BILL ANALYSIS Ó
AB 2392
Page 1
ASSEMBLY THIRD READING
AB
2392 (Nazarian)
As Amended May 16, 2016
Majority vote. Tax levy
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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 2392
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SUMMARY: Allows a credit equal to 30% of a "qualified
taxpayer's" "qualified costs" incurred for "seismic retrofit
construction," as specified. Specifically, this bill:
1)Allows the credit for taxable years beginning on or after
January 1, 2017, and before January 1, 2022.
2)Defines a "qualified taxpayer" as an owner of a "qualified
building" located in California. A taxpayer that owns a
proportional share of a "qualified building" may claim the
credit based on the taxpayer's share of the "qualified costs."
3)Defines "qualified costs" as costs paid or incurred by the
qualified taxpayer for any completed "seismic retrofit
construction" on a "qualified building," including any
engineering or architectural design work necessary to permit
or complete the "seismic retrofit construction" less the
amount of any grant provided by a public entity for the
"seismic retrofit construction". "Qualified costs" shall not
include any of the following:
a) Maintenance, including abatement of deferred or
inadequate maintenance, and correction of violations
unrelated to the "seismic retrofit construction";
b) Repair, including repair of earthquake damage;
c) "Seismic retrofit construction" required by local
building codes as a result of addition, repair, building
relocation, change of use, or occupancy;
d) Other work or improvement required by local building or
planning codes as a result of the intended "seismic
retrofit construction";
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e) Rent reductions or other associated compensation,
compliance actions, or other related coordination involving
the qualified taxpayer and any other party, including a
tenant, insurer, or lender;
f) Replacement of existing building components, including
equipment, except as needed to complete the "seismic
retrofit construction";
g) Bracing or securing nonpermanent building contents;
h) The offset of costs, reimbursements, or other costs
transferred from the qualified taxpayers to others; or,
i) Amounts paid to the jurisdiction with authority for
building code enforcement for issuing the certifications
required by this bill.
4)Defines "seismic retrofit construction" as alteration of a
"qualified building" or its components to substantially
mitigate seismic damage. Seismic retrofit construction shall
be for work performed, and for which qualified costs were paid
or incurred, on or after January 1, 2017. Seismic retrofit
construction shall include the following:
a) Anchoring the structure to the foundation;
b) Bracing cripple walls;
c) Bracing hot water heaters;
d) Installing automatic gas shutoff valves;
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e) Repairing or reinforcing the foundation to improve the
foundation's integrity against seismic damage;
f) Anchoring fuel storage; and,
g) Installing an earthquake-resistant bracing system for
mobile homes registered with the Department of Housing and
Community Development.
5)Provides that seismic retrofit construction does not include
construction performed to bring a building into compliance
with local building codes.
6)Defines a "qualified building" as a building that has been
certified as an "at-risk property," as specified. A qualified
building specifically includes a mobile home registered by the
Department of Housing and Community Development.
7)Defines an "at-risk property" as a building deemed hazardous
and in danger of collapse in the event of a catastrophic
earthquake, including soft story buildings, nonductile
concrete residential buildings, and pre-1994 concrete
residential buildings.
8)Provides that, to be eligible for the credit, the following
must apply:
a) The qualified taxpayer must, prior to construction,
obtain certification from the appropriate jurisdiction with
local building code enforcement authority that the building
is an at-risk property.
b) The qualified taxpayer must obtain certification from
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the appropriate jurisdiction with authority for building
code enforcement, upon a review of the building, that the
completed construction satisfies the definition of seismic
retrofit construction. The certification shall identify
what part of the completed construction, if any, is not
seismic retrofit construction, and specify a dollar amount
of qualified costs.
c) The qualified taxpayer must request and be granted an
allocation of the credit from the Franchise Tax Board
(FTB). To request an allocation, the taxpayer shall sign
and submit to the FTB an application to receive a credit
for the seismic retrofit construction and provide a copy of
the certification.
d) The jurisdiction with authority for building code
enforcement in which a qualified building is located has
entered into an agreement with the state to provide
certifications and to not seek reimbursement for any costs
incurred in providing those certifications.
