BILL ANALYSIS Ó
AB 2675
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Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2675
(Chiu) - As Amended May 2, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use tax exclusion: income taxes credits:
electric vehicle infrastructure
SUMMARY: Provides a partial Sales and Use Tax (SUT) Law
exclusion and tax credit under the Personal Income Tax (PIT) Law
and the Corporation Tax (CT) Law for electric vehicle (EV)
infrastructure at a "qualified dwelling." Specifically, this
bill:
1)Provides, between January 1, 2017 and January 1, 2020, a
partial exclusion under the SUT Law for 10% of the gross
receipts or sales price of EV infrastructure purchased for use
at a "qualified dwelling" in California. For purposes of the
SUT exclusion, this bill:
a) Limits the exclusion to the first $400,000 of gross
receipts or sales price; and,
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b) Specifies that the exclusion does not apply to local SUT
imposed pursuant to the Bradley-Burns Uniform Local SUT Law
(Bradley-Burns) or the Transactions and Use Tax (TUT) Law.
2)Allows a credit under the PIT Law and the CT Law, for taxable
years beginning on or after January 1, 2017 and before January
1, 2020, in an amount equal to 10% of the amount paid by a
taxpayer for EV infrastructure during the taxable year for use
at a "qualified dwelling," not to exceed $2,500. For purposes
of the PIT and CT credit, this bill:
a) Allows the credit to be carried over for four years, or
until the credit is exhausted;
b) Authorizes the Franchise Tax Board (FTB) to prescribe
rules, guidelines, or procedures necessary or appropriate
to carry out the purposes of the credit;
c) Provides that Revenue and Taxation Code (R&TC) Section
41 does not apply to the credit; and,
d) Repeals the credit on December 1, 2020.
3)Defines "EV infrastructure" as structures, machinery, and
equipment necessary to support an EV, including a battery
charging station, battery exchange station, and rapid charging
station.
4)Defines a "battery charging station" as any level of EV supply
equipment station built in compliance with the 2013 California
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Electrical Code that delivers electricity from a source
outside to inside an EV.
5)Defines a "rapid charging station" as an industrial grade
electrical outlet that allows for faster charging of EV
batteries through higher power levels and meets or exceeds
existing regulations at the time of purchase.
6)Defines a "qualified dwelling" as a multiunit dwelling, which
includes a multifamily residence or multifamily dwelling unit,
mobilehome or manufactured home located at a mobilehome park,
duplex, townhome, apartment, and condominium.
7)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW provides, through December 31, 2016, a tax
credit for alternative fuel vehicle refueling property that
includes charging stations for electric vehicles. The credit is
calculated as 30% of the cost of qualified property placed in
service during the taxable year, may not exceed $30,000 for
business or investment use property and $1,000 for consumer
property, and is subject to recapture if the property no longer
qualifies for the credit within three years of being placed in
service.
EXISTING STATE LAW:
1)Establishes the Alternative and Renewable Fuel and Vehicle
Technology Program (ARFVTP) which requires the California
Energy Commission (CEC) to fund projects that develop and
deploy technologies sand alternative and renewable fuels in
the marketplace to help meet the state's climate change goals
including, but not limited to, expanding alternative fueling
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infrastructure such as EV charging systems. (Health & Safety
Code Section 44272)
2)Imposes a SUT on the sale of, or the storage, use, or other
consumption of, tangible personal property (TPP), unless
specifically exempted.
3)Provides that the SUT must be computed based on the sales
price or gross receipts of the TPP, unless specifically
excluded.
4)Specifies that a portion of the SUT funds city and county
governments, and authorizes cities and counties to impose
additional TUTs.
5)Allows various tax credits under the PIT Law and CT Law.
These credits are generally designed to encourage socially
beneficial behavior or to provide relief to taxpayers who
incur specified expenses.
6)Applies performance measurement standards to any new tax
credit under either the PIT Law or the CT Law if enacted by a
bill introduced on or after January 1, 2015. Specifically,
existing law requires all of the following:
a) Specific goals, purposes, and objectives that the tax
credit will achieve;
b) Detailed performance indicators for the Legislature to
use when measuring whether the tax credit meets the goals,
purposes, and objectives stated in the bill; and,
c) Data collection requirements to enable the Legislature
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to determine whether the tax credit is meeting, failing to
meet, or exceeding those specific goals, purposes, and
objectives. The requirements shall include the specific
data and baseline measurements to be collected and remitted
in each year the credit is in effect, for the Legislature
to measure the change in performance indicators, and the
specific taxpayers, state agencies, or other entities
required to collect and remit data. (R&TC Section 41)
FISCAL EFFECT: Pending. Regarding the SUT provisions, the
State Board of Equalization (BOE) fiscal estimate is currently
pending.
