BILL ANALYSIS Ó
AB 1944
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Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1944
(Jones) - As Introduced February 12, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal Income Tax Law: gross income exclusion:
Olympic and Paralympic Games
SUMMARY: Excludes from gross income the value of any medal
given by the International Olympic Committee, and any prize
money or honoraria received from the United States Olympic
Committee (USOC), on account of the Olympic Games or the
Paralympic Games. Specifically, this bill:
1)Applies to taxable years beginning on or after January 1,
2016, and before January 1, 2025.
2)Provides that the statute shall remain in effect only until
December 1, 2025, unless a later enacted statute deletes or
extends the sunset date.
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3)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW defines "gross income", except as otherwise
provided, as all income from whatever source derived. (Internal
Revenue Code (IRC) Section 61.)
EXISTING STATE LAW:
1)Provides that IRC Section 61, relating to the definition of
gross income, shall apply, except as specified. (Revenue and
Taxation Code (R&TC) Section 17071.)
2)Provides for various exclusions from gross income under the
Personal Income Tax Law.
FISCAL EFFECT: The Franchise Tax Board (FTB) estimates General
Fund revenue losses of $100,000 in fiscal year (FY) 2016-17,
$6,000 in FY 2017-18, and $4,000 in FY 2018-19.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
This bill would exclude from income tax the value of any
medal given by the International Olympic Committee and any
prize money or honorarium given by the United States
Olympic Committee as a result of winning a gold, silver, or
bronze medal in the Olympic or Paralympic games. This
legislation does not include income generated through any
sponsorship deals or other endorsements the athlete may
receive.
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Many countries compensate their Olympic and Paralympic
athletes, but athletes representing the United States
compete on a voluntary basis and earn no prize money unless
they are victorious in competition. Tragically, American
athletes who do win a bronze, silver, or gold medal are
then subjected to federal and state taxes.
2)This bill is supported by the San Francisco Chamber of
Commerce, which notes the following:
As advocates of bringing the Olympics to the San Francisco
Bay Area, the Chamber is a proud supporter of California
athletes who compete in the games. The United States
Olympic Committee notes that approximately 14% of all
Olympic and Paralympic athletes reside in California. In
the 2012 Olympic Games in London, California sent 128
athletes to compete.
Unlike many other countries, Olympic and Paralympic
athletes from the United States compete on a voluntary
basis. When they win their sport they receive cash awards
in addition to their medals. Those cash awards, as well as
the value of the medals, are fully taxable because no
federal or state law exists to exclude from gross income
taxes the awards and prize money received in the Olympic
and Paralympic games.
This legislation allows our California Olympians and
Paralympians to rightfully keep the full monetary award
given to them for successfully winning a gold, silver or
bronze medal.
3)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
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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. This can offer taxpayers greater economic
certainty, but 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. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their cost or efficacy, without a
supermajority vote.
c) What's included ? Under both federal and state law,
gross income generally includes all income from whatever
source derived. Thus, the FTB notes that gross income
includes prize awards, absent a specific exclusion.
California typically conforms to federal exclusions for
ease of administration. For example, in a prior omnibus
conformity bill taken up by the Legislature, California
excluded from gross income grants for renewable energy
under the American Recovery and Reinvestment Tax Act of
2009. [SB 401 (Wolk), Chapter 14, Statutes of 2010.]
This is not to suggest, however, that federal and state law
are in perfect accord. California law expressly excludes
from gross income some items that are included within the
federal definition. For example, Government Code Section
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8880.68 provides that no state or local taxes shall be
imposed on any prize awarded by the lottery. More
recently, the Legislature acted to exclude disaster relief
payments made to victims of the San Bruno gas pipeline
explosion [AB 50 (Hill), Chapter 18, Statutes of 2011].
d) What would this bill do ? This bill would enact a new,
California-specific exclusion for awards and prize money
received in connection with the Olympic or Paralympic
Games. This bill is designed to provide modest tax relief
to successful athletes, many of whom have made enormous
personal sacrifices in pursuit of Olympic and Paralympic
success.
Unlike the athletes of numerous other nations, the USOC
notes that the nation's athletes receive no government
funding and, instead, rely on the generosity of the
American public and private sponsors for support. The USOC
does provide honoraria to medaling athletes. Specifically,
the author notes that athletes are generally awarded
$25,000 for a gold medal, $15,000 for a silver medal, and
$10,000 for a bronze medal. Under this bill, such awards
would not be subject to state taxation. Moreover, this
bill would also exclude from state taxation the value of
the actual gold, silver, and bronze medals as well.
e) A proud California tradition : California has a proud
Olympic history, having served as host of the Los Angeles
Olympic Games in 1932 and 1984, and the 1960 Olympic Winter
Games in Squaw Valley. In addition, California is home to
one of three national Olympic Training Centers. Finally,
the USOC notes that approximately 14% of all Olympic and
Paralympic athletes reside in California.
f) But what about me ? Successful Olympic athletes are by
no means the only individuals who receive a monetary award
on account of their laudable accomplishments. On November
27, 1895, Alfred Nobel signed a will stipulating that the
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bulk of his estate should be invested into a fund, the
income from which would be distributed annually in the form
of prizes "to those who during the preceding year have
conferred the greatest benefit on mankind." Today, the
Nobel Prize is accompanied by a monetary award of roughly
$1.2 million. Nobel prizes are often awarded in
recognition of groundbreaking discoveries with far-reaching
implications for humanity as a whole. The state, however,
does not exclude such award payments from gross income.
Thus, the Committee may wish to consider the precedent this
bill might set for award payments, and whether it is
equitable to treat such payments in a dissimilar manner.
g) A note on sunsets : In its current form, this bill's
exclusion applies to nine taxable years (i.e., those
beginning on or after January 1, 2016, and before January
1, 2025). This Committee has a longstanding policy
favoring the inclusion of five-year sunset dates to allow
more frequent review of tax expenditure programs. The
Committee may wish to consider shortening the sunset period
of this bill.
h) Prior legislation :
i) AB 2323 (Gorell), of the 2013-14 Regular Session,
contained provisions substantially similar to this bill.
AB 2323 was held by the Senate Committee on
Appropriations.
ii) AB 1786 (Mansoor), of the 2011-12 Regular Session,
would have excluded from gross income the value of any
prize or award won by the taxpayer in athletic
competition in the Olympic Games. AB 1786 was held by
the Senate Committee on Appropriations.
REGISTERED SUPPORT / OPPOSITION:
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Support
San Diego Regional Chamber of Commerce
San Francisco Chamber of Commerce
Opposition
None on file
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098