BILL ANALYSIS
AB 2665
Page 1
Date of Hearing: May 3, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2665 (Audra Strickland) - As Amended: April 26, 2010
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Income tax credit: emergency standby generators
SUMMARY : Allows a credit under both the Personal Income Tax
(PIT) Law and the Corporation Tax (CT) Law for costs incurred in
purchasing and installing an "emergency standby generator" at a
"service station." Specifically, this bill :
1)States that the credit is intended to provide an incentive for
a taxpayer operating a "service station" to purchase and
install an "emergency standby generator" so the "service
station" can continue to provide services to the public during
power outages.
2)Allows a credit, for taxable years beginning on or after
January 1, 2011, and before January 1, 2016, equal to 5% of
the amount paid or incurred during the taxable year to
purchase and install an "emergency standby generator" at a
"service station" located in California.
3)Defines an "emergency standby generator" as an electrical
generator that is rated by the manufacturer to generate at
least 30 kilowatts of electricity and whose sole function is
to automatically provide electric power when electric power
from a utility service is interrupted.
4)Defines a "service station" as an establishment that offers
for sale or sells to the public, gasoline or other fuel to
power motor vehicles.
5)Provides that if a generator for which a credit is allowed is
thereafter sold, returned to the vendor, or removed from
service within one year from the date it was placed in
service, the amount of the credit allowed shall be recaptured,
as specified.
6)Provides that, in cases where the credit amount exceeds the
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taxpayer's tax liability, the excess credit amount may be
carried over to the following year, and succeeding years if
necessary, until the credit is exhausted.
7)Takes immediate effect as a tax levy.
8)Sunsets on December 1, 2016.
EXISTING LAW allows:
1)Various tax credits under both the PIT Law and the CT Law.
These credits are generally designed to encourage socially
beneficial behavior or to provide relief to taxpayers who
incur specified expenses.
2)A depreciation deduction for certain property used in the
production of income or in a trade or business. The amount of
the deduction is determined, in part, by the cost (or basis)
of the property. Examples of depreciable property include
equipment, machinery, vehicles, and buildings.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates that
this bill would reduce General Fund revenues by $100,000 in
fiscal year (FY) 2010-11, by $400,000 in FY 2011-12, and by
$600,000 in FY 2012-13.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Given the recent events in Haiti, it is important to
remember that there is only one thing that keeps disasters
from turning into tragedies: preparedness.
AB 2665 is a common sense, emergency preparedness bill that
provides gas station owners a 5% tax credit for purchasing
and installing an emergency, standby generator. In the
event of a natural disaster, the continued operation of gas
stations will be critical to the successful efforts of
emergency crews and vehicles and to the health and safety
of the citizens in affected areas.
Given the threat that flooding, earthquakes, and fires pose
to this state, taking the steps to be prepared for such
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events will ensure that California is ready to respond
quickly and effectively.
2)Committee Staff Comments
a) FTB Concerns : FTB's staff analysis notes that, under
this bill, a taxpayer would not be required to reduce the
depreciable basis of its standby generator by the amount of
the credit allowed. Specifically, FTB notes, "Conflicting
tax policies come into play whenever a credit is provided
for an item that is already deductible as a business
expense or is depreciable. Providing both a credit and
allowing the full amount to be deducted would have the
effect of providing a double benefit for that item. On the
other hand, making an adjustment to reduce [the] basis in
order to eliminate the double benefit creates a difference
between state and federal taxable income, which is contrary
to the state's general federal conformity policy."
b) Adequate Incentive? : Generally, the state enacts tax
credits to encourage taxpayers to take action they might
not absent a financial incentive. This bill, in turn,
would provide a credit to encourage service stations to
purchase standby generators so they can remain open during
power outages. Committee staff questions whether a 5%
credit is sufficient to cause a business to make a decision
it would not absent the credit. Rather, one would think
service station owner would engage in a rational
cost-benefit analysis under which they would weigh the cost
of the generator against potential profits that could be
realized during a power outage.
c) Credit or Grant? : The credit this bill provides would
only benefit service station owner with an income tax
liability to offset. If the Legislature determines that,
in the interest of public safety, service stations should
have backup generators, it could accomplish this goal
through a grant program under which service stations would
receive an equal monetary incentive irrespective of their
tax liability. Of course, the state could also mandate
that certain service stations purchase and maintain backup
generators without subsidizing the cost.
d) Tax Credits for Oil Companies? : Committee staff
understands that the majority of service stations operated
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nationally are owned by independent retailers. However,
there are still a number of service stations that are owned
directly by major integrated oil companies. The Committee
may wish to consider whether it would be appropriate or
useful to provide major oil companies with a credit for
purchasing emergency standby generators.
e) Unlimited Carryforward Period : This bill would allow
taxpayers to carry forward any unused credit amount
indefinitely. As a result, FTB would be required to retain
the carryforward on its tax forms in perpetuity.
Typically, however, tax credits are exhausted within eight
years of being earned. As a result, Committee staff
suggests amending this bill to provide an eight-year
carryforward period.
f) Related Legislation :
i) AB 2623 (Strickland), of the 2007-08 Legislative
Session, contained provisions similar to this bill. AB
2623 failed passage in this Committee.
ii) SB X2 38 (Oller), of the 2001-02 Legislative
Session, would have allowed a credit for the purchase of
backup generators and related equipment. SB X2 38 was
held in committee.
iii) SB 220 (Oller) of the 2001-02 Legislative Session,
would have allowed a credit for the purchase of backup
generators and related equipment. SB 220 failed passage
in the Senate Environmental Quality Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098