Regarding the PIT Law and CT Law provisions, the FTB estimated
that a previous version of this bill applying to all EV
infrastructure installations, not just those limited to
multiunit dwellings, would have resulted in General Fund (GF)
revenue losses of $1.1 million in fiscal year (FY) 2016-17, $2.3
million in FY 2017-18, and $2.6 million in FY 2018-19. The
scope of this bill has been slightly narrowed, so the revenue
impact should be slightly reduced but still substantial.
COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
California is at the forefront of improving our air
quality, battling climate change and reducing greenhouse
gas emissions. Many California regions also suffer from
the worst air quality in the country resulting in
significant health cost to individuals and system of health
care.
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To achieve the desired air quality and greenhouse gas
emission reductions that policy makers are striving to
reach will require policies that promote zero-emission
vehicles (ZEVs). In 2012, Governor Brown issued an
Executive Order directing relevant state agencies to
establish benchmarks to help the State's zero-emission
vehicle infrastructure support 1.5 million [ZEVs] by 2025.
Without the investment in EV infrastructure California may
never reach this goal.
Investing in EV charging infrastructure will address the
most common infrastructure concerns raised by customers of
reliability, range anxiety, and length of commute disparity
between gas and [ZEVs].
2)Arguments in Support : Proponents of this bill state that
despite working with state agencies to "establish the nation's
first set of 'EV-ready' building standards for commercial and
residential building?there is still a need to encourage
building owners to make the decision to actually install fully
functioning EV charging facilities." This bill would
"encourage such installations by the business community in the
same way such incentives have proven so successful in
encouraging the installation of rooftop solar and energy
efficiency measures."
3)Arguments in Opposition : Opponents of this bill state that
"[t]here is a robust discussion occurring within the state
about electric charging infrastructure, which might be
financed by utility ratepayers or other sources of financing"
but "should the state determine that a tax exemption is an
effective means of finance for some purchases (certainly not
utility purchases), then the general fund should be reimbursed
by the cap-and-trade fund for those losses."
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4)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, 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 of them (in the form of forgone
revenues). This bill would enact a new tax expenditure
program in the form of a partial SUT exclusion and new PIT
and CT credit for EV infrastructure.
b) 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. With regard to EV infrastructure,
growing acceptance of ZEVs in the marketplace and
technological efficiencies may naturally stimulate
installation without need for a long-term tax incentive.
This bill includes a three-year sunset date for the SUT
exclusion and the PIT Law and CT Law credit.
c) SUT Exclusion :
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i) Overview of the SUT Law : California's SUT
Law imposes a sales tax on retailers for the privilege of
selling TPP, absent a specific exclusion or exemption.
The tax is based upon a retailer's gross receipts from
TPP sales in California. The SUT Law also imposes a
mirror "use tax" on the storage, use, or other
consumption of TPP purchased out-of-state and brought
into California, which is imposed on the purchaser.
The current statewide SUT rate is 7.5% with 3.9375%
reserved for the GF, 0.25% reserved for the State's
Education Protection Account established by Proposition
30 (2010), 2.0625% shifted to other local revenue funds,
and 1.25% imposed specifically for county operations and
transportation pursuant to the Bradley-Burns Uniform
Local SUT. The TUT Law authorizes local jurisdictions to
impose additional taxes up to 2% within the county above
the 7.5% statewide rate. Since Proposition 30's SUT
provisions are scheduled to expire at the end of this
year, the state portion of the SUT for implementation of
this bill would be 6%.
The SUT represents the state's second largest source of
GF revenues. Nevertheless, California's economy has seen
dramatic growth in the service and information sectors,
resulting in a significant erosion of the SUT base and a
corresponding increase in California's reliance on PIT
revenues. In FY 2014-15, SUT revenues were estimated to
comprise 23% of the state's GF revenues, down from nearly
60% in FY 1950-51. Furthermore, the Commission on the
21st Century Economy noted that spending on taxable goods
represented 34.6% of personal income in 2008, down from
55.4% in 1980. As a result, tax experts and economists
from across the political spectrum argue that California
should expand its SUT base.
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It could be argued that, while well-intentioned,
additional SUT exclusions and exemptions further erode an
already shrinking SUT base. This, in turn, increases
fiscal pressures to maintain or even increase
California's relatively high SUT rate. High rates
arguably promote non-compliance and encourage
out-of-state purchases, placing California retailers at a
competitive disadvantage. High rates also risk impacting
consumer decision-making, which runs counter to widely
accepted principles of sound tax policy.
ii) A Complicated Calculation : This bill
excludes 10% of the price of EV infrastructure from the
SUT, up to the first $400,000 and except for the portion
collected pursuant to Bradley-Burns or the TUT Law. For
example, if a taxpayer purchased $500,000 in EV
infrastructure, the 10% exclusion ($40,000) would result
in only $460,000 of TPP being subject to the SUT in the
state's jurisdiction (6%). However, Bradley-Burns
(1.25%) and any relevant local TUT would still be
collected on the full $500,000. Assuming no local TUT,
the taxpayer in this example would owe $27,600 in state
SUT and $6,250 in Bradley-Burns, compared to $36,250
without the exclusion, resulting in savings of $2,400.
