adoption
rate for new technology in automotive history.
Nations throughout Europe provide massive incentives up to
50 percent of the vehicle's MSRP. In these countries the
adoption rate for alternative fueled vehicles is much more
favorable than in the US, including California.
2)Arguments in Support : Proponents of this bill state that "the
best way to break through to grab a customer's attention is to
address the vehicle's price" and that "incentives in the
automotive industry always work best when a customer sees the
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rebate applied to the purchase or lease of their vehicle at
the dealership." As a result, this bill would "accelerate
customer demand" and "help make ZEVs more affordable."
3)Scope of This Bill : This bill provides a partial SUT
exclusion for QMVs, and defines "QMVs" generally as vehicles
that qualify for either the white or green HOV lane stickers
(battery electric, hydrogen fuel cell, and certified
compressed natural gas vehicles, or plug-in hybrid electric
vehicles, respectively). Some car models considered QMVs
include the Tesla Model S, BMW i3, Nissan Leaf, and the
Chevrolet Volt. According to the author's office, the intent
of this bill is to only provide a SUT exclusion on the sale or
lease of new QMVs.
4)SUT Exclusion for QMVs : This bill provides a partial SUT
exclusion if a consumer trades in an older vehicle at the time
of purchasing a QMV. The exclusion is calculated by
subtracting the trade-in value of the older vehicle from the
purchase price of the QMV. For example, the Tesla Model S has
a manufacturer's suggested retail price (MSRP) of $70,000. If
a consumer trades in their old BMW and receives $15,000 for
the car, then $15,000 would be excluded for SUT purposes. The
consumer would only pay SUT on the differential value, in this
case $55,000. Under the 7.5% SUT rate in California, assuming
the Tesla Model S is purchased in a local jurisdiction where
additional local TUT is not imposed, the consumer would pay
$4,125 instead of $5,250 in SUT, a savings of $1,125.
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
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of forgone revenues). This bill would enact a new tax
expenditure program in the form of a partial SUT exclusion for
QMVs.
6)Tax Expenditure vs. 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. This can offer taxpayers greater certainty, but it can
also result in tax expenditures remaining 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.
This bill includes a sunset date of January 1, 2026 for both
the non-tax related rebate portions of the bill and the SUT
exclusion. However, this Committee typically recommends a
five-year sunset date on tax expenditures to evaluate whether
the benefits outweigh the costs. With regard to ZEVs, gas
price increases and technological efficiencies that improve
vehicle performance and reduce MSRP may naturally stimulate
more demand without need for a long-term tax expenditure. The
Committee may wish to consider whether to shorten the sunset
date for the SUT exclusion.
7)One More Incentive : Federal, state, and local governments
provide a myriad of subsidies for alternative fuel vehicles.
There is a federal tax credit of $2,500 to $7,500 for the
purchase of an EV depending on its battery capacity. Under
the CVRP, ZEV hydrogen fuel cell vehicles qualify for a $5,000
rebate; ZEV battery electric vehicles qualify for a $2,500
rebate; and plug-in hybrid electric vehicles qualify for a
$1,500 rebate. Non-cash incentives such as unrestricted
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access to California HOV lanes, reduced reliance on gas, and
free parking and recharging at businesses and workplaces also
motivate alternative fuel vehicle consumers.
In addition to the SUT exclusion, this bill expands on
existing rebate and HOV lane incentives, and creates a new
incentive for installation of EV charging stations to help
alleviate range anxiety, a commonly cited concern deterring
more widespread adoption of ZEVs. Although it is unclear what
the marginal benefit may be in creating one more incentive for
purchasing a ZEV, making the SUT exclusion contingent on
trading in an older vehicle may at least help take
conventional vehicles associated with high GHG emissions off
the road. Similar to how the value of existing tax credit and
rebate programs increases with the environmental benefits of
the vehicle, the Committee may wish to consider limiting
application of the SUT exclusion to transactions in which the
traded-in vehicle emits above-average GHG pollutants.
8)Appropriation from the GGRF : The GGRF provides funding for a
multitude of state policy priorities including CVRP, energy
and water efficiency projects, affordable housing, and mass
transit. This bill proposes to add reimbursement of city and
county revenue losses resulting from the SUT exclusion to the
list, in addition to funding this bill's other provisions.
Under existing law, SUT is collected on a 7.5% statewide base
rate with a state allocation and a local allocation for cities
and counties, with some cities and counties levying additional
TUT on top of the base rate. In reducing the sales price of a
ZEV, this bill would otherwise cause cities and counties to
get a cut of a smaller revenue pool. Although the SUT
exclusion would also result in state General Fund revenue
loss, this bill does not propose state reimbursement from the
GGRF.
The California New Car Dealers Association estimates that
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annual expenditures for all the provisions of this bill could
range from $750 to $2 billion annually. It is important to
note that the Governor's proposed fiscal year (FY) 2016-2017
budget includes a $3.1 billion cap-and-trade plan, $1.2
billion of which is already subject to continuous
appropriation. Since expenditures from the GGRF for this bill
alone may exceed the account's capacity, the Committee may
wish to consider whether alternative or additional funding
sources should be identified for the tax expenditure proposed
in this bill.
9)Double Referral : This bill was double-referred to the
Assembly Committee on Transportation, which passed this bill
on April 11, 2016, with a vote of 10-5. For additional
discussion of the Clean Vehicle Rebate Program, rebates for EV
charging stations, and HOV lane stickers related to this bill,
please refer to the analysis prepared by the Assembly
Committee on Transportation.
10)Related Legislation : AB 1710 (Calderon) would provide a
partial SUT exclusion and a Personal Income Tax credit and
deduction for purchasing near-zero or ZEVs. AB 1710 is
scheduled to be heard by this Committee today.
AB 945 (Ting) would have provided a partial SUT exemption for
specified QMVs. This bill was held by the Assembly Committee
on Appropriations.
REGISTERED SUPPORT / OPPOSITION:
Support
AB 1851
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Alliance of Automobile Manufacturers
California New Car Dealers Association
Opposition
None on file
Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098