BILL ANALYSIS �
AB 1422
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Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 1422 (Jobs, Economic Development & the Economy) - As
Amended: April 15, 2013
Majority vote. Fiscal committee.
SUBJECT : California Alternative Energy and Advanced
Transportation Financing Authority (CAEATFA or the 'Authority'):
participating party.
SUMMARY : Revises the definition of "participating party" for
purposes of the sales and use tax (SUT) exemption to include
out-of-state and overseas entities. Specifically, this bill :
1)Specifies that an entity located outside the state, including
an entity located overseas, that commits to and demonstrates
that it will be opening a manufacturing facility in the state
may qualify for:
a) The SUT exemption as a "participating party"; and,
b) Financial assistance pursuant to Revenue and Taxation
Code (R&TC) Section 26011.8.
2)Declares the legislative intent to clarify existing law and to
ensure that an out-of-state entity or overseas entity is
eligible to apply for financial assistance.
3)Repeals the requirement for the Governor's Office of Business
and Economic Development to report to the Legislature by
January 1, 2017, regarding the most efficient and
cost-effective methods for the state to create jobs in
advanced manufacturing.
4)Makes technical clarifying changes related to the definition
of "advanced manufacturing."
EXISTING LAW :
1)Creates CAEATFA for the purpose of promoting the development
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and utilization of alternative energy sources and the
development and commercialization of advanced transportation
technologies.
2)Imposes a sales tax on a retailer's gross receipts from the
retail sale of tangible personal property (TPP) in this state,
unless the sale is specifically exempt from taxation by
statute. It is presumed that gross receipts from a particular
sale of TPP are subject to tax, unless the seller can
establish either that the sale was not a retail transaction or
that the sale is subject to an exemption.
3)Allows CAEATFA to grant a SUT exclusion to eligible projects,
as defined, on property purchased by a "participating party"
for the "design, manufacture, production, or assembly" of
advanced transportation technologies or alternative energy
source products, components or system, as defined. Provides
that "advanced manufacturing" projects, as defined, are also
eligible for the SUT exemption until July 1, 2016.
4)States that the total amount of SUT exemptions granted for
"projects", as defined, approved by CAEATFA in each calendar
year may not exceed $100 million.
5)Requires the Legislative Analyst's Office (LAO) to report to
the Joint Legislative Budget Committee on the effectiveness of
this program, on or before January 1, 2019.
6)Requires CAEATFA to do all of the following:
a) Publish notice of the availability of project
applications and deadlines for submission of project
applications to the Authority.
b) Evaluate project applications based upon a "net
benefits" test, as provided.
c) Study the efficacy and cost benefit of the SUT exemption
as it relates to advanced manufacturing projects. The
study shall include the number of jobs created, the costs
of each job, and the annual salary of each job. The study
shall also consider a dynamic analysis of the economic
output to the state that would occur without the SUT
exemption.
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d) Submit to the Legislature, prior to January 1, 2017, a
report outlining the results of the study.
e) Work with the University of California or the California
State University, before January 1, 2014, and within six
months of any significant change to the net benefits test,
to perform a peer review of the net benefits test currently
used to evaluate applicants applying for the program.
f) Submit to the Legislature an interim report on the
efficacy of the program before January 1, 2015. The
Authority may work with the LAO in preparing the report and
its recommendations.
7)Requires the Governor's Office of Business and Economic
Development to review and identify efficient and
cost-effective methods for the state to create jobs in
advanced manufacturing, as specified, and to report its
findings to the Legislature on or before January 1, 2017.
8)Sunsets the CAEATFA's expanded authority to approve
alternative energy sources or technologies projects on January
1, 2021.
FISCAL EFFECT : Unknown.
