BILL ANALYSIS
AB 2528
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Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2528 (Knight) - As Amended: May 5, 2010
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill conforms California to federal law by excluding from
gross income the voucher payments received under the federal
Consumer Assistance to Recycle and Save Act of 2009, also known
as "cash for clunkers".
FISCAL EFFECT
The Franchise Tax Board (FTB) staff estimates revenue losses of
$100,000 in 2009-2010, $150,000 in 2010-11, and $150,000 in
2011-2012.
COMMENTS :
1)Purpose. According to the author, the bill is intended to
treat Californians fairly by aligning state law with federal
law with regard to the treatment of vouchers under the cash
for clunker program.
2)Background. The cash for clunkers program was intended to
provide incentives to U.S. residents to trade in
less-efficient vehicles for new, more fuel efficient, ones.
Under the program, customers were provided vouchers worth
either $3,500 or $4,500 for trade-ins - which were
subsequently scrapped -- at the time of new car purchases. In
order to qualify, the car had to be less than 25 years old,
have a combined city/highway fuel economy of 18 miles per
gallon or less, be in drivable condition, and be continuously
insured and registered to the same owner for the full year
preceding the trade-in. The program began on July 1, 2009 and
ended on August 24, 2009.
AB 2528
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3)Tax treatment of vouchers. Federal law explicitly excludes the
voucher payments under the cash for clunkers program from
income taxation. Absent conformity, however, a portion of
voucher payment could be subject to income taxation in
California under certain circumstances -specifically, if the
$3,500 or $4,500 voucher were greater than the amount the
individual had originally paid for the used car. For example,
if the person bought the car for $3,000, then traded it in and
received a $3,500 voucher under the cash for clunkers program,
the $500 capital gain (representing the difference between the
trade-in voucher price and the "basis", or purchase price of
the property) would be considered a capital gain that is
subject to taxation. By conforming to federal law, taxpayers
facing this somewhat unusual circumstance would no longer be
liable for state taxes on the capital gain.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081