BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 425
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: simitian
VERSION: 4/16/09
Analysis by: Jennifer Gress FISCAL: yes
Hearing date: April 28, 2009
SUBJECT:
Parking cash-out program: tax credits and deductions
DESCRIPTION:
This bill specifies that an employer subject to the requirement
to provide a parking cash-out program may not deduct the cost of
providing parking subsidies from its gross income unless it is
in compliance with the requirement. This bill also provides a
tax credit to small businesses in an amount equal to 80 percent
of costs incurred for qualified commute reduction expenditures.
ANALYSIS:
Existing law allows a business to deduct from its gross income
"all ordinary and necessary expenses" incurred in carrying out
any trade or business, which includes the provision of free or
subsidized parking.
Existing law also allows an employer to take a deduction from
its gross income for expenses paid or incurred for any of the
following ridesharing arrangements:
Subsidizing employees commuting in vanpools.
Subsidizing employees commuting in private commuter
buses or buspools.
Subsidizing monthly transit passes for its employees or
for use by the employees' dependents.
SB 425 (SIMITIAN) Page 2
Subsidizing employees commuting in subscription
taxipools.
Subsidizing employees commuting in a carpool.
Offering a cash equivalent to employees who do not
require parking, including a parking cash-out program.
Providing free or preferential parking to carpools,
vanpools, or any other vehicle used in a ridesharing
arrangement.
Making facility improvements to encourage employees, for
the purpose of commuting from their homes, to participate
in ridesharing arrangements, to use bicycles, or to walk.
Providing company commuter van or bus service to its
employees and to others for commuting from their homes.
Providing to employees transportation services which are
required as part of the employer's business activities.
Existing law provides that an individual's gross income does not
include compensation or the fair market value of any benefit
received for participation in any ridesharing arrangement,
including the following:
Commuting in a vanpool.
Commuting in a private commuter bus or buspool.
A transit pass for use by the employee or his or her
dependents.
Commuting in a subscription taxipool.
Commuting in a carpool.
Free or subsidized parking.
Bicycling to or from the employee's place of employment.
Commuting by ferry.
The use of an alternative transportation method, other
than a method otherwise specified in this subdivision, that
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reduces the use of a motor vehicle by a single occupant to
travel to or from that individual's place of employment.
Travel to or from a telecommuting facility.
Parking Cash-Out Program
Existing law requires certain employers that provide a parking
subsidy to employees to provide a cash allowance to an employee
who does not use the parking space an amount equivalent to the
amount the employer would otherwise pay to provide that employee
a parking space. This law is known as the Parking Cash-Out
program.
The program is administered by the California Air Resources
Board (ARB). An employer must comply with the program by
offering a cash-out option if it has the following
characteristics:
Employs at least 50 persons, regardless of the number of
work sites.
Is located in an air basin designated nonattainment for
any state air quality standard. (Practically speaking,
this means every county except Lake County.)
Provides free or subsidizes employee parking on leased
spaces (i.e., on spaces the employer does not own).
Can calculate the expense of the parking subsidy, which
means the parking is leased separately from the building or
office space.
Is able to reduce the number of leased parking spaces
without financial penalty.
This bill :
1.Prohibits an employer that is subject to the Parking Cash-Out
law from deducting from its gross income subsidies paid for
employee parking spaces unless the employer is in compliance
with that law.
2.Provides a tax credit to businesses that have a maximum of 20
employees in an amount equal to 80 percent of costs incurred
for the following commute reduction expenditures:
SB 425 (SIMITIAN) Page 4
Subsidizing employees commuting in vanpools.
Subsidizing employees commuting in private commuter
buses or buspools.
Subsidizing monthly transit passes for its employees or
for use by the employee's dependents.
Subsidizing employees commuting in subscription
taxipools.
Subsidizing employees commuting in a carpool.
Subsidizing employees commuting in a ferry.
Providing free or subsidized parking to carpools,
vanpools, or any other vehicle used in a ridesharing
arrangement.
