BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 1338 (Lara) - Sales and use taxes: exemption: zero-emission
and near-zero-emission equipment
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|Version: May 4, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 16, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: SB 1338 would provide a partial sales and use tax (SUT)
exemption for zero and near zero-emission port equipment.
Fiscal
Impact: The Board of Equalization (BOE) indicates that this bill
would result in an annual General Fund revenue loss of $4.6
million. BOE's implementation costs have yet to be determined,
but would minimally reach the hundreds of thousands of dollars
annually (General Fund).
Background: Except where a specific exemption or exclusion is provided,
current law imposes the SUT on all retailers for the privilege
of selling tangible personal property (TPP) at retail in
California, or on the storage, use, or other consumption in this
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state of TPP purchased from a retailer.
After the state collects SUT revenue ($48 billion in 2013-14),
it allocates the money to various state and local funds. Roughly
half-collected from an approximately 3.9 percent rate-goes to
the General Fund and can be spent on any state program, such as
education, health care, and criminal justice. Another 1.25
percent, known as the Bradley-Burns rate, goes to cities and
counties for general purposes. Three sales tax funds have
uniform state rates and support specified programs-an
approximately 1.1 percent rate for 2011 realignment
(county-administered criminal justice, mental health, and social
service programs); a 0.5 percent rate for 1991 realignment
(county-administered health and social services programs); and a
0.5 percent rate for city and county public safety programs
pursuant to Proposition 172 (1993). Additionally, some local
governments levy optional local rates-known as Transactions and
Use Taxes (TUTs)-and a small portion of these funds are used for
general purposes. As of January 1, 2017, the average statewide
SUT rate will be 8.21 percent.
State law fully exempts many items from SUT (such as
prescription drugs, food, poultry litter), while other items are
exempted from the state sales tax, but not the local share, such
as farm equipment and machinery, diesel fuel used for farming
and food processing, teleproduction and postproduction
equipment, timber harvesting equipment and machinery, and
racehorse breeding stock. Partial SUT exemptions are difficult
for both retailers and the BOE, and complicate return
preparation and processing. Moreover, errors attributable to
these partial exemptions occur frequently, resulting in
additional return processing workload for BOE.
Proposed Law:
This bill would, for taxable years 2017 through 2029, provide a
partial SUT exemption for zero and near zero-emission port
equipment. Specifically this bill would do the following:
Provide a General Fund (3.9375 percent) SUT tax
SB 1338 (Lara) Page 2 of
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exemption for "qualified TPP" purchased by a "qualified
person" to be used "primarily" in, at, or on a marine
terminal of a California public port for carriage,
handling, or movement of freight, cargo, and goods.
Define "qualified tangible personal property" as any of
the following:
o Zero-emission or near-zero-emission equipment
used in conjunction with the movement of goods or
freight, including computers, data-processing
equipment, and computer software required to operate,
control, regulate, or maintain the qualified
equipment.
o Parts used for the repair and replacement of
qualified equipment with a useful life of one or more
years.
o Special purpose buildings and foundations used
as an integral part of the utilization process of
zero-emission or near-zero-emission equipment.
o Leases of qualified tangible personal
property.
Define "primarily" as 50 percent or more of the time.
Define "qualified person" as a stevedore, marine
terminal operator, operator of a port, rail ramp, rail
yard, imtermodal facility, or freight yard, or any other
person that is engaged in cargo and freight loading,
delivery, movement, storage, and conveyance at or within a
California public seaport.
Define "Zero-emission or near-zero-emission equipment"
SB 1338 (Lara) Page 3 of
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means equipment, off-road vehicles, and related
technologies used within the boundaries of a California
public seaport that reduces or eliminates greenhouse gas
emissions and improves air quality as identified by the
State Air Resources Board in consultation with the State
Energy Resources Conservation and Development Commission.
Additionally, "zero-emission and near-zero-emission
equipment" may include advanced or alternative fuel engines
and hybrid or alternative fuel technologies for seaport
equipment.
The exemption would not apply if, within one year from the date
of purchase, the qualified person (1) uses the qualified
property in a manner not qualifying for the exemption, (2)
converts the qualified property from an exempt use to a
non-qualifying use, or (3) removes the qualified property from
California. Finally, the bill contains reporting requirements,
as specified.
Staff
Comments: As noted above, the bill defines "zero-emission and
near-zero-emission equipment" as equipment and off-road vehicles
used at California public seaports that reduce or eliminate
greenhouse gas emissions, as identified by the California Air
Resources Board (CARB) in consultation with the State Energy
Resources Conservation and Development Commission. Without such
identification, BOE staff would not know the type of equipment
and vehicles that should qualify for the SUT exemption.
According to CARB, zero-emission and near-zero-emission
equipment and off-road vehicles include battery electric, fuel
cell electric, plug-in diesel hybrid, and equipment and off-road
vehicles powered by compressed natural gas. Eligible equipment
and off-road vehicles include zero-emission and
near-zero-emission cranes, yard trucks, top handlers, hostlers,
side handlers, forklifts, loaders, aerial lifts, excavators, and
bulldozers.
BOE's revenue estimate is based on a December 2015 report
SB 1338 (Lara) Page 4 of
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prepared by a port-planning firm that represents West Coast
terminal operators and shipping lines. The report estimates that
replacing current equipment with zero-emission or
near-zero-emission equipment and vehicles (including supporting
infrastructure) at the ports of Los Angeles, Long Beach and
Oakland, would cost $23 billion over the next 30 years. Using
information in the report, BOE's revenue estimate assumes that
annual zero-emission equipment purchases by these three ports
for the period 2017 to 2029 will be $118 million; the
corresponding annual General Fund revenue loss would be $4.6
million.
Staff notes that the BOE revenue estimate understates the
magnitude of the bill's revenue loss for two reasons. First, the
estimate only considers three of California's seaports. Second,
it doesn't reflect purchases of "near-zero emissions equipment.
While the three ports incorporate the majority of port activity.
The ports of Long Angeles, Long Beach and Oakland account for
the majority of seaport activity in the State; consequently, the
revenue loss from qualifying purchases of zero-emission
equipment by other ports in the State would likely be minor in
comparison. The additional revenue loss associated with
purchases of near-zero emissions equipment by all the State's
ports is unknown.
BOE would incur administrative costs to notify affected
retailers, modify tax returns, program for the exemption's
partial rate, prepare a special publication, audit claimed
exemptions, and answer inquiries from taxpayers and the general
public. A fulling costing has yet to be performed, but would at
a minimum reach the hundreds of thousands of dollars annually.
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