BILL ANALYSIS �
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THIRD READING
Bill No: AB 50
Author: Hill (D)
Amended: 3/17/11 in Senate
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 3/16/11
AYES: Wolk, DeSaulnier, Fuller, Hancock, Hernandez, La
Malfa, Liu
NO VOTE RECORDED: Huff, Kehoe
SENATE APPROPRIATIONS COMMITTEE : 9-0, 3/17/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Runner, Steinberg
ASSEMBLY FLOOR : 75-0, 3/3/11 - See last page for vote
SUBJECT : San Bruno Gas Explosion Tax Exclusion
SOURCE : Author
DIGEST : This bill deems that the San Bruno explosion to
be a qualified disaster for purposes of disaster payments,
thereby allowing taxpayers to exclude disaster relief
payments from state income. This bill also provides
similar treatment for involuntary conversions resulting
from a disaster.
ANALYSIS : Existing federal and state law provides that
income for purposes of taxation includes all income derived
from any source, such as wages, dividends, interest,
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capital gains, rents, and royalties, unless specifically
excluded, such as insurance payments. Federal tax law
(Section 139 of the Internal Revenue Code �IRC]), to which
state law conforms, provides for an exclusion from income
for disaster relief compensation made in connection with a
federally-declared disaster. This exclusion applies to
payments for personal, family, living, or funeral expenses,
as well as payments for expenses related to rebuilding or
rehabilitating a personal residence and its contents, that
are not compensated by insurance. Federal law also
provides favorable tax for capital gains associated with
the involuntary conversion of a principle residence
property that was destroyed through no fault of the owner.
In a federally-declared disaster, federal and state law
excludes the first $250,000 (single) or $500,000 (joint) in
capital gains related to involuntary conversions from
income. The taxpayer may also defer the tax on the capital
gain above those thresholds by purchasing a replacement
property within specified time periods (generally two years
after the year in which the gain is realized.)
This bill provides favorable tax treatment for certain
payments made to persons affected by the San Bruno natural
gas transmission line explosion and subsequent fires on
September 9, 2010. Specifically, this bill provides the
following state tax benefits, as if the federal government
had declared the San Bruno incident as a disaster:
1. Excludes qualified payments provided to individuals
affected by the explosion from income for state income
tax purposes. Only those payments for qualified
expenses that are not covered by insurance compensation
would be excluded from income.
2. Allows for deferral of capital gains related to the
"involuntary conversion" of a principal residence that
was partially or totally destroyed by the explosion and
fire.
Comments
On September 9, 2010, a natural gas transmission line owned
and operated by Pacific Gas & Electric Company (PG&E)
exploded in San Bruno. According to National
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Transportation Safety Board investigative reports, the
explosion and resulting fires killed eight people and
destroyed 37 homes. Acting Governor Abel Maldonado
proclaimed a state of emergency for the explosion site as a
state disaster, but the federal government did not declare
the explosion and fire to be a federal disaster, which
would have automatically triggered the exclusion of
qualified disaster relief payments under both state and
federal law. In response, the Legislature approved the
traditional three changes to tax law when disaster strikes:
a state backfill for local property tax revenue losses
attributable to downward reassessment of disaster-affected
property, a prohibition on the assessor revoking the
homeowners' exemption for disaster-affected property, and
enhanced disaster losses for affected taxpayers (AB 11 X6
(Hall), Chapter 2, Statutes of 2010). Absent the federal
declaration, these payments are taxable under both state
and federal law.
This bill treats specified disaster relief payments as a
result of the San Bruno explosion and fire as if they were
"qualified disaster relief payments" under a federal
disaster declaration. As such, this bill allows taxpayers
to exclude qualified payments from income for state income
tax purposes. This bill also provides similar treatment
for involuntary conversions resulting from the disaster.
Following the San Bruno explosion and fire, PG&E set up a
$100 million "Rebuild San Bruno Fund" to compensate
affected individuals with payments for costs and losses not
reimbursed by insurance, provide cash payments for
immediate financial assistance, and reimbursements to San
Bruno for disaster response and infrastructure costs. In
addition, individual and corporate donors sent nearly
$395,000 to the City of San Bruno to assist victims with
recovery and rebuilding efforts, and the American Red Cross
distributed $440,507 to meet personal living expenses,
housing needs, furnishings, health needs, lost wage
replacement, and mental health support. Only those
payments that meet the criteria as "qualified disaster
payments" under IRC Section 139 would be excluded from
income for purposes of this bill.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
Tax revenue decrease $300 $6
General
SUPPORT : (Verified 3/18/11)
American Federation of State, County and Municipal
Employees, AFL-CIO
Pacific Gas & Electric Company
ASSEMBLY FLOOR :
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson,
Donnelly, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani,
Garrick, Gatto, Gordon, Gorell, Grove, Hagman, Halderman,
Harkey, Hayashi, Roger Hern�ndez, Hill, Huber, Hueso,
Huffman, Jeffries, Jones, Knight, Lara, Logue, Bonnie
Lowenthal, Ma, Mansoor, Mendoza, Miller, Monning,
Morrell, Nestande, Nielsen, Norby, Olsen, Pan, Perea, V.
Manuel P�rez, Portantino, Silva, Skinner, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. P�rez
NO VOTE RECORDED: Fletcher, Hall, Mitchell, Smyth, Vacancy
AGB:mw 3/18/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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