BILL ANALYSIS �
AB 205
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Date of Hearing: May 16, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 205 (Hagman) - As Amended: April 13, 2011
VOTE ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal income taxes: credit: vehicle registration
payment fees
SUMMARY : Enacts the Vehicle Incentive Act. Specifically, this
bill :
1)Allows a personal income tax (PIT) credit, for taxable years
beginning on or after January 1, 2011, equal to the "qualified
costs" paid by a taxpayer for a "qualified vehicle."
2)Defines "qualified costs" as the fees, paid by a taxpayer
during the taxable year, assessed on a vehicle by the
Department of Motor Vehicles (DMV) as part of the vehicle
registration process, including the following:
a) Any fee set forth in Vehicle Code (VC) Section 9250 et
seq., including the registration fee, the California
Highway Patrol fee, and local county transportation fees;
b) The vehicle license fee (VLF), as set forth in Revenue
and Taxation Code Sections 10751 and 10752.2;
c) The motorcycle safety fee, as set forth in VC Section
2935;
d) The unladen weight fee, as set forth in VC Section 9400,
and the weight fee, weight sticker fee, and cargo theft
interdiction fee set forth in VC Section 9400.1;
e) The smog abatement fee, as set forth in Health and
Safety Code (H&SC) Sections 44060 and 44060.5;
f) The personalized license plate fees, special interest
license plate fees, and all other fees set forth in VC
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Sections 5000 to 5160;
g) The county fees imposed by Government Code Section
65089.20; and,
h) The air pollution control district fees imposed by H&SC
Sections 40612 and 40701.5.
3)Defines a "qualified vehicle" as a vehicle for which a
taxpayer has paid qualified costs prior to the purchase of
another vehicle, for which the taxpayer has also paid
qualified costs during the same calendar year, and the vehicle
is either sold or traded in to purchase the other vehicle.
4)Provides that, in cases where the credit exceeds the
taxpayer's tax liability, the excess credit amount may be
carried over for up to three years, until the credit is
exhausted.
5)Specifies that the credit shall be in lieu of any deduction to
which the taxpayer may otherwise be entitled.
6)Takes immediate effect as a tax levy.
EXISTING LAW allows:
1)Various tax credits designed to provide tax relief for
taxpayers who incur certain expenses or to influence behavior,
including business practices.
2)Individuals to deduct certain expenses, such as medical
expenses, charitable contributions, mortgage interest, and
taxes, such as the VLF, as itemized deductions. The VLF is
considered a personal property tax based on the market value
of the motor vehicle.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates that
this bill would result in General Fund revenue losses of $100
million in fiscal year (FY) 2011-12, $65 million in FY 2012-13
and $65 in FY 2013-14.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
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Under current law, individuals are required to pay
registration fees for a vehicle each year. If a person
sells or trades in the registered vehicle to purchase a new
vehicle the same year, they are required to pay
registration fees again. Existing law is necessary to
ensure vehicles are properly registered to their owners
each year. However, current law does not account for when
owners trade or sell their already registered vehicle for a
new one and end up paying registration twice in one year
for one vehicle. Assembly Bill 205 would allow the
individual to receive a tax credit in the amount of the
original vehicle registration fee on their state income
taxes for that year.
2)Proponents state, "Under current law, individuals are required
to pay registration fees for a vehicle each year.
Unfortunately, if a person sells or trades in the registered
vehicle to purchase a new vehicle the same year, they are
required to pay registration fees again, in addition to other
vehicle related fees."
3)Opponents state, "This tax credit, equal to the taxpayer's
registration fee, is an insignificant 1% of the vehicle's
value, and therefore will not incentivize a taxpayer to
purchase a new vehicle. It also would not benefit many
taxpayers who are below the filing threshold for personal
income taxes or could not use the full value of the credit."
4)The FTB has raised the following implementation concern in its
staff analysis of this bill:
The bill states that the registration fees for the current
and replacement vehicles must be paid in the same "taxable"
year, yet the bill requires the sale or trade in of the old
vehicle to be in the same "calendar" year. It is unclear
whether the registration fees and trade in or sale of the
qualified vehicle must occur during the same year in order
to qualify for the credit. To eliminate confusion, the
author may wish to amend the bill to use either calendar or
taxable year.
5)Committee Staff Comments:
a) What is a "tax expenditure"? : Existing law provides
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various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960's, United
States Treasury officials began arguing that these features
of the tax law should be referred to as "expenditures,"
since they are generally enacted to accomplish some
governmental purpose and there is a determinable cost
associated with each (in the form of foregone revenues).
This bill would enact a tax expenditure, in the form of a
PIT credit, to compensate vehicle owners who are required
to pay registration fees twice in a given calendar year
because they elect to sell or trade in their old car for a
new one.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should also be noted that, once enacted, it generally
takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. This effectively results
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote. It should be noted that AB 205 does not contain a
sunset date. A sunset date would allow the Legislature to
review the efficacy of this tax expenditure program in the
future.
c) What is this tax expenditure program seeking to
accomplish? : As noted above, California law provides a
host of tax credits, which are typically designed to
encourage taxpayers to engage in socially beneficial
behavior they might not engage in, absent an economic
incentive. The author has indicated that this bill is
designed, at least in part, to encourage taxpayers to buy
new vehicles. This raises a number of issues. Namely, if
one accepts the argument that this bill would serve as an
incentive, one must necessarily accept that there are
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taxpayers who are reluctant to purchase a new vehicle
because they have already paid registration fees on their
existing vehicle. Given that vehicle registration fees
represent such a small expenditure in relation to a new car
purchase, this seems doubtful. In addition, this bill
would apply for taxable years beginning on or after January
1, 2011, and thus, on enactment, would cover transactions
that took place before this bill became effective and could
provide any incentive whatsoever. The fact that this bill
would provide a credit of 100% of qualified costs, which is
in itself unprecedented, suggests that this bill is
designed more to address some perceived inequity in current
registration law. This, of course, raises the question of
whether it would be more appropriate to address this
perceived inequity by directly lowering vehicle
registration fees in circumstances where an individual
trades in an old car for a new one. While such an approach
may present administrative complications for the DMV, it
would have the benefit of assisting all individuals in this
situation, and not just those with a PIT liability to
offset through a credit.
REGISTERED SUPPORT / OPPOSITION :
Support
California Recreation Vehicle Dealers Association
Opposition
California Tax Reform Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098