BILL ANALYSIS Ó AB 2518 Page 1 Date of Hearing: May 25, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2518 (Gomez) - As Amended May 18, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|9 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: YesReimbursable: No SUMMARY: This bill creates a sales and use tax (SUT) exemption for building and construction supplies used by nonprofit organizations that build and rehabilitate affordable homes. AB 2518 Page 2 Specifically, this bill: 1)Establishes an SUT exemption, from January 1, 2017 to January 1, 2020, for building and construction supplies, materials, equipment, and machinery, and the parts thereof that are purchased for use by a nonprofit corporation that has received a welfare exemption for the construction and rehabilitation of properties in California sold to "persons and families of low income." 2)Provides that the purchaser is liable for payment of the sales tax if, within one year from the date of purchase, the supplies purchased are moved outside California, converted for use not qualifying for the exemption, or used in a manner not qualifying for the exemption. FISCAL EFFECT: Annual state and local revenue loss in the range of $332,000, including $175,000 GF. COMMENTS: 1)Purpose. According to the author, AB 2518 will help increase construction of affordable housing in California. It would do this by providing tax relief to certain nonprofits that build homes to be sold to low-income families. 2)Habitat for Humanity. Under the eligibility rules established in this bill, Habitat for Humanity would be one of only a small number of organizations eligible for the exemption. AB 2518 Page 3 3)Eligible items. AB 2518 creates a sales and use tax exemption for a broad range of goods, including flooring, lumber, paint, stucco, as well as ceiling fans, stoves, generators, or even bulldozers, pick-up trucks and tractors. Therefore, an organization could get a partial sales tax exemption for equipment it could eventually use for projects that aren't for the construction of affordable housing. For example, an organization could buy a pick-up truck for the purpose of helping with a construction project, but then transition that pick-up truck for another purpose after a year. The Committee may wish to limit eligible items to goods and materials that are part of the home itself, such as flooring, lumber, and sheetrock. This will reduce cost pressures while ensuring that the exemption goes toward the intended use of encouraging affordable home construction. 1)Recent amendments. AB 2518 was amended on May 18, 2016 to make the sales and use tax exemption a full exemption rather than a partial exemption. Earlier versions of the bill exempted only the GF portion of the state sales and use tax, and the local government portion still applied to qualified goods purchased by an organization such as Habitat for Humanity. By making the exemption a full exemption, the May 18 amendments make AB 2518 more valuable to nonprofits, but more costly for local governments Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081 AB 2518 Page 4