BILL ANALYSIS
AB 2528
Page 1
ASSEMBLY THIRD READING
AB 2528 (Knight)
As Amended May 5, 2010
Majority vote. Tax levy
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Portantino, DeVore, |Ayes:|Fuentes, Conway, Ammiano, |
| |Beall, | |Bradford, Charles |
| |Charles Calderon, Coto, | |Calderon, Coto, Davis, |
| |Fuentes, Harkey, | |Monning, Ruskin, Harkey, |
| |Nestande, Saldana | |Miller, Nielsen, Norby, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
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SUMMARY : Excludes from gross income any voucher or payment made
pursuant to the federal Consumer Assistance to Recycle and Save
(CARS) Act of 2009, also known as "Cash for Clunkers," received
as a result of a purchase of a vehicle. Specifically, this
bill :
1)Provides that a voucher or payment issued under CARS shall not
be considered gross income for the purchaser of a vehicle.
2)Takes effect immediately as a tax levy.
EXISTING LAW:
1)Does not conform to the federal CARS program.
2)Provides that a trade-in of a used vehicle to buy a new
vehicle is treated as a normal sale or other disposition of
the old vehicle. In some cases, the value of the voucher
received may result in a taxable gain if it exceeds the
taxpayer's basis in the old vehicle.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, the Franchise Tax Board (FTB) staff estimates revenue
losses of $100,000 in fiscal year (FY) 2009-2010, $150,000 in FY
2010-11, and $150,000 in FY 2011-2012.
COMMENTS : Author's statement. The author states, "Assembly
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Bill 2528 ensures that tax collection in the State of California
is fair and correct and would exclude the $3,500 or $4,500
federal tax credit from being calculated as gross income for tax
purposes. Generating tax revenue from the 'Cash for Clunkers'
program is not a legitimate source of income for the state, and
violates the spirit of this program. The people of California
deserve a fair tax system that does not punish them for taking
advantage of the federal 'Cash for Clunkers' program."
Argument in opposition. The opponents state that California's
budget deficit is far too large to grant tax credits for a
federal program, and that this bill is not beneficial to the
state because it does not create new jobs or stimulate the
economy, and it rewards actions that have already taken place.
Background. The CARS program, also known as "Cash for
Clunkers," was a $3 billion United States (U.S.) federal scrap
program intended to provide incentives to U.S. residents in
order to purchase a new and more fuel efficient vehicle when
trading in a less fuel efficient vehicle. In order to be
eligible for the program, a car must be less than 25 years old
before the date of trade in, have a "new" 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.
According to the December 2009 CARS report developed by National
Highway Traffic Safety Administration, the CARS program
increased car manufacturing, dealership sales, and salvage yard
usage. Using the ratio of the change in vehicle production to
the change in employment, the 597,950 vehicles sold because of
the CARS program created an estimated 38,600 new jobs. In
total, the CARS program helped create and save an estimated
61,960 jobs. This figure does not include jobs on the supply
chain that have also been affected by the CARS program.
However, the longevity of the program's employment impact is
uncertain. At the very least, the report showed an immediate
economic impact on Gross Domestic Product of $7.8 billion from
the CARS program.
Federal conformity. The failure to conform to federal tax laws
in some areas but not other areas can be incredibly confusing
for taxpayers and may lead to improper tax reporting. Under
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CARS, a taxpayer may unknowingly believe that the voucher or
payment received by the federal government is not subject to tax
in California. Also, vouchers are only subject to tax in
California if a gain is realized from the trade in of the old
vehicle. A taxable gain exists if the amount of the voucher
exceeds the basis of the old vehicle, which may be difficult for
individuals to estimate. Applying the "like-kind exchange"
rules may also be confusing for small businesses. By conforming
to federal law, California taxpayer confusion will be
eliminated.
Analysis Prepared by : Carlos Anguiano / Oksana Jaffe / REV. &
TAX. / (916) 319-2098
FN: 0004552