9)Requires the credit amount allowed to be claimed by a
qualified taxpayer at the rate of one-fifth of the credit
amount for the taxable year in which the credit is allocated,
and one-fifth of the credit amount for each of the subsequent
four taxable years.
10)Provides that, in cases where the credit amount exceeds the
taxpayer's tax liability, the excess credit amount may be
carried over to the following taxable year, and succeeding
four taxable years, until the credit has been exhausted.
11)Provides that the total amount of credit that may be
allocated shall not exceed the sum of the following:
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a) $12 million for the 2017 calendar year and each calendar
year thereafter; and,
b) The amount of previously unallocated credits allowed.
12)Requires the FTB, upon receipt of the credit application, to
notify the taxpayer of the amount, if any, of the credit
allowed and to allocate the credit to qualified taxpayers on a
first-come-first-served basis.
13)Requires the taxpayer to claim the credit on a timely filed
original return.
14)Provides that the FTB's determination with respect to the
allocation of the credit, and whether a return has been timely
filed, may not be reviewed in any administrative or judicial
proceeding.
15)Provides that this credit shall be in lieu of any other
credit or deduction that the qualified taxpayer may otherwise
claim with respect to qualified costs.
16)Authorizes the FTB to prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes
of administering the credit.
17)Allows the credit under both the Personal Income Tax (PIT)
Law and the Corporation Tax (CT) Law.
18)Takes immediate effect as a tax levy.
19)Sunsets the credit provisions on December 1, 2022.
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EXISTING LAW:
1)Allows various tax credits under both the PIT Law and the CT
Law. These credits are generally designed to encourage
socially beneficial behavior or to provide relief to taxpayers
who incur specified expenses.
2)Allows taxpayers engaged in a trade or business to deduct
expenses considered ordinary and necessary in conducting that
trade or business.
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
1)Estimated General Fund (GF) revenue decreases of $800,000,
$2.7 million, and $4.7 million in 2016-17, 2017-18, and
2018-19, respectively.
2)Additional ongoing annual GF costs in the hundreds of
thousands of dollars for the FTB to administer the changes to
forms and systems.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
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According to the United States Geological Survey (USGS),
California is one of the most seismically active states
in the U.S. [United States] - second only to Alaska. A
major earthquake occurring in California is simply a
matter of when, not if. The USGS estimates a 99.7%
chance that a major earthquake of 6.7 in scale will
strike California in the next 30 years. With less than
12% of homes covered with earthquake insurance, as
reported by the Department of Insurance, recovery from a
disaster of a major temblor will be even more costly than
financial losses of past earthquakes in California. This
bill will provide Californians with a reasonable
incentive to retrofit at-risk homes and businesses by
providing a tax credit equal to 30% of the qualified
costs to seismically retrofit the at-risk building, as
defined.
2)Assembly Revenue and Taxation Committee Comments: This bill
would allow a credit equal to 30% of a qualified taxpayer's
qualified costs incurred for seismic retrofit construction.
According to the USGS, there is a 99.7% chance that a major
earthquake of 6.7 in scale will strike California in the next
30 years. This bill's tax credit is designed to lower the
overall cost for property owners to improve the seismic safety
of their buildings. Proponents note that such action, in
turn, could save countless lives in the event of a
catastrophic earthquake, and would reduce the demand for state
and local emergency services by hopefully minimizing
structural damage. Older concrete structures are particularly
vulnerable to earthquake damage; the author has noted that
recent research has identified 1,500 concrete buildings that
are seismically vulnerable in the Los Angeles area alone.
Analysis Prepared by:
M. David Ruff / REV. & TAX. / (916) 319-2098
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FN: 0003102