BILL ANALYSIS
SUSPENSE - FOR VOTE ONLY
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 765 - Caballero
As Proposed to Be Amended: August 25, 2009
Urgency
Hearing: August 26, 2009 Fiscal: Yes
SUMMARY: Modifies California House Purchase Tax Credit
EXISTING LAW provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
EXISTING LAW authorizes a $10,000 tax credit for
taxpayers purchasing qualified homes after March 1st, 2009
and before March 1st, 2010. A qualified home has never
been lived in before and must serve as the purchaser's
primary place of residence. The taxpayer must apply the
credit in equal amounts over the next three tax years, and
must return a certification to Franchise Tax Board (FTB)
from the seller certifying that the house has never been
lived in within one week of the sale. The credit shall be
disallowed if the taxpayer does not occupy the house for
three years, and FTB will collect any underpayments from
the taxpayer. The Legislature appropriated $100 million in
credit, which the FTB allocates on a first-come,
first-served basis (SBx2 15, Ashburn). FTB ceased
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allocating tax credits on July 2, 2009, having issued
10,000 credits of $10,000.
EXISTING LAW also requires:
Upon receipt of a certification jointly
signed buy the taxpayer and seller, FTB reserves
a credit for the taxpayer. FTB determines the
date it receives the certification, and any
decision it makes regarding certification dates
and whether the taxpayer timely filed the return
cannot be reviewed administratively or
judicially.
If the FTB disallows the credit, the
inclusion of the credit is treated as a
mathematical error.
FTB may issue rules, guidelines, and
procedures to administer the credit.
The credit is not subject to the 50% of
liability cap on applying tax credits enacted as
part of last year's budget (AB 1452, Committee on
Budget).
THIS BILL directs FTB to issue additional house
purchase tax credits. First, the measure specifies that
taxpayers purchasing a house before July 3, 2009 and after
the effective date of the bill are eligible for the credit,
and precludes taxpayers from claiming the credit who bought
after the FTB ceased allocating certifications and before
the effective date of the bill. Second, the bill directs
FTB to reduce the total amount of credits by an amount
equal to 70% of the credit allocated to the taxpayer,
thereby allowing FTB to issue credits until the $100
million threshold is reached again.
FISCAL EFFECT:
According to FTB, AB 765 results in revenue losses of
$14 million in 2009-10, $11 million in 2010-11, and $6
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million in 2011-12.
COMMENTS:
A. Purpose of the Bill
According the author, "When legislators passed the tax
credit back in February, we were hopeful it would work to
stimulate the state's hibernating housing market. Then, as
we all know, home shoppers were sitting on the fence,
refusing to go back into the market. In just five months,
the credits are gone. The Franchise Tax Board has
announced that it has stopped accepting applications for
the new home tax credit as of Thursday, July 2, 2009, even
though legislators approved the program for a full year -
through March 1, 2010. The tax credit is doing a lot to
restore confidence in California's housing market. We have
been hearing from homebuilders and in news reports that
both traffic and sales are up dramatically and we've seen a
surge in permits for new construction. That's why I'm
pleased to be a joint author of this legislation, along
with Assembly Member Solorio. This legislation is about
job creation and economic stimulus"
B. The Definition of Is
The measure authorizing the house purchase tax credit,
SBx2 15, stated that "The total amount of credit that may
be allowed pursuant to this section shall not exceed one
hundred million dollars ($100,000,000)." FTB may allocate
10,000 certificates for $10,000 credits to equal $100
million. However, even though taxpayers spread the credit
into equal amounts over the next three tax years, not all
taxpayers awarded credits will have sufficient tax
liability to offset the entire amount of all credits. For
that reason, SBx2 15 as currently constructed cannot cost
the state $100 million; instead FTB must allocate $100
million in credits. AB 765 instead directs FTB to estimate
that taxpayers on average will offset tax liability equal
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to 70% of the credit; FTB calculated the 70% measure after
sampling tax returns from taxpayers already awarded the
credit. AB 765 directs FTB to allocate more credits than
currently required to reach the full $100 million, thereby
expanding the total number of taxpayers who will receive
credits.
C. Dividing the Plunder
FTB expects to allocate approximately 4,285 additional
credits should AB 765 be enacted. Of these, approximately
300 would go to those individuals who previously applied
for the credit only to be turned down when FTB stopped
issuing credits in July, and approximately 3,985 credits
would be available for purchases on and after the effective
date of the bill. While the authorizing legislation
allowed taxpayers purchasing houses between March 1, 2009
and March 1, 2010 to claim a credit, AB 765 amends this
deadline; therefore taxpayers who bought houses after FTB
ceased the program and prior to the effective date of the
bill cannot claim the credit.
Support and Opposition
Support: None received.
Oppose:None received.
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Consultant: Colin Grinnell
AB 765 - Caballero
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