BILL ANALYSIS
AB 150
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 150 (Smyth) - As Introduced: January 22, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: exemption: energy efficient
products
SUMMARY : Provides a sales and use tax (SUT) exemption for
"energy efficient products" sold on April 24 of each year
beginning in 2010. Specifically, this bill :
1)Provides a SUT exemption for "energy efficient products" sold
or purchased during a "qualified period" each year.
2)Defines "energy efficient products" as a product that meets or
exceeds the applicable ENERGY STAR efficiency requirements
developed by the United States (U.S.) Environmental Protection
Agency (EPA) and the U.S. Department of Energy.
3)Defines "qualified period" as the period beginning at 12:00
a.m. on each April 24 and ending at 11:59 p.m. on each April
24, which date annually occurs during the week of Earth Day.
4)Provides that the first qualified period shall begin on April
24, 2010.
5)Provides that the exemption shall apply to:
a) Layaway agreements entered into during the qualified
period, for which the purchaser has made a deposit of at
least 10% of the sale price of the energy efficient
product; and,
b) The sale of an energy efficient product pursuant to an
order placed and paid for in full during the qualified
period, even if actual delivery is made after the tax
holiday.
6)Provides that, notwithstanding existing law, the state shall
not reimburse local agencies for SUT revenues lost as a result
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of the tax holiday.
7)Takes immediate effect as a tax levy.
EXISTING LAW imposes a:
1)Sales tax on retailers for the privilege of selling tangible
personal property (TPP), absent a specific exemption. The tax
is based upon the gross receipts from the sale of TPP in this
state.
2)Use tax on the storage, use, or other consumption in this
state of TPP purchased from any retailer for storage, use, or
other consumption in this state, absent a specific exemption.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
this bill would result in annual General Fund losses of over
$8.6 million.
COMMENTS :
1)The author states:
The EPA estimates that in 2005, with the help of the ENERGY
STAR program, Americans prevented 35 million metric tons of
greenhouse gas emissions - equivalent to the annual
emissions from 23 million vehicles - and saved about $12
billion on their utility bills. They also saved a
significant amount of energy in 2005 - 150 billion kilowatt
hours (kWh) or 4 percent of total 2005 electricity demand.
In addition, ENERGY STAR helped avoid 28,000 megawatts (MW)
of peak power, equivalent to the generation capacity of
more than 50 new power plants. Roughly half of these
benefits are the result of people using ENERGY STAR
qualifying products in their homes or at work.
However, the residential sector still presents large
challenges and sizable opportunities for protecting the
environment through energy efficiency. Households are the
third largest contributor to greenhouse gas emissions in
the U.S. (behind only the industrial and transportation
sectors) and offer potential energy savings in the range of
25 to 30 percent compared with current consumption. In
addition, by purchasing ENERGY STAR products, households
can reduce their energy use and save up to 30 percent, or
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$450 annually on average, on their utility bills.
AB 150 aims to solve one of the many underlining causes of
Greenhouse gas emissions and to bring to the attention of
Californians the importance of buying Energy Efficient
Products. If California is truly committed to reducing
Greenhouse gas emissions, it should not overlook the damage
that non-energy efficient products are having not only [on]
the economy, but the environment as well.
2)Proponents state, "AB 150 will encourage the purchase of
energy efficient products, defined as products meeting or
exceeding the Energy Star standards set by the U.S.
Environmental Protection Agency and Department of Energy.
Energy efficient products save consumers money because they
are cheaper to operate. They also reduce greenhouse gas
emissions and reduce energy consumption."
3)Opponents state, "We oppose your bill because it will provide
corporations and individuals with a large tax incentive for
something that they are going to do anyway. Energy efficient
products, by their nature, save consumers money which in turn
creates a demand for them. The creation of a sales tax
holiday will only provide a large windfall to those businesses
that are positioned to buy large amounts of energy efficient
products on Earth Day every year."
4)BOE has noted the following implementation concerns:
a) Merchandise exchanges : "?when merchandise is returned
for other merchandise, the law considers the transaction as
two separate transactions: a recision of the original sale
and a separate sale of the replacement merchandise. For
example, if a customer purchases a deluxe refrigerator and
exchanges the refrigerator for a smaller model, the
transaction is regarded under the law as a separate sale of
the smaller model refrigerator and a recision of the
original sale of the deluxe model refrigerator. The
retailer is allowed to deduct from his or her taxable sales
amount for purposes of reporting the correct amount of
sales tax to the Board, the sales price of the deluxe model
refrigerator, and is also required to include in his or her
taxable sales amount, the sales price of the smaller model
refrigerator. Using this example under the proposed
exemption period, if the deluxe model refrigerator is
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purchased during the exemption period, and is exchanged for
the smaller model refrigerator after the exemption period,
the proposed exemption would not apply to the exchange of
the smaller model refrigerator since that transaction is
recognized under the law as having occurred after the
exempt period." BOE notes that this may result in
reporting errors by retailers and confusion for customers.
b) The use of rain checks : Additional confusion could
result from the use of "rain checks." Specifically, BOE
states that, "Current law also provides that a rain check
issued by a retailer does not constitute a sale of tangible
personal property. Therefore, if a retailer is out of
stock of a particular item and issues a rain check to the
customer during the exemption period, and the customer
subsequently uses the rain check to purchase the out of
stock item after the proposed exemption period, the
exemption would not apply."
