BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 2334 (Mullin) - Sales and use taxes: exclusion: alternative
energy financing
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|Version: May 27, 2016 |Policy Vote: GOV. & F. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 1, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 2334 would allow the California Alternative Energy
and Advanced Transportation Financing Authority (CAEATFA) to
carry forward to future years unallocated sales and use tax
exemptions from previous years.
Fiscal
Impact:
The Board of Equalization would incur minor and
absorbable expenses to notify taxpayers, modify its
internet site and publications, and answer inquiries.
Unknown use of the SUT exclusion as a result of rolling
forward unallocated exclusion amounts for an additional
year. The magnitude is unknown, but potential in the low
hundreds of millions of dollars.
AB 2334 (Mullin) Page 1 of
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CAEATFA would require one position and incur additional
ongoing costs of $132,000 (special fund) related to
additional application activity.
Background: Except where a specific exemption or exclusion is provided,
current law imposes the SUT on all retailers for the privilege
of selling tangible personal property (TPP) at retail in
California, or on the storage, use, or other consumption in this
state of TPP purchased from a retailer.
After the State collects SUT revenue ($48 billion in 2013-14),
it allocates the money to various state and local funds. Roughly
half-collected from an approximately 3.9 percent rate-goes to
the General Fund and can be spent on any state program, such as
education, health care, and criminal justice. Another 1.25
percent, known as the Bradley-Burns rate, goes to cities and
counties for general purposes. Three sales tax funds have
uniform state rates and support specified programs-an
approximately 1.1 percent rate for 2011 realignment
(county-administered criminal justice, mental health, and social
service programs); a 0.5 percent rate for 1991 realignment
(county-administered health and social services programs); and a
0.5 percent rate for city and county public safety programs
pursuant to Proposition 172 (1993). Additionally, some local
governments levy optional local rates-known as Transactions and
Use Taxes (TUTs)-and a small portion of these funds are used for
general purposes. As of January 1, 2017, the average statewide
SUT rate will be 8.21 percent.
State law fully exempts many items from SUT (such as
prescription drugs, food, electricity, and poultry litter),
while other items are exempted from the state sales tax, but not
the local share, such as farm equipment and machinery, diesel
fuel used for farming and food processing, teleproduction and
postproduction equipment, timber harvesting equipment and
machinery, and racehorse breeding stock. Partial SUT exemptions
are difficult for both retailers and the BOE, and complicate
return preparation and processing. Moreover, errors attributable
to these partial exemptions occur frequently, resulting in
additional return processing workload for BOE.
AB 2334 (Mullin) Page 2 of
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Additionally, when construction contractors purchase products to
improve real property, state law generally considers them as the
consumer of materials, such as electrical wiring, concrete, and
other items, for sales tax purposes. As such, the contractor
pays tax on materials they use in the project, and incorporate
the tax into the contracted price. However, state law treats
construction contractors as a retailer for fixtures, which are
accessories to a structure that do not lose their identity when
installer, so the contractor must collect and remit the sales
tax based on the price he or she charges for the fixture.
Economic Development Initiative. In 2013, the Legislature
enacted AB 93 (Committee on Budget) and SB 90 (Committee on
Budget and Fiscal Review), also known as the "Economic
Development Initiative," which reformed California's economic
development policies by eliminating enterprise zones and other
geographically-targeted economic development areas, and instead
allowed three new tax benefits:
Tax credits for wages paid by taxpayers to qualified
employees within former enterprise zones, and other areas
that suffer from high levels of poverty and unemployment.
The credit lasts from the 2014 taxable year until the 2019
taxable year.
The California Competes Tax Credit, where the California
Competes Tax Credit Committee, also created by the bill,
can award various tax credits up to an annually capped
amount to taxpayers who apply. The Committee is comprised
of the Treasurer, the Director of Finance, the Director of
the Governor's Office of Business and Economic Development
(GO-BIZ), one appointee of the Speaker of the Assembly, and
one appointee from the Senate Committee on Rules.
A state-only (3.9375 percent) SUT exemption on purchases
of manufacturing equipment made by taxpayers within
specific North American Industrial Classification System
codes, capped at $200 million annually per taxpayer,
effective July 1, 2014, and ending July 1, 2022. The
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exemption largely superseded existing programs, as they
applied to almost all the same taxpayers. Instead of
applying to CAEATFA, taxpayers simply print a resale
certificate from BOE's website, and present it to the
retailer to purchase the property sales-tax free.