Making facility improvements to encourage employees to
use bicycles to commute to work.
Making facility improvements to encourage employees to
use alternative methods of transportation, other than those
listed here, that reduce the use of a motor vehicle by a
single occupant traveling to or from his or her place of
employment.
Subsidizing employees who already use alternative
methods of transportation.
Subsidizing employees who travel to or from a
telecommuting facility.
3.Provides that the tax credit is in lieu of any other deduction
that the employer may claim for qualified commute reduction
expenditures.
4.Allows the tax credit to be carried over to reduce the
employer's net tax in the following and any succeeding taxable
years until the credit has been exhausted.
5.Exempts the Franchise Tax Board (FTB), which is the entity
responsible for implementing the tax credit, from the
Administrative Procedures Act.
SB 425 (SIMITIAN) Page 5
COMMENTS:
1.Purpose . Certain employers have been required by law to
comply with the parking cash-out program since 1992, which
requires employers to offer their employees who do not drive
to work cash in lieu of free or subsidized parking. "Free"
parking has significant social, economic and environmental
costs.
Although ARB is the agency responsible for implementing the
parking cash-out program, existing law does not require ARB to
enforce or monitor the program; nor does it contain reporting
requirements for employers, which makes it difficult for ARB
to assess whether or not an employer is in compliance. The
potential of parking cash-out to alleviate congestion and
reduce greenhouse gas emissions depends on assessing employer
compliance with the cash-out requirement.
By prohibiting an employer from deducting parking subsidies as
a qualified business expense unless the employer complies with
the cash-out law, this bill provides a clearer method of
enforcement for the parking cash-out requirement.
Furthermore, by providing a tax credit to small businesses,
this bill provides a direct incentive for and assistance in
implementing measures to reduce commute trips.
2.Effect of free parking on commute behavior . According to a
2002 report prepared by the Legislative Analyst's Office (LAO)
to examine California's Parking Cash-Out law, there is some
research to suggest that providing free parking encourages
employees to drive to work alone to work. The report cited a
1990 study that found a 41 percent average reduction in solo
driving when employees had to pay to park. The LAO also noted
a 2000 survey of Bay Area commuters, which found that while 77
percent of commuters drive alone to work when free parking is
available, only 39 percent do so when they have to pay to
park.
3.Benefits of parking cash-out . The Parking Cash-Out program
was established by AB 2109 (Katz), Chapter 554, Statutes of
1992, in response to a number of studies indicating that
employees are more likely to rideshare, use transit, or
carpool when they have to pay the full cost of parking spaces.
Additionally, concerns were raised that employer-subsidized
parking distorts the free market and encourages
single-occupant auto trips, contributing to traffic congestion
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and air pollution.
According to the 2002 LAO report, as well as a more recent
report by the RAND Corporation, the Parking Cash-Out program
is inexpensive to administer and offers numerous benefits,
including easing traffic congestion, improving air quality,
reducing greenhouse gas emissions, promoting social equity,
and supporting investments in other travel modes.
Traffic congestion and vehicle emissions. A 1997 study
conducted for ARB examining the impact of the parking cash-out
law on commute behavior found:
Solo driving dropped 17 percent, from 76 percent to 63
percent of employees.
Carpooling increased by 64 percent, from 14 percent to
23 percent of employees.
Transit use increased by 50 percent, from 6 percent to 9
percent.
Combined bicycling and walking increased 33 percent,
from 3 to 4 percent.
Vehicle miles traveled, along with their associated
emissions, decreased by 12 percent per employee per year.
Implementing parking cash-out resulted in "an average
reduction in carbon-dioxide emissions of 367 kg (or nearly
half a ton) per employee per year."
Equity: When employers offer free or subsidized parking
without offering subsidies to employees for other travel
modes, employers reward driving over other modes and provide a
commute benefit to some employees but not others. The LAO
report on the cash-out program concludes: "By providing
parking cash-out, the employee is rewarded equally, whether he
or she walks, bikes, takes transit, carpools, or drives alone
to work."