COMMENTS :
1)The Author's Statement . According to the staff of the
Assembly Committee on Jobs, Economic Development, and the
Economy, AB 1422 is intended to provide necessary
clarification for efficient administration of the CAEATFA, the
purpose of which is to attract new manufacturing facilities to
be built in California. AB 1422 will maximize the
effectiveness of the CAEATFA and attract much-needed jobs to
our state. It will also cut administrative costs by repealing
a reporting requirement that has been identified as being
unnecessary burdensome.
2)CAEATFA: Background . According to the Senate Energy,
Utilities, and Communications Committee, the California
Alternative Energy Source Financing Authority was established
in 1980 with an authorization of $200 million in revenue bonds
to finance projects utilizing alternative or renewable energy
sources, such as wind, solar, co-generation and geothermal.
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In 1994, the authority was renamed as CAEATFA and its charge
was expanded to include the financing of "advanced
transportation" technologies. During the energy crisis of
2001, CAEATFA's authority was expanded again to provide
financial assistance to public power entities, independent
generators, and others for new and renewable energy sources,
and to develop clean distributed generation. Last year, the
Legislature also temporarily authorized CAEATFA, until July 1,
2016, to grant financial assistance to eligible projects that
promote the utilization of "advanced manufacturing," as
defined [SB 1128 (Padilla), Chapter 677, Statutes of 2012].
The CAEATFA board consists of five members: the Treasurer,
Controller, Director of Finance, Chairperson of the Energy
Commission, and President of the Public Utilities Commission.
CAEATFA may provide financial assistance to approved projects
via the issuance of bond insurance loan guarantees. Over the
last few years, CAEATFA has provided financial assistance
through various programs, including qualified energy
conservation bonds for projects that promote the use of
alternative energy and energy efficiency in state, local and
tribal government facilities as well as clean renewable energy
bonds for renewable energy projects. In addition, with the
passage of SB 71 (Padilla), Chapter 10, Statutes of 2010,
CAEATFA is authorized, until January 1, 2021, to grant a SUT
exemption for the purchase of equipment that is used for the
design, manufacture, production, or assembly of "advanced
transportation technologies" or "alternative source" products,
components, or systems (SB 71 Program).
3)The SB 71 Program . According to the CAEATFA's 2012 annual
report to the Legislature, as of December 31, 2012, 50
projects had been approved under the SB 71 Program since its
inception. The approved projects include, among others,
electric vehicles and solar photovoltaic manufacturing,
biomass processing and fuel production, and biogas capture and
production. Out of those 50 projects, 10 are inactive and are
not moving forward. The 40 active projects have been approved
for $1.16 billion in anticipated qualified property purchases,
estimated to result in approximately $98.5 million in SUT
exemptions. These projects are located across 14 counties.
The CAEATFA staff estimated that the projects would produce
$72.5 million in environmental benefits and $125.7 million in
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fiscal benefits, resulting in approximately $99.7 million of
"net benefits." In 2012, 24 projects purchased equipment that
resulted in approximately $10.5 million of SUT exclusions.
4)The Expansion of the SUT Exclusion. Last year, SB 1128
temporarily, until July 1, 2016, expanded CAEATFA's authority
under the SB 71 Program to grant a SUT exemption for eligible
projects that promote the utilization of "advanced
manufacturing," as defined. It revised the definition of
eligible project for purposes of the SB 71 Program to include
"advanced manufacturing" and clarified that only those
projects that are authorized under the SB 71 Program qualify
for the SUT exemption.
SB 1128 also revised R&TC Section 6010.8, which authorizes the
SUT exemption, to allow a "participating party" to purchase or
lease qualified TPP directly from the seller, removing the
need for CAEATFA to act as an intermediary. Prior to 2013, in
order to qualify for the exemption, the participating party
had to purchase the property without payment of tax and then
resell the equipment to CAEATFA. The transfer was excluded
from the SUT as a transfer from a participating party to
CAEATFA. The participating party and CAEATFA would then enter
into a lease agreement and upon complete installation of the
TPP, ownership of that property would be transferred from the
CAEATFA to the participating party. Alternatively, CAEATFA
was able to purchase the specified equipment on behalf of the
participating party, financing the purchase through a bond or
loan, and the participating party would lease the equipment
from CAEATFA. As the purchaser of the equipment, the CAEATFA
paid no sales tax on the purchase, nor was it required to
collect the use tax on the lease receipts. SB 1128 simplified
these complicated sale-lease transactions that are not
feasible for business reasons, by providing that a lease or
transfer of TPP constituting a "project" under the SB 71
Program to a participating party is neither a "sale" nor "use"
and, thus, is exempt from the SUT.