CAEATFA provides financial assistance through conduit revenue
bonds, loan guarantees, loan loss reserves and a sales and use
tax exemption for facilities that use alternative energy sources
and technologies or engage in advanced manufacturing. CAEATFA's
board decides which projects to assist. In addition to its SUT
program, CAEATFA administers other programs, including:
A $10 million loan loss reserve program that directs the
state to reimburse the original mortgage lender for the
costs associated with the Property Assessed Clean Energy
program assessments during a foreclosure (SB 96, Committee
on Budget and Fiscal Review, 2013).
A $25 million loan loss reserve program to backstop
loans made by participating financial institutions for
energy efficiency improvements and distributed generation
technology (ABx1 14, Skinner, 2011).
When the Legislature created CAEATFA in 1980, it provided that
both the state and local shares of the sales and use tax didn't
apply to its purchases of tangible personal property. However,
CAEATFA didn't do much until 2008, when Governor Arnold
Schwarzenegger and State Treasurer Bill Lockyer announced that
CAEATFA would use this authority to grant a state and local
sales and use tax exclusion for normally taxable manufacturing
equipment purchased by Tesla Motors under a sale-leaseback
agreement. Subsequently, the Legislature directed CAEATFA to
administer a state and local sales and use tax exclusions for
AB 2334 (Mullin) Page 4 of
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manufacturers of renewable technology, subject to an application
and evaluation process (SB 71, Padilla, 2010), which was soon
after expanded to advanced manufacturing (SB 1128, Padilla,
2012). While CAEATFA's blanket sales and use tax exemption
authority doesn't have a sunset, the Legislature placed a July
1, 2021, sunset on the renewable energy production program, and
last year, extended to the same date the prior July 1, 2016,
sunset on the advanced manufacturing program (AB 1269, Dababneh,
2015). The Legislature also expanded the program last year to
include projects that utilize recycled feedstock either for
reuse or in producing another product or soil amendment (AB 199,
Eggman).
CAEATFA can allocate exclusions up to $100 million annually to
successful applicants across all programs; however, CAEATFA
evaluates all applicants to determine whether the benefits
received by the state will outweigh forgone revenue, and can
only approve applications for projects that produce net fiscal
and environmental benefits for the state. Once the exclusion
has been granted, applicants are allowed three years to use the
award, but can request extensions. CAEATFA can neither
recapture for future allocation any amounts awarded in previous
years but not yet utilized, nor carry forward unallocated
authorizations from previous years, unlike other authorities in
the Treasurer's Office. CAEATFA had approved more than $400
million in exclusions; however they could've allocated $211 more
if authorized to carry forward amounts from previous years.
In December, 2015, CAEATFA suspended acceptance of new
applications due to oversubscription, and to develop of the
regulations to implement AB 199. Tesla applied for two projects
for a total of $145 million, along with two other large
applicants: Atieva ($44 million), and Gilead Sciences, Inc.
($15.8 million). Seeking authorization to be able to grant
additional exclusions to applicants using previously allocated
but unclaimed tax benefits, CAEATFA wants to modify the current
$100 million cap. CAEATFA also wants to include sales tax
imposed as part of any construction contracts with approved
applicants as part of the exclusion.
AB 2334 (Mullin) Page 5 of
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Proposed Law:
This bill would provide that CAEATFA can allocate any amounts
not granted, or granted and not used, from the previous calendar
year, beginning in the 2017 calendar year. The measure also
would expand CAEATFA's SUT exclusion to include any lease or
transfer of title of tangible personal property constituting any
project to any contractor for use in the performance of a
construction contract for the participating party that will use
that property as an integral part of the approved project.
Related
Legislation: AB 1683 (Eggman) allows the unallocated portion of
the current $100 million cap in one calendar year to be added to
the following calendar year's cap. The bill was held under
submission on the Suspense File of the the Assembly
Appropriations Committee.
Staff Comments: Between November 2010 and January 1, 2016,
CAEATFA approved tax exclusions of about $455 million, but only
$92 million in tax has been claimed.
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