BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chairman
x8 32 (Wolk)
Hearing Date: 02/12/2010 Amended: 02/11/2010
Consultant: Mark Mckenzie Policy Vote: Rev&Tax 3-2
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BILL SUMMARY: SBx8 32 would generally conform California
personal income tax, corporation tax, and administration of
franchise and income tax laws to federal income tax laws as set
forth in the Internal Revenue Code (IRC) as of January 1, 2009.
The bill would also conform to one provision of federal tax law
enacted in 2009.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
2009-10
2005 Tax Revenue Totals $1,030 $2,720 $2,720 General
2005 Penalty and Interest $0 $0 $0 General
2005 Grand Totals $1,030 $2,720 $2,720 General
2006 Tax Revenue Totals $1,234 $836) $1,392 General
2006 Penalty and Interest ($400) ($200) ($200) General
2006 Grand Totals $834 $636 $1,192 General
2007 Tax Revenue Totals ($600) ($9,818) ($8,388)
($8,978) General
2007 Penalty and Interest ($2,600)
($6,900)($11,600) ($14,400) General
2007 Grand Totals ($3,200)
($16,718)($19,988) ($23,378) General
2008 Tax Revenue Totals $5,177 $3,442 $2,326 General
2008 Penalty and Interest ($270) ($2,500)
($1,800) ($1,750) General
2008 Grand Totals ($270) $2,677 $1,642
$576 General
2009 Tax Revenue Totals $24,000 $23,000 $23,000
$15,000General
2009 Penalty and Interest $0 $0
$0General
2009 Grand Totals $24,000 $23,000
$23,000$15,000 General
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(2005, 2006, 2007, 2008, 2009 combined)
Combined Tax Revenue Total $23,400 $20,623 $21,610
$12,460 General
Combined Penalty/Interest ($2,870)
($9,800)($13,600) ($16,350) General
Conformity grand totals $20,530 $10,823
$8,010 $3,890 General
*Note: figures in parentheses represent revenue gains
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
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SBx8 32 (Wolk)
Although there are many exceptions, California's personal income
tax and corporation tax laws are generally patterned after
federal law. In most cases, state legislation is needed to
conform to federal law changes. Over the past five years since
the Legislature passed the last conformity bill, significant
differences have emerged between state and federal law. The
lack of conformity can be attributed to several factors, some
involving fiscal concerns, and others involving policy related
issues.
SBx8 32 would conform California law to many of the federal
income tax law changes made over a four year period by changing
the specified date in statute from January 1, 2005 (existing
law), to January 1, 2009 (this bill), for taxable years
beginning on or after January 1, 2009. Changing the specified
date automatically conforms state law to all changes from
January 1, 2005, through December 31, 2008 to IRC sections that
have been previously incorporated by reference. In addition,
the bill makes numerous changes to specifically not conform to
or modify certain items in the IRC, and also includes a
provision related to renewable energy grants enacted as part of
the American Recover and Reinvestment Act of 2009.
Staff notes that complete tables of the conformity decisions may
be found in the Senate Revenue and Taxation Committee's analysis
of this bill. Full descriptions of each of the conformity items
in this bill are included in the Franchise Tax Board's (FTB's)
2005, 2006, 2007, and 2008 annual "Summary of Federal Income Tax
Changes" reports to the Legislature, which are available on
their website.
Staff notes that AB 115 (Klehs), Chapter 691, Statutes of 2005,
was California's last federal conformity bill. AB 1561
(Calderon), which would have conformed state law to federal
income tax law changes up through December 31, 2007, failed
passage on the Senate Floor in 2008 on a vote of 24-16. That
bill would have resulted in an increase in state tax revenue,
triggering the 2/3 vote requirement in Article XIIIA of the
State Constitution. AB 1580 (Calderon), which was vetoed by the
Governor last year, was the most recent attempt to ease the
hardship on taxpayers and practitioners by bringing the federal
and state tax codes closer together. The Governor's veto
message indicated an unwillingness to sign a conformity bill
that does not reflect consensus, while noting a specific
objection to a conformity provision related to penalties on
erroneously claimed tax refunds. Apart from SBx8 32's inclusion
of a federal conformity provision related to renewable energy
grants (described below), this bill is nearly identical to AB
1580.
Federal law allows an income tax credit for the production of
electricity from qualified energy resources at qualified
facilities. Congress enacted and the President signed the
American Recovery and Reinvestment Act (ARRA), which authorizes
the Secretary of Treasury to provide a grant to each person who
places in service during 2009 or 2010 energy property that is
either (1) an electricity production facility otherwise eligible
for the renewable electricity production credit or (2)
qualifying property otherwise eligible for the energy credit.
In lieu of the tax credits, ARRA allows for the exclusion of the
grant proceeds from a taxpayer's federal income. However, the
basis of the property is reduced by fifty percent of the amount
of the grant. In addition, some or all of each grant is subject
to recapture if the grant eligible property is disposed of by
the grant recipient within five years of being placed in
service. The provision also permits
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SBx8 32 (Wolk)
taxpayers to claim the credit with respect to otherwise eligible
property that is not placed in service in 2009 and 2010 so long
as construction begins in either of those years and is completed
prior to 2013 (in the case of wind facility property), 2014 (in
the case of other renewable power facility property eligible for
credit under IRC section 45), or 2017 (in the case of any
specified energy property described in IRC section 48). Under
the provision, if a grant is paid, no renewable electricity
credit or energy credit may be claimed with respect to the grant
eligible property. However, in absence of an authorized
statute, taxpayers must include the grant proceeds as income for
state purposes. SBx8 32 excludes these grants from income
because an unexpected tax could cause project developers to
terminate or delay the projects, causing job losses and less
renewable power for the state. SBx8 32 additionally conforms to
federal law by excluding these grants from state income and
requiring the 50% basis adjustment.