According to the BOE, partial exemptions complicate tax
administration for both the BOE and retailers collecting
and remitting SUT. Return preparation and processing is
more complicated and errors are more likely to occur,
resulting in either increased claims for refund paid by
the state or penalties and interest imposed on retailers.
It is also unclear how the exclusion would be explained
and marketed to taxpayers this bill seeks to incentivize,
even creating the potential for retailers to slightly
increase prices in light of the forthcoming discount.
The Committee may wish to consider potential unintended
consequences of implementing a partial SUT exclusion on
the EV infrastructure market.
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d) PIT and CT Credit :
i) What Do You Mean ? In addition to the SUT
exclusion, this bill allows taxpayers purchasing EV
infrastructure to also benefit from a PIT or CT credit
equal to 10% of the amount paid during the taxable year
not to exceed $2,500. Although there is an existing
federal tax credit for EV charging stations, the proposed
state credit does not conform to the federal credit in
scope or value. As such, the FTB's analysis of this bill
highlights the following implementation questions:
A) This bill states that the credit would be
calculated as a percentage of the amount paid or
incurred by the taxpayer for EV infrastructure, but
does not specify whether the infrastructure must be
used at a qualified dwelling in California, how long
the infrastructure must be placed in service to
qualify for the credit, and whether it must be
purchased or could also be leased. This bill also
does not specify whether the taxpayer qualifying for
the credit must be the owner of the property or could
be any other individual or business entity, including
entities in the EV infrastructure business, paying or
incurring costs to provide a property with
infrastructure. Further defining the terms "battery
exchange stations" and other "structures" or
"equipment" necessary to support an EV may also help
resolve any ambiguity.
B) The FTB believes it lacks the expertise to
determine what constitutes EV infrastructure. Credits
involving areas for which the FTB lacks expertise are
generally certified by another state agency that
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possesses the relevant expertise. The Committee may
wish to consider tasking the CEC or another agency to
work with the FTB in implementing the proposed tax
credit.
i) R&TC Section 41 : SB 1335 (Leno), Chapter
845, Statutes of 2014 added R&TC Section 41, which
recognized that the Legislature should apply the same
level of review used for government spending programs to
tax preference programs, including tax credits. Thus,
Section 41 requires any bill that is introduced on or
after January 1, 2015 and allows a new PIT or CT credit
to contain specific goals, purposes, and objectives that
the tax credit will achieve. In addition, Section 41
requires detailed performance indicators for the
Legislature to use when measuring whether the tax credit
meets the goals, purposes, and objectives so-identified.
This bill provides that R&TC Section 41 does not apply to
the proposed tax credit. The Committee may wish to
consider the appropriateness of this exemption.
a) Range Anxiety : The author's office states that the
CEC's 2016-2017 Investment Plan Update for the ARFVTP
indicated that a convenient, reliable network of public EV
charging stations is critical to support expansion of EV
ownership and that EV chargers for multi-unit dwellings
still face ongoing market barriers. According to the CEC,
ARFVTP invests up to $100 million in public funds each year
to promote the development of a clean and secure
transportation future, and has awarded over $38.7 million
for the installation of more than 7,600 commercial,
workplace, residential (single-family and multi-unit
dwellings), and corridor EV charging stations since 2009.
Additionally, California's three investor-owned utilities
have recently proposed EV infrastructure programs to
encourage greater EV adoption in their territories,
totaling $1.1 billion and up to 62,000 charging stations
including installations at multiunit dwellings. Given the
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implementation considerations highlighted by both the BOE
and FTB, the Committee may wish to consider whether
improving the flow of funds through ARFVTP or enabling new
market competition may be a more efficient way to further
incentivize installation of EV infrastructure.
1)Technical Amendment : Committee staff suggests adoption of
technical amendments recasting the allowable PT Law and CT Law
credit to be calculated as the lesser of the following:
a) 10% of the amount paid or incurred by the taxpayer; or,
b) Two thousand five hundred dollars ($2,500).
2)Related Legislation : AB 2673 (Harper) creates a SUT exemption
and PIT Law and CT Law credit for hydrogen station refueling
equipment. AB 2673 is scheduled to be heard by this Committee
today.
SB 578 (Block) would have allowed a PIT Law and CT Law credit
for electric vehicle charging stations. SB 578 was held on
the Senate Committee on Appropriations' Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
ChargePoint
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Climate Resolve
Electric Vehicle Charging Association
Opposition
California Tax Reform Association
Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098