BILL ANALYSIS Ó
SB 35
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Date of Hearing: June 22, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
SB
35 (Wolk) - As Amended June 16, 2015
Majority vote. Fiscal committee. Tax levy.
SENATE VOTE: 38-0
SUBJECT: Income and corporation taxes: deductions: disaster
relief.
SUMMARY: Provides, under the Personal Income Tax (PIT) Law and
the Corporation Tax (CT) Law, automatic disaster loss relief for
any disaster occurring in any city or county in California that
is proclaimed by the Governor to be in a state of emergency.
Specifically, this bill:
SB 35
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1)Applies, for taxable years beginning on or after January 1,
2014 and before January 1, 2024, Internal Revenue Code (IRC)
Section 165(i) to any loss sustained as a result of any
disaster occurring in any city, county, or city and county in
California that is proclaimed by the Governor to be in a state
of emergency.
2)Provides that the election under IRC Section 165(i) may be
made on a return or amended return filed on or before the due
date of the return, determined with regard to any extension of
time for filing the return, for the taxable year in which the
disaster occurred.
3)Provides that the provisions of this bill apply
notwithstanding Revenue and Taxation Code (R&TC) Section
18572.
4)Precludes, other than those specific to net operating loss
(NOL) treatment under the R&TC, any law that suspends, defers,
reduces, or otherwise diminishes the deduction of an NOL from
applying to an NOL attributable to disaster losses proclaimed
by the Governor.
5)Provides that the automatic disaster loss relief shall remain
in effect only until December 1, 2024, and as of that date is
repealed.
6)Provides that this act fulfills a statewide public purpose
because it is consistent with, and supplements, the proclaimed
disaster assistance relief by providing necessary tax relief
to persons affected jurisdictions by allowing them to maintain
essential basic services and repair damage to, and restore,
their homes and businesses.
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7)Makes findings and declarations.
8)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Allows a taxpayer that suffers a disaster loss to elect to
deduct the loss in the year immediately preceding the year the
disaster occurred if it is a Presidentially-declared disaster
loss. (IRC Section 165(i).) The election is not available
for a Governor-declared disaster area until enabling state
legislation has been enacted.
2)Allows an individual taxpayer with a disaster loss that is not
reimbursed by insurance or otherwise, to deduct disaster
losses to the extent that each loss exceeds $100 and aggregate
net losses for the taxable year exceed 10 percent of adjusted
gross income. Business and income-producing property are not
subject to these limitations.
3)Provides that if a disaster loss deduction creates a NOL,
carry forward and carry back treatment apply.
4)Allows individual and corporate taxpayers to utilize NOLs to
offset their tax liabilities. For NOLs incurred in taxable
years beginning on or after January 1, 2008, existing law
provides a carryover period of 20 years.
5)Allows NOLs attributable to taxable years beginning on or
after January 1, 2013, to be carried back to each of the
preceding two taxable years, as provided. The allowable NOL
carryback percentage increases during the phase-in period as
follows: 50% for the 2013 taxable year, 75% for the 2014
taxable year, and 100% for the 2015 taxable year and any
subsequent taxable year thereafter.
SB 35
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FISCAL EFFECT: The Franchise Tax Board has historically
estimated revenue losses of approximately $1,000.
COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
The purpose of the bill is to allow taxpayers that recently
suffered from 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
County.
2)Filing Extension : This bill allows taxpayers who 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. To apply the loss in the
previous year, state and federal law require the taxpayer to
amend his/her return by the next year's filing deadline, which
is generally April 15th. 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. Because many
taxpayers have not yet determined the amount of uninsured
losses the earthquake created, this bill extends the state
deadline to allow taxpayers more time to claim disaster losses
on their 2013 tax returns.
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3)Sonoma County : In the case of disaster losses, a taxpayer may
elect to file an amended return to deduct the loss in the
taxable year prior to the taxable year in which the disaster
loss actually occurred, resulting in an expedited refund.
This election may be made for any Presidentially-declared
disaster prior to the passage of any state legislation
allowing this treatment as California conforms to federal
disaster tax law treatment. The election is not available,
however, for a "Governor-only" declared disaster unless
special state legislation is enacted.
On August 24, 2014, the Governor, declared a state of
emergency in the Counties of Napa, Solano, and Sonoma. On
September 11, 2014, President Obama also declared a major
disaster for those areas affected by the earthquake. However,
Sonoma County was not included in the President's declaration.
As such, disaster loss relief is not available to Sonoma
County. This bill extends disaster loss relief for state tax
purposes to taxpayers in Sonoma County.
4)Governor Declares State of Emergency : As explained by the
author, the Legislature has enacted similar disaster loss
relief legislation in every significant disaster that has
occurred in California for the last 25 years. As noted above,
this bill extends disaster loss relief to Sonoma County; but
instead of specifically naming affected counties, this bill
provides automatic disaster loss relief to any disaster area
proclaimed by the Governor to be in a state of emergency. Not
only will this bill provide relief to the counties affected by
the earthquake, it will also provide ongoing relief to any
future declared disaster by the Governor. Doing so will
expedite disaster relief to affected areas and eliminate
future disaster-relief related legislation.
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REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
None on file
Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)
319-2098