BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 1149 (Stone) - Personal income taxes:  credit:  principal  
          residence
          
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          |Version: June 15, 2016          |Policy Vote: GOV. & F. 5 - 1    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 1, 2016    |Consultant: Robert Ingenito     |
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          This bill meets the criteria for referral to the Suspense File.


          


          Bill  
          Summary: SB 1149 would enact a first-time homebuyer tax credit.


          Fiscal  
          Impact: The Franchise Tax Board (FTB) estimates that the bill  
          would result in a General Fund revenue loss of $7.6 million in  
          2016-17, $13 million in 2017-18, and $13 million in 2018-19.  
          FTB's implementation costs have yet to be determined.


          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  







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          taxpayers to do something that would not occur on the natural.  
          The Department of Finance (DOF) annually publishes a list of tax  
          expenditures; according its most recent report, DOF estimates  
          tax expenditures result in $57 billion in foregone revenue in  
          2015-16.
          Several years ago, the Legislature authorized tax credits for  
          taxpayers purchasing homes.  Taxpayers purchasing a home between  
          March 1, 2009, and March 1, 2010 that had never been previously  
          occupied could claim a tax credit equal to the lesser $10,000 or  
          5 percent of the purchase price (SBx2 15, Ashburn, 2010).  SBx2  
          15 authorized $100 million in tax credits, which FTB allocated  
          on a first-come, first-served basis.  The following year, the  
          Legislature extended the SBx2 15 credit, with some  
          modifications, and also allowed a credit for first-time  
          homebuyers (AB 183, Caballero, 2016).  AB 183 authorized $100  
          million each for new homes and first-time homebuyers, as  
          defined, which FTB again allocated on a first-come, first-served  
          basis.  FTB fully allocated both credits by August, 2011, and  
          both expired on December 1, 2014.  Taxpayers could claim the  
          credit under specified requirements, including the following:


                 Taxpayers could only claim the credit in equal amounts  
               over the three taxable years commencing with the taxable  
               year in which he or she purchased the home.


                 Taxpayers could only claim the credit for one residence.


                 The credit applied to single-family residences, attached  
               or unattached, for which the taxpayer was eligible for the  
               homeowner's exemption from property tax.


                 To qualify as a first-time homebuyer, the taxpayer or  
               their spouse must not have had an ownership interest in a  
               residence for the three-year period before the purchase,  
               and submits an certification to FTB stating that he or she  
               is a first-time homebuyer.


                 The taxpayer must occupy the residence for at least two  
               years after purchase, or else the credit was cancelled and  








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               recaptured,.







          Proposed Law:  
          This bill would enact a tax credit for first-time homebuyers of  
          homes that have never previously been occupied, similar to SBx2  
          15 and AB 183.  First-time homebuyers, as defined, purchasing a  
          qualifying residence between January 1, 2017, and January 1,  
          2020 can claim a credit against the persona income tax equal to  
          5 percent of the purchase price or $10,000, whichever is less.   
          Taxpayers must apply the credit in equal amounts over the three  
          taxable years commencing with the taxable year in which he or  
          she purchased the home, and are allowed a credit only for the  
          purchase of one home.  
          The bill only allows taxpayers to claim the credit for purchases  
          of attached or detached single-family residences to be their  
          principal place of residence, that have never been previously  
          occupied, and for which he or she is eligible for the  
          homeowners' exemption from property tax.   Sellers must provide  
          buyers with a certification that the home has never previously  
          been occupied within one week of sale, which the taxpayer must  
          submit as part of their tax return to FTB to qualify for the  
          credit.  Taxpayers must occupy the residence for two years after  
          the date of purchase; if not, the credit is cancelled, and the  
          taxpayer is liable for any credit on previous returns.    


          The bill would authorize $100 million in credits, and direct FTB  
          to allocate credits on a first-come, first-served basis upon  
          receiving the certification.  Taxpayers may only claim credits  
          on timely filed original returns, and cannot claim one if the  
          seller is related to them, using the Internal Revenue Code's  
          definition, or if they are listed as a dependent on another  
          taxpayer's return.  


          The measure also provides that Section 41 of the Revenue and  
          Taxation Code does not apply to its credit, and sunsets on  
          December 1, 2023.  








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          Staff  
          Comments: Based on previous new and first-time homebuyer tax  
          credit data, it is assumed the $100 million of available credit  
          would be fully allocated when returns are filed for tax year  
          2017, the first year available. Taxpayers would be allowed to  
          claim an estimated $33.3 million dollars in credit in 2017, 2018  
          and 2019. Based on tax return data for the qualified income  
          ranges, the estimated average tax liability is under $1,300.  
          Therefore, it is assumed that 40 percent of the credit would be  
          used each year, resulting in a $13 million annual revenue loss.


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