The term "participating party" means, among others, a person,
federal or state agency, city or county, state college or
university, school district or other political entity engaged
in the business or operations in the state, whether for profit
or non-profit, that applies for financial assistance from the
Authority for the purpose of implementing a project. Existing
law does not expressly state whether a participating party
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needs to be a California-based company. Arguably,
out-of-state companies have as much potential as
in-state-companies to create manufacturing jobs in the state
to fulfill the purpose of the SUT exemption, which is to
promote creation of manufacturing jobs in California and
incentivize manufacturing of green technologies. However, the
Authority has interpreted the definition of "participating
party" to exclude out-of-state entities that wish to engage in
eligible projects. AB 1422 seeks to overturn this
interpretation to allow an otherwise qualified out-of-state
entity to apply for financial assistance and the SUT
exclusion. The entity, however, must commit and demonstrate
that it will be opening a manufacturing facility in
California.
Existing law imposes an annual cap of $100 million on the amount
of SUT exclusions that may be granted to eligible projects,
and therefore, the proposed change to the definition of
"participating party" will not result in an additional General
Fund revenue loss.
5)Too Many Reports? Every year, in accordance with the
provisions of Public Resources Code (PRC) Sections 26017 and
16141, the CAEATFA is required to submit its annual report on
program activities. The annual report contains information on
the Authority's revenues and expenditures for fiscal years and
projects the Authority's need for the coming fiscal year. It
also includes an overview of program activity on the Advanced,
Transportation and Alternative Source Manufacturing SUT
Exclusion Program, and status of the SUT exclusion for Tesla
Motors.
Furthermore, CAEATFA is also required to study the efficacy and
cost benefit of the SUT exemption as it relates to advanced
manufacturing projects. The study must include the number of
jobs created, the costs of each job, and the annual salary of
each job and must consider a dynamic analysis of the economic
output to the state that would occur without the exclusion.
The Authority must submit to the Legislature, prior to January
1, 2017, a report outlining the results of the study. The
Authority must also work with the University of California or
the California State University before January 1, 2014, and
within six months of any significant change to the net
benefits test, to perform a peer review of the net benefit
test currently used to evaluate applicants applying for the
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program. In addition, the Authority is required to submit to
the Legislature an interim report, before January 1, 2015, on
efficacy of granting the SUT exemption for projects and
recommendations on changes that would increase the efficacy in
creating jobs and whether the exemption should be expanded or
narrowed to other manufacturing types. The Authority may work
with the LAO in preparing the report and its recommendations.
The LAO is required to prepare and submit a report to the Joint
Legislative Budget Committee on the effectiveness of the SUT
Exclusion Program on or before January 1, 2019, pursuant to
the PRC Section 26011.8(g).
Finally, the Governor's Office of Business and Economic
Development is also under an obligation to review and identify
efficient and cost-effective methods for the state to create
jobs in advanced manufacturing, as specified, and to report
its findings to the Legislature on or before January 1, 2017.
This bill proposes to eliminate the latter reporting
requirement relating to the Governor's Office of Business and
Economic Development. According to the author's office, the
Governor signed SB 1128 on the condition that this reporting
requirement be removed.
6)Double-Referral . This bill is double-referred with the
Assembly Committee on Jobs, Economic Development, and the
Economy. AB 1422 passed out of that Committee on a 9-0 vote.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
AB 1422
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