5)Committee Staff Comments:
a) What is ENERGY STAR? : In 1992, the EPA introduced
ENERGY STAR as a voluntary labeling program designed to
identify and promote energy-efficient products to reduce
greenhouse gas emissions. Computers and monitors were the
first products labeled. Through 1995, the EPA expanded the
label to additional office equipment and residential
heating and cooling equipment. In 1996, the EPA partnered
with the U.S. Department of Energy for particular product
categories. The ENERGY STAR label is now on major
appliances, office equipment, lighting, and home
electronics. The EPA has also extended the label to cover
new homes and commercial and industrial buildings.
b) Is this bill's exemption too broad ?
i) The ENERGY STAR label is now on products as diverse
as dishwashers, water heaters, windows, cordless phones,
light fixtures, and commercial food fryers. In addition,
it is entirely conceivable that the federal government
will continue to expand the types of products eligible
for ENERGY STAR labeling in the future.
ii) Given this fact, does the author wish to provide any
limitations on the types of ENERGY STAR products eligible
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for the exemption? As BOE notes, "The one-day exemption
would apply to construction materials and products such
as doors, windows, ceiling fans, programmable
thermostats, and more. The exemption would also apply
whether the purchaser is a property owner, tenant, or
construction contractor, and whether the products are to
be used in existing real property or new construction.
There is no limit on the number of products a person can
buy during the exemption period. Contractors could
purchase large quantities of construction materials or
products without tax, even though they may not enter into
a contract to furnish and install the windows until after
the exemption period."
iii) Many other states that have enacted similar tax
holidays have limited the exemption to products sold for
home or personal use. Others have limited the exemption
to products under a certain dollar amount.
c) Would this exemption apply to used products? : It is
unclear whether the author intends for the exemption to
apply to used items. For example, if a used appliance
dealer sells a used refrigerator with an ENERGY STAR label
still attached, would the sale of the used refrigerator be
exempt from tax? Clarification of this issue would assist
BOE's administration of this exemption.
d) Is an additional incentive needed? : Flex Your Power
(California's statewide energy efficiency marketing and
outreach campaign) currently provides a host of information
on existing rebate programs for energy efficient products.
For example, consumers purchasing energy efficient washing
machines can currently get rebates ranging from $35 to $150
per unit. In addition, as the author himself notes,
"households can reduce their energy use and save up to 30
percent, or $450 annually on average, on their utility
bills" by purchasing ENERGY STAR products. Given that both
short and long-term incentives already exist for purchasing
energy efficient products, does it make sense to create an
additional incentive in the form of a tax holiday?
e) Should a sunset date be added? :
i) The state exempts certain sales, either partially or
completely, from SUT. Each additional exemption further
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erodes the tax base and reduces revenues to the state and
to local governments. Because such exemptions set a
precedent for future exemptions, it is important to
examine whether such exemptions actually change behavior
or simply subsidize existing behavior.
ii) The author may wish to include a sunset date to
allow the Legislature to review the effectiveness of this
exemption in the future.
f) Similar legislative efforts :
i) This bill is nearly identical to AB 882 (Hernandez)
of the 2007-08 Legislative Session. AB 882 would have
provided a SUT exemption for sales and purchases of
energy efficient products on April 22 (Earth Day) of each
year beginning in 2008. AB 882 passed out of this
committee by a vote of 8 to 0, but was held in the
Assembly Committee on Appropriations.
ii) This bill is also similar to AB 1028 (Blumenfield)
of the current Legislative Session. AB 1028 would create
a SUT exemption for "qualified renewable energy systems"
defined as those systems the California Public Utilities
Commission deems to be eligible solar electric equipment
under the California Solar Initiative. In fact, this
bill seeks to add the exact same code section to the SUT
Law.
g) When exactly is Earth Day? : Earth Day, which was
established by U.S. Senator Gaylord Nelson as an
environmental teach-in in 1970, is most commonly celebrated
each year on April 22. Thus, it is unclear why this bill
calls for the exemption period to be held each year on
April 24.
REGISTERED SUPPORT / OPPOSITION :
Support
California Retailers Association
City of Murrieta
Home Depot
Southern California Edison
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Valley Industry and Commerce Association
Opposition
California State Association of Counties
California Tax Reform Association
City of Palm Desert
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098