Furthermore, women, minorities, and lower-income workers are
less likely to drive to work alone. Parking cash-out corrects
this imbalance by providing for equivalent subsidies
regardless of the travel mode.
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Supports transit and carpool lane investments: The LAO notes
that the state and local governments invest hundreds of
millions of dollars on infrastructure intended to support
non-highway modes of travel, including new carpool lanes,
expanded and more frequent bus and rail service, and bicycle
and pedestrian facilities. Parking cash-out, by reducing the
incentive to drive alone, reinforces investments in other
modes of travel.
To the extent this bill will foster greater compliance with
the Parking Cash-Out program, this bill has the potential to
promote greater choice among alternative commute options and
help reduce congestion, improve air quality, and reduce
greenhouse gas emissions associated with driving to work.
4.Implementation . The FTB publishes changes to the tax code
each year, which are widely distributed using a variety of
media. These changes are distributed by the FTB in tax
booklets and published online, and are also distributed by
trade organizations and included in tax preparation software.
In other words, awareness of the cash-out requirement will
increase. To the extent that the employer wants to claim a
deduction for parking subsidies, the employer will comply with
the requirement.
5.Facility improvements for ridesharing . Current law allows
employers to deduct the cost of making facility improvements
to encourage employees to participate in ridesharing
arrangements. This bill does not include these expenditures
for purposes of calculating a tax credit. Because these
facilities may support the reduction in commute trips and are
consistent with deductions taken for such activities, the
author or committee may wish to consider an amendment to allow
expenditures for these facility improvements to be considered
in the calculation of a tax credit provided under this
measure.
6.Author's amendment . The author intends to offer an amendment
in committee that would delete the provision of the bill that
exempts from the Administrative Procedures Act any rule or
regulation adopted by the FTB to implement the tax credit
established by this bill. According to the author, the FTB
indicates it could implement the tax credit in accordance with
existing regulations.
7.Technical amendments . The author or committee may also wish
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to make the following technical amendments:
Page 5, line 7 and Page 8, line11, which are identical,
strike "meaning" and insert "meanings"
Subparagraphs (H) and (I) on pages 3 and 6, which are
identical, could be combined and written more clearly to
read:
(H) Making facility improvements to encourage employees to
use, or subsidizing employees who already use, an
alternative transportation method other than a
transportation method specified in this paragraph, that
reduces the use of a motor vehicle by a single occupant to
travel to or from that employee's place of employment.
Alternative transportation methods may include, but are not
limited to, walking and bicycling.
In lieu of the above amendment, the author or committee may
wish to make the following amendments to subparagraphs (H) and
(I):
Page 3, line 15 and page 6, line 18, which are
identical, insert "use" after the second "to"
8.Double-referral . This bill is double-referred to this
committee and the Senate Committee on Revenue and Taxation.
If the bill passes this committee, it will then be referred to
the Revenue and Taxation Committee.
RELATED LEGISLATION
SB 518 (Lowenthal) establishes incentives to reduce governmental
or government-mandated subsidies for parking and reveal the true
cost of parking to drivers as a means to reduce traffic
congestion and greenhouse gas emissions. Passed this committee
on a 6-4 vote. Set for hearing on April 29th in the Senate
Education Committee.
SB 728 (Lowenthal) allows cities, counties, and air districts to
ensure compliance with the state's Parking Cash-Out law. Set
for hearing on May 4th in the Senate Environmental Quality
Committee.
AB 1186 (Blumenfield) requires that lease agreements for
nonresidential buildings occupied by 50 or more persons that
SB 425 (SIMITIAN) Page 9
offer parking to tenants list separately the costs for parking
from other costs included in the lease. In the Assembly
Transportation Committee.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
April 22, 2009)
SUPPORT: None received.
OPPOSED: None received.