BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
Bill No: SB 35
Hearing Date: 2/25/15
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Subject: Disaster relief: Counties of Napa, Solano, and
Sonoma.
Enacts disaster loss treatment and extends the deadline for
taxpayers affected by recent earthquakes to carry back disaster
losses to the 2013 tax year.
Background and Existing Law
Federal and state law allows taxpayers to apply losses to reduce
taxable income from other sources. Disaster losses are the
amounts not compensated by insurance or other means that result
from fires, storms, floods or other natural events. Disaster
losses must exceed $100 per taxpayer and 10% of their adjusted
gross income for the year, but these limits don't apply to
business or income-producing property. When the President
declares a disaster, as he did for the earthquake that affected
Napa and Solano Counties in August, 2014, the declaration
triggers disaster loss treatment automatically for federal and
state purposes for taxpayers in areas subject to the
declarations. When the Governor declares, but the President
does not, the Legislature must affirmatively enact disaster loss
treatment, as it did most recently for fires in San Diego County
in May, 2014 (AB 922, Maienschein, 2014).
Federal and state law also allows taxpayers to apply losses to
income gained in the future, called a "carry forward," or
against past income, called a "carry back." Taxpayers can apply
disaster losses in the current tax year or carry them forward,
but because disasters often incur costs that cause immediate
cash needs for taxpayers, state and federal law generally allow
taxpayers to amend tax returns from the immediately preceding
tax year to carry back a disaster loss, generating a cash refund
on taxes paid the immediately preceding year. To apply the loss
in the previous year, state and federal law require the taxpayer
to amend their return by the next year's filing deadline, which
is generally April 15th. However, while a Presidential
declaration automatically extends the deadline for carrying back
disaster losses for federal tax, the Legislature must
affirmatively enact a statute doing so for state purposes.
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Because many taxpayers have not yet determined the amount of
uninsured losses the earthquake created, the Author wants to
extend the state deadline to allow taxpayers more time to claim
disaster losses on their 2013 tax returns, and extend disaster
loss treatment for state purposes to taxpayers in Sonoma County,
who were not included in the President's declaration.
Proposed Law
Senate Bill 35 extends the deadline for taxpayers in Napa, and
Solano Counties affected by the August, 2014, earthquake to
claim disaster losses for the 2013 tax year from April 15, 2015
to the extended due date, conforming to federal law. The
measure also allows disaster loss treatment for taxpayers in
Sonoma County, who were not included in the President's disaster
declaration. The measure also provides that any subsequent
legislation that suspends, defers, reduces, or otherwise
diminishes net operating loss deductions shall not apply to
disaster losses claimed by affected taxpayers due to the
earthquake. The bill also makes legislative findings and
declarations justifying the measure's statewide public purpose.
State Revenue Impact
According to the Franchise Tax Board (FTB), SB 35 results in
revenue losses of $1,000 in 2013-14, and gains of $500 in
2014-15 and 2015-16.
Comments
1. Purpose of the bill . The purpose of the bill is to allow
taxpayers that recently suffered from the August, 2014 Napa
earthquake to apply losses to their tax returns filed the
previous year, resulting in a tax refund which can immediately
be used to rebuild and recover from the earthquake. The
Legislature has enacted identical treatment for almost every
significant disaster that has occurred in California for the
last 25 years. Additionally, the measure expands state disaster
loss treatment for state purposes for taxpayers in Sonoma
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County.
2. When disaster strikes . Starting with the forest fires in
1985, and approximately 51 times thereafter for various other
disasters, the Legislature enacted disaster tax relief
legislation. Previous disaster tax relief bills were much
longer than SB 35 because they enacted three distinct
provisions: homeowners' exemption, fiscal relief to
disaster-affected counties, and disaster losses:
Homeowners' Exemption. The California Constitution
grants taxpayers an exemption on the first $7,000 of
taxable value for their personal place of residence;
however, state law provides that when a property is vacant,
under construction, or no longer occupied by the owner on
the lien date of January 1, the property is no longer
eligible for the exemption. Previous disaster relief bills
prohibit the assessor from revoking the exemption for
property affected by each individual disaster, but the
Legislature enacted a general protection for all taxpayers,
negating the need for subsequent bills to prohibit the
revocation (SB 1494, Committee on Revenue and Taxation,
2010).
County fiscal relief. The California Constitution
allows taxpayers to request the assessor to revalue
property to its disaster-affected value until it's
restored, reconstructed, or repaired. Disaster tax relief
bills enacted a process for the state to reimburse counties
for property tax revenue losses resulting from
reassessments in the first fiscal year following the
disaster; however, the Legislature has not enacted these
provisions since 2010, choosing not to for the last three
most recent disasters: tsunamis in Humboldt County in 2011,
severe storms in Santa Cruz County in 2012, and fires in
San Diego County in 2014.
Disaster losses. While the Legislature consistently
enacts disaster loss treatment for individual disasters, it
will soon be rendered moot by the state's general loss
treatment. In 2008, the Legislature enacted two-year carry
backs for all losses, which allow taxpayers to apply losses
from the current year to the previous two tax years, but
the measure limited the percentage of the loss that
taxpayers can claim in its initial two years, originally
50% of the loss for 2011, and 75% for 2012 (AB 1452,
Committee on Budget). After the Legislature delayed carry
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backs for two years (SB 858, Committee on Budget and Fiscal
Review, 2010), taxpayers are now allowed two year carry
backs of 50% of 2013 losses, 75% this tax year, and 100%
next year. Taxpayers will be able to carry back 100% of
losses incurred in 2015 regardless of whether they were
caused by a disaster, meaning that a bill that solely
enacts one-year disaster loss carrybacks would provide
inferior treatment.
3. Me too . SB 35 enacts disaster loss treatment for state
purposes for Sonoma County. However, Sonoma County taxpayers
can't apply disaster losses for federal purpose, as they were
not included in the President's declaration, which applied only
to Napa and Solano Counties.
4. Make it easy . Just as the Legislature has enacted general
law to replace disaster-specific provisions described above, the
California Taxpayers' Association and the California Society of
Enrolled Agents are requesting that SB 35 be amended to provide
that its amended return deadline extension for any President or
Governor declared disaster. Doing so would negate the need for
future disaster-specific legislation.
5. Amendment needed . FTB and committee staff recommends the
following amendment:
On page 3, line 5, strike out "allow"
On Page 3, line 6, strike out "them to"
Support and
Opposition (2/19/15)
Support : Counties of Napa, Solano, and Sonoma; California
Professional Firefighters, Family Winemakers of California; City
of Napa.
Opposition : Unknown.
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