BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1544 HEARING: 5/9/12
AUTHOR: Hernandez FISCAL: Yes
VERSION: 5/2/12 TAX LEVY: Yes
CONSULTANT: Grinnell
DISASTER RELIEF
Affords disaster loss treatment to taxpayers affected by
severe winds in 2011.
Background and Existing Law
Disaster losses result from fires, storms, floods or other
natural events proclaimed 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 that provide treatment identical to
Presidentially declared disasters by allowing 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
Senate Bill 1554 allows taxpayers in the Counties of Los
Angeles and San Bernardino that suffered disaster losses as
a result of the severe winds 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 liability. The measure provides that these losses
SB 1544 -- 5/3/12 -- Page 2
shall not be suspended, deferred, reduced, or otherwise
diminished unless provided otherwise.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author,
"Beginning on November 30, 2011, a powerful wind storm blew
through Los Angeles County and much of the San Gabriel
Valley, toppling trees, downing power lines, slowing
traffic, damaging homes and vehicles, and knocking out
electricity for over 350,000 customers. On December 9,
2011, due to the severity of the winds, the Governor
declared these events a State of Emergency, qualifying Los
Angeles County windstorm victims for future and immediate
tax relief. This bill would simply give affected residents
and businesses the same tax treatment that has been
afforded to other Californians afflicted by other declared
State of Emergencies."
2. When disaster strikes . One of the universe's most
infallible cause and effect relationships exists between
natural disasters and subsequent legislation affording tax
benefits to disaster-affected taxpayers (see Comment #3).
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 provided 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
SB 1544 -- 5/3/12 -- Page 3
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). Taxpayers may begin carrying back losses
beginning in the 2013 taxable year. As such, general laws
for all taxpayers starting in 2013 and fully implemented in
2015 provide better treatment for taxpayers than specific
statutes allowing specific excess disaster loss treatment
for disaster-affected taxpayers by allowing a carry forward
for 20 years, not 15.
However, because taxpayers must apply net operating losses
to offset income in the current taxable year, specific
legislation is needed 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.
3. Relieving the disaster of disaster relief . The
Legislature has amended the Revenue and Taxation Code an
untold number of times for separate disasters to ensure
that Assessors may not deny homeowners' exemptions for
disaster-related reasons, to allow for excess disaster
losses for both the Personal Income Tax Law and the
Corporation Tax Law, and provide for the first year
backfill of local property tax losses and procedures
therein resulting from disaster reassessments. The
Legislature always litters the code with these provisions
when disaster strikes, so why not enact a statute which
triggers these tax benefits whenever the Governor declares
a disaster?
Until 2010, efforts to mandate consistency have stalled.
In 2005-06, AB 3039 (Houston) and SB 1607 (Machado)
attempted to change this statute to provide statewide
protection, thereby ensuring that future disaster-specific
measures were not necessary. The Assembly Revenue and
Taxation Committee held AB 3039, and deleted the relevant
provision from SB 1607, which was subsequently enacted.
Additionally, Governor Arnold Schwarzenegger directed the
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Office of Emergency Services and the Office of Planning and
Research to work with the Legislature to enact standard
purpose legislation when he signed a disaster-specific bill
(AB 18, La Malfa, 2005). The Legislature enacted SB 1494
(Committee on Revenue and Taxation, 2010) which
automatically enacts the preclusion of assessors revoking a
homeowners' exemption for disaster-affected property,
bringing some brevity to these annual rituals.
Support and Opposition (5/3/12)
Support : Unknown.
Opposition : Unknown.