BILL ANALYSIS �
AB 2114
Page 1
Date of Hearing: May 14, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2114 (Pan) - As Amended: April 30, 2014
Policy Committee: Revenue &
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill imposes a tax on every qualified renter of qualified
heavy equipment (QHE) at the rate of 0.75% of the rental price
and provides that, for the 2015-16 Fiscal Year (FY) and for each
FY thereafter, this tax shall be in lieu of any personal
property tax on QHE. In summary, this bill:
1)Defines "qualified heavy equipment" as construction,
earthmoving, or industrial equipment that is mobile, including
industrial electrical generation equipment, lift equipment,
shoring, shielding, and ground trenching equipment, and
certain vehicles not designed to be driven on highways or
subject to Vehicle License Fees.
2)Defines a "qualified renter" as a renter whose principal
business is the short-term rental of QHE and is engaged in a
line of businesses described in Code 532412 of the North
American Industry Classification System.
3)Requires the Board of Equalization (BOE) to administer and
collect the tax, requires every qualified renter to register
with the BOE, provides that the taxes shall be due and payable
quarterly, and amounts collected, less refunds and BOE
administrative costs, shall be deposited in the General Fund
(GF).
4)Directs county auditors to increase the total amount of real
property tax revenue to be allocated by the total amount of ad
valorem property tax revenue received by the county and each
city and special district in the county in FY 2013-14 from
renters of QHE (the "QHE reimbursement amount"), and decrease
AB 2114
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contributions to the county's Educational Revenue Augmentation
Fund (ERAF) by the same amount; provides additional
instruction to county auditors in the event that a county's
ERAF does not have sufficient funds to offset the QHE
reimbursement amount.
FISCAL EFFECT
1)Significant costs, likely greater than $250,000, to the BOE to
establish and administer the QHE rental tax program.
2)BOE estimates increased revenue of approximately $16.7 million
annually from the QHE rental tax. However, The LAO estimated
in a 2013 analysis that foregone property tax revenues will
likely be between $20 million and $25 million. Any negative
difference between GF revenues from the QHE rental tax and
foregone property revenues will result in a net cost to the GF
as the state is required to backfill shifted school funds
under Proposition 98 (see Comment 3).
3)Likely additional state mandated reimbursement of local costs
for adjustments and QHE property tax estimates for county
auditors.
COMMENTS
1) Purpose. According to the author, current personal property
tax owed on rental heavy equipment is based on a tax rate of
1.25% and applied to the heavy equipment's value on January 1
of each year. This bill would replace this method of
calculation with a 0.75% tax on the rental receipts from
short-term rental of heavy equipment. The tax would be
administered and collected by the BOE, and counties will
receive a greater share of the real property tax to backfill
the loss of personal property tax.
According to the sponsor, heavy equipment rental companies are
subjected to local personal property taxation that can result
in unfair and administratively inconsistent application.
Rental companies with multiple locations in the state are
subjected to valuation audits in each jurisdiction in which
they operate. Those rental companies state that different
county assessors use different methods for valuing mobile
construction equipment, resulting in different valuations, and
therefore different taxes owed, on the same pieces of
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equipment. This measure is intended to address that
inconsistency.
2) Fees or Taxes In Lieu of Personal Property Taxation. The
Legislature is constitutionally authorized to provide
different taxes on personal property, or taxes or fees in lieu
of personal property taxes. For example, in 1936, the
Legislature created the Vehicle License Fee and removed
vehicles from local county assessments and personal property
taxation, instead subjecting them to a fee administered by the
Department of Motor Vehicles. This bill provides a similar
tax in lieu for heavy rental equipment.
3) County Make-Whole Provision. This bill would result in a
significant reduction in personal property tax revenue for
several counties. The bill addresses this problem with a
"make-whole" clause that directs county auditors to: (i)
increase the total amount of property tax revenue to be
allocated by a "QHE reimbursement amount"; and (ii) decrease
contributions to the county's ERAF by the same amount. In
doing so, the counties will theoretically be made whole, while
the state will be required to reimburse the ERAF reductions.
State contributions to ERAF will be recovered, at least in
part, from the new rental tax.
Based on current estimates, however, it appears unlikely the
new GF revenues from the rental tax will offset the state's
increased ERAF responsibilities. The BOE estimates the new
tax will generate approximately $16.7 million annually, while
the LAO previously estimated that foregone property tax
revenues were likely between $20 million and $25 million. The
difference between these two amounts represents a net cost to
the state.
In addition, the precise amount of property tax revenues
currently generated from heavy equipment appears to be
unknown. This will likely present a significant challenge to
county auditors calculating the "QHE reimbursement amount."
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081