BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1103 |Hearing |5/4/16 |
| | |Date: | |
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|Author: |Cannella |Tax Levy: |Yes |
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|Version: |4/27/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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Taxation: renters' credit
Increases the "renters' credit" from $60 to $100 for single
filers, and from $120 to $200 for joint filers.
Background
California law allows various income tax credits, deductions,
and sales and use tax exemptions to provide incentives to
compensate taxpayers that incur certain expenses, such as child
adoption, or to influence behavior, including business practices
and decisions, such as research and development credits. The
Legislature typically enacts such tax incentives to encourage
taxpayers to do something that but for the tax credit, they
would not do. The Department of Finance is required to annually
publish a list of tax expenditures.
State law allows a nonrefundable credit for qualified renters in
the following amounts:
$60 for filers that are single, married or registered
domestic partners filing separately with an adjusted gross
income (AGI) of $38,259 or less, and
$120 for filers that are head of household, married or
registered domestic partners filing jointly, or a qualified
widow(er) with an AGI of $76,518 or less.
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State law requires the renters' credit AGI limitations to be
adjusted annually for inflation. The California Constitution
requires the Legislature to provide increases in benefits to
qualified renters that are comparable to the average increase in
benefits provided to homeowners under the homeowners' property
tax exemption. However, if the Legislature increases the
renters' credit, no increase in the amount of benefits to
homeowners' property tax exemption is required.
Proposed Law
Senate Bill 1103 increases the "renters' credit" from $60 to
$100 for filers that are single or married filing separately
with an adjusted gross income (AGI) of $38,259 or less, and from
$120 to $200 for filers that are head of household, married
filing jointly, or a qualified widow(er) with an AGI of $76,518
or less.
SB 1103 applies to taxable years beginning on or after January
1, 2016.
State Revenue Impact
Pending.
Comments
1. Purpose of the bill. According to the author, "California
faces a statewide crisis driven by an increasing divide between
incomes and rents. According to the California Housing
Partnership, median incomes have fallen 8 percent since 2000,
while rental prices have soared by 21 percent.. One of the
mechanisms the State has used to address this issue is through a
renters' tax credit to reduce the income tax liability of
California's renters. However, while the renters' tax credit's
income eligibility requirements are adjusted for inflation
annually, the actual tax credit amounts are not. From 1998 to
2016, the income eligibility requirements have increased by
53.04% in response to inflation, while the credit amounts have
had no increase. This diminishes the benefit of the tax credit
SB 1103 (Cannella) 4/27/16 Page 3
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to California renters. SB 1103 increases the current tax credit
from $60 to $100 for individuals (single or married/RDP filing
separately) and current tax credit from $120 to $200 for married
taxpayers filing joint returns; heads of household and surviving
spouses. By adjusting the tax credit amounts up to around where
they should be if they had increased with inflation since 1998,
as the gross income requirements have, SB 1103 protects the
benefits, integrity, and purpose of California's renters' tax
credit."
2. The Renters' Credit. The Personal Income Tax (PIT) law
allows an eligible individual who rents his or her principal
residence to reduce his or her state income tax with a tax
credit. The Legislature suspended the renters' credit for the
1993 through 1997 taxable years, but was reinstated beginning
with the 1998 taxable year. The credit eligibility is based on
the taxpayer's AGI and his or her filing status, which is
indexed annually for inflation. For the 2016 tax year, a credit
of $120 is allowed for filers that are head of household,
married or registered domestic partners filing jointly, or a
qualified widow(er) with an AGI of $75,518 or less; and $60 for
filers that are single, married or registered domestic partners
filing separately with an AGI of $38,259 or less. The renters'
credit is nonrefundable.
3. Tax expenditures. Existing law provides various credits,
deductions, exclusions, and exemptions for particular taxpayer
groups. In the late 1960s, U.S. 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 (in the form of foregone revenues).
This bill would increase an existing tax expenditure. The
tradeoff for increasing the tax expenditure, resulting in
revenue losses, is higher taxes or reductions to other services
or programs.
4. How is tax expenditure different from a 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 a part of
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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, once
enacted, it takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. This effectively results in a
"one-way ratchet" whereby tax expenditures can be conferred by
majority vote, but cannot be rescinded, irrespective of their
efficacy, without a supermajority vote.
Support and
Opposition (4/28/16)
Support : California Apartment Association.
Opposition : Unknown.
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