BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2332 HEARING: 6/27/12
AUTHOR: Monning FISCAL: Yes
VERSION: 4/12/12 TAX LEVY: Yes
CONSULTANT: Grinnell
DISASTER LOSSES IN SANTA CRUZ COUNTY
Allows disaster loss treatment caused by severe storms in
Santa Cruz County
Background and Existing Law
Disaster losses result from fires, storms, floods or other
natural events pro-claimed a disaster by the President.
Disaster losses are the amounts not compensated by
insurance or other means. Federal law, which California
conforms to, only allows disaster loss deductions for
personal income taxes that exceed $100 per taxpayer and 10%
of their adjusted gross income for the year. Current state
and federal law allows taxpayers to deduct them in the year
the loss occurs or in the preceding year by filing an
amended return, but only when the President declares a
disaster.
Starting with the forest fires in 1985, and approximately
49 times thereafter for various disasters, the Legislature
enacted measures whenever the Governor declares a disaster
that provides treatment identical to Presidentially
declared disasters. These measures allow affected taxpayer
to file amended returns, carry-forward 100% of excess
disaster losses for fifteen years, and allow taxpayers to
apply losses in the previous taxable year before applying
them to taxes in the current taxable year.
Proposed Law
Assembly Bill 2332 allows taxpayers in the County of Santa
Cruz that suffered disaster losses as a result of the
severe storms that occurred in November, 2011 to file an
amended return by October 15, 2012 for the 2011 taxable
year to deduct the loss and reduce prior year tax
AB 2332 - 4/12/12 -- Page 2
liability. The measure provides that these losses shall
not be suspended, deferred, reduced, or otherwise
diminished unless provided otherwise.
State Revenue Impact
According to the Franchise Tax Board (FTB), AB 2332 results
in revenue losses of $2,000 in 2011-12, and revenue gains
of $1,000 in 2012-13 and 2013-14.
Comments
1. Purpose of the bill . According to the author, "Between
March 15 and 27, 2011, California was struck by a storm
that brought snow, heavy rain, high winds, flooding and
flow of debris and mud, destroying and damaging public
facilities and private property throughout the state.
Statewide there was more than $50 million in damages and
Santa Cruz County sustained $15 million in damage, 30
percent of the statewide total. In April 2011, Governor
Brown issued an Emergency Proclamation regarding this and
requested the federal government to declare the event a
major disaster. A Presidential Declaration of a Major
Disaster by Federal Emergency Management Agency (FEMA)
would pay for 75% of the recovery costs, offsetting the
recovery costs incurred by the effected communities and
local governments that are struggling to address the damage
with extremely limited fiscal resources. Unfortunately,
California's request to FEMA that the March 2011 storm be
declared a major disaster was denied, along with the
state's subsequent appeal of this decision. In addition,
because the Governor did not invoke the California Disaster
Assistance Act (CDAA), state financial assistance was not
made available to counties for disaster recovery and
economy recovery efforts. The residents of Santa Cruz
County have been struggling to make repairs and recover
from the severe March 2011 storm and this measure is
intended to provide a small amount of financial relief."
2. When disaster strikes . One of the universe's most
infallible cause and effect relationships exists between
natural disasters and subsequent legislation affording tax
AB 2332 - 4/12/12 -- Page 3
benefits to disaster-affected taxpayers. One of the
traditional three parts of disaster relief bills is excess
disaster loss treatment, which allows taxpayers to deduct
disaster losses in the year the loss occurs or in the
preceding year by filing an amended return. However, the
Legislature allowed all taxpayers to carry forward net
operating losses (NOLs) for 20 years, effective in the 2009
taxable year, and to carry back losses for two years,
regardless of whether they were affected by disasters (AB
1452, Committee on Budget, 2008). With carry backs,
taxpayers may amend returns in the past two taxable years
to apply losses from the current taxable year, generating a
refund. AB 1452 pro-vided for two-year carrybacks
according to the following restrictions:
For NOLs generated in the 2011 taxable year,
taxpayers may carry back 50% of the loss to the 2009
and 2010 taxable years.
For NOLs generated in the 2012 taxable year,
taxpayers may carry back, 75% of the loss to the 2010
and 2011 taxable years.
For NOLs generated in the 2013 taxable year and
thereafter, taxpayers may carry back 100% of the loss
to the 2011 taxable year and thereafter.
The Legislature delayed the effective date for carry backs
for two years when it suspended all net operating losses
for the 2010 and 2011 taxable years (SB 858, Committee on
Budget, 2010). As such, all taxpayers may begin carrying
back some losses beginning in the 2013 taxable year, and
all of them in 2015, so that the general law provides
better treatment for taxpayers than specific disaster loss
statutes.
However, because taxpayers must apply net operating losses
to offset income in the current taxable year, specific
legislation is needed now to allow disaster-affected
taxpayers to use losses to reduce previous year's taxes
first, thereby generating a quick refund of taxes
previously paid. Additionally, special legislation is
needed to allow disaster affected taxpayers a six month
extension to do so.
Assembly Actions
Assembly Revenue and Taxation Committee: 8-0
AB 2332 - 4/12/12 -- Page 4
Assembly Appropriations Committee:17-0
Assembly Floor: 70-0
Support and Opposition (6/20/12)
Support : County of Santa Cruz
Opposition : Unknown