BILL ANALYSIS
AB 274
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0Date of Hearing: April 16, 2007
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
AB 274 (Coto) - As Amended: March 15, 2007
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income and corporation tax: credit:
brownfield cleanup
SUMMARY : Creates a tax credit equal to 100% of the expense
incurred to clean up specific polluted property. Specifically,
this bill :
1)Allows certain taxpayers to claim a credit against the net tax
equal to the costs paid or incurred during the taxable year to
clean up a polluted brownfield property located in California
to a satisfactory level.
2)Identifies a taxpayer entitled to the credit as a qualified
"brownfield" property owner that operates a small business.
Specifically defines:
a) "Brownfield property" as property contaminated by
petroleum or as that defined in Health and Safety Code
(HSC) Section 44504.1. HSC Section 44504.1 defines
"brownfield site" as real property that is abandoned,
idled, or underused, due to real or perceived enumerative
environmental contaminants. The "brownfield site" is also
expected to have a reasonable potential for economically
beneficial reuse.
b) "Small business" as that defined in Government Code (GC)
Section 14837(d). GC Section 14837(d) defines "small
business" as:
i) An independently owned and operated business that is
not dominant in its field of operation, with
(1) A principal office located in California;
(2) Officers domiciled in California;
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(3) One hundred or fewer employees; and
(4) Average gross receipts over the previous three
years of $10 million or less; or
ii) A manufacturer with 100 or fewer employees that is
primarily engaged in the chemical or mechanical
transformation or raw materials or processed substances
into new products and engaged in a line of business
described in Standard Industrial Classification Manual
Codes 2000 to 3999, inclusive, published by the United
States Office of Management and Budget, 1987 Edition.
3)Requires the cleanup to be evidenced by a written
certification of completion, which is defined as an evaluation
by the Department of Toxic Substances Control (Toxics Control)
of the effectiveness of a removal or remedial action conducted
by a responsible party to reduce or eliminate actual or
potential public health and environmental threats posed by a
hazardous substance release site if the action itself is not
overseen by Toxics Control.
4)Permits unlimited carryover of any unused credit.
EXISTING LAW provides various tax credits designed either to
provide tax relief for certain taxpayers or to influence
behavior that might not occur without the incentive. At
present, there is no specific tax incentive offered under state
tax law for remediation action taken on brownfield property
located within the state.
FISCAL EFFECT : Franchise Tax Board (FTB) staff estimate revenue
losses of $3 million in fiscal year (FY) 2007-08, $3 million in
FY 2008-09, and $4 million in FY 2009-10.
Proposition 98 Fiscal Effect : Committee staff estimate, based
upon the current estimates that this bill will reduce K-14
school funding by $1.6 million in FY 2007-08, $-0- in FY
2008-09, and $1.8 million in FY 2009-10.
COMMENTS :
1)According to the author, "The purpose of this bill is to
promote the cleanup of brownfield sites by providing a tax
incentive for individuals and businesses who own brownfield
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property. Br restoring contaminated land, pressure is taken
off undeveloped open land while at the same time cleaning the
environment." The author refers to recent Federal legislation
that allowed taxpayers to expense costs incurred in cleaning
contaminated brownfield sites and intends that this bill
conform to that measure, although limiting this tax incentive
to small businesses.
2)Opponents state that a tax credit equal to 100% of the
expenditure is the equivalent of a direct expenditure from the
General Fund, and suggest that it be addressed through the
budget process. Of specific concern is the lack of
accountability or oversight of the cleanup work, which runs
counter to promotion of efficient quality government services.
3)FTB staff note various implementation concerns for this bill.
Specifically, FTB staff note the absence of definitions for
terms or phrases used including "costs to clean up",
"satisfactory level", "contaminated by petroleum", and
"hazardous substance release site" and point out that the
failure to clearly define terms can lead to uncertainty and
disputes between taxpayers and the tax agency. Further, FTB
staff recommend that the certification of completion be
retained by the taxpayer and provided to FTB upon request.
4)Committee staff note numerous concerns including the
following:
a) Credit available for full amount of expenses rather than
a percentage of expenditures, thereby acting as a grant or
other expenditure program but avoiding the annual scrutiny
and review afforded in the general budget process. As a
tax expenditure without a sunset date or "trigger" included
in the enacting legislation, any subsequent legislation to
remove or limit the statute would be properly identified as
a tax increase and subject to a supermajority (2/3) vote.
b) Credit available only for costs paid or incurred during
the taxable year that the property receives its
certification of completion. The remediation process might
occur over more than one taxable year (even though taking
less than 12 months to complete) or might take more than
one year to complete. Taxpayer is not allowed a credit for
all costs related to the cleanup, but only those paid or
incurred during the taxable year that the certification of
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completion is received. If there were delays in receipt of
the certification of completion, the taxpayer would be
precluded from claiming any credit at all.
c) Credit is available only to the owner of property. If a
tenant or lessee operates the property and is responsible
for (or undertakes) cleanup activities, that person would
not be entitled to the credit.
d) Credit is carried over indefinitely, thereby requiring
FTB to maintain credit information on their forms and
instructions indefinitely.
e) Definition of "brownfield property" is vague. Although
the reference to the HSC is precise, the definition is set
in the alternative. The alternative phrase that qualifies
property as brownfield property, i.e., "contaminated by
petroleum" is unclear. This bill lacks any outside or
third party determination of contamination.
f) There is no reduction to the costs that qualify for the
credit for any funds received to help defray the costs of
the cleanup. For example, if remediation funds are used or
if a third-party is required to share in the financial
burden, there is no adjustment to the amount of the credit
available to the taxpayer. Also, the cost of cleanup might
probably increase the basis of the property cleanup. There
is no requirement in this bill to adjust the basis of the
property for the costs that qualify for the credit. The
end result is that the property owner might realize a
double benefit for tax purposes.
REGISTERED SUPPORT / OPPOSITION :
Support
None in file
Opposition
California Taxpayers' Association
California Tax Reform Association
Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098
AB 274
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