BILL ANALYSIS �
AB 2323
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Date of Hearing: May 13, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2323 (Gorell) - As Amended: March 27, 2014
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal Income Tax Law: gross income exclusion:
Olympic and Paralympic games
SUMMARY : Excludes from gross income the value of any award
given by, or any prize money received from, the United States
Olympic Committee (USOC) on account of the Olympic games or the
Paralympic games. Specifically, this bill :
1)Applies to awards and prize money received on or after January
1, 2014.
2)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW defines "gross income", except as otherwise
provided, as all income from whatever source derived. (Internal
Revenue Code (IRC) Section 61.)
EXISTING STATE LAW :
1)Provides that IRC Section 61, relating to the definition of
gross income, shall apply, except as specified. (Revenue and
Taxation Code (R&TC) Section 17071.)
2)Provides for various exclusions from gross income under the
Personal Income Tax Law.
FISCAL EFFECT : The Franchise Tax Board (FTB) estimates General
Fund revenue losses of $8,000 in fiscal year (FY) 2014-15,
$50,000 in FY 2015-16, and $30,000 in FY 2016-17.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
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This bill would exempt California Olympians and
Paralympians from state taxes assessed on cash prizes
awarded by the U.S. Olympic Committee (USOC) for their
success in the Olympic and Paralympic Games. The exemption
does not include sponsorship deals and other endorsement
income.
Most countries compensate their Olympic and Paralympic
athletes, but athletes representing the United States
compete on a voluntary basis unless they win a medal. Upon
being welcomed home, American athletes who win bronze,
silver, or gold are subject to federal and state taxes.
In addition to the physical medal earned by Olympic and
Paralympic athletes finishing first, second, or third in
their respective events, the USOC, which receives no
regular government funding, provides honoraria to medaling
athletes. Athletes are generally awarded $25,000 for a
gold medal, $15,000 for silver, and $10,000 for bronze.
This amount, in addition to the value of the medal itself,
is fully taxable. In 2012, some bronze medalists were
levied a tax of $3,500, silver medalists a tax of $5,385,
and gold medalists a tax of $8,986.
The U.S. isn't the only country to reward its Olympic and
Paralympic athletes; in fact, the U.S. prize money is quite
small compared to several other countries. For instance,
Russia pays out $135,000 for each gold medal earned by its
athletes, and Italy pays gold medalists $182,400.
In February 2014, a bipartisan delegation of U.S. senators
introduced S. 2026 to exempt Olympic and Paralympic
honoraria and the value of Olympic and Paralympic medals
from federal taxes. White House Press Secretary Jay Carney
said in 2012 that President Barack Obama would sign such a
bill if it were to reach his desk, adding that he supports
efforts to "ensure we're doing everything we can to honor
and support our Olympic athletes who have volunteered to
represent our nation at the Olympic Games."
Most American Olympians and Paralympians are amateur
athletes with modest incomes, earning nothing for Olympic
and Paralympic competition. For instance, only half of the
country's track and field athletes ranked in the top ten in
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the nation make more than $15,000 a year from the sport.
This bill will provide tax relief to California's
medalists, many of whom have made enormous sacrifices in
pursuit of Olympic success.
2)Proponents of this bill note the following:
Most countries compensate their Olympic and Paralympic
athletes, but athletes representing the United States
compete on a voluntary basis and are generally only
compensated if they win a medal. American athletes who win
bronze, silver, or gold are awarded honoraria, which are
then subject to federal and state taxes.
In February 2014, a bipartisan delegation of U.S. senators
introduced S. 2026 to exempt Olympic and Paralympic
honoraria and the value of medals from federal taxes.
President Barack Obama is supportive of the effort.
Most American Olympians and Paralympians are amateur
athletes with modest incomes, earning nothing for Olympic
and Paralympic competition, and those who train full time
often don't have the opportunity to work. For instance,
only half of the country's track and field athletes ranked
in the top ten in the nation make more than $15,000 a year
from the sport.
3)Committee Staff Comments
a) What is a "tax expenditure" ? Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
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).
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 economic
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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 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.
c) What's included ? Under both federal and state law,
gross income generally includes all income from whatever
source derived. Thus, the FTB notes that gross income
includes prize awards, absent a specific exclusion.
California typically conforms to federal exclusions for
ease of administration. For example, in the last omnibus
conformity bill to be taken up by the Legislature,
California excluded from gross income grants for renewable
energy under the American Recovery and Reinvestment Tax Act
of 2009. [SB 401 (Wolk), Chapter 14, Statutes of 2010.]
This is not to suggest, however, that federal and state law
are in perfect accord. California law expressly excludes
from gross income some items that are included within the
federal definition. For example, Government Code Section
8880.68 provides that no state or local taxes shall be
imposed on any prize awarded by the lottery. More
recently, the Legislature acted to exclude disaster relief
payments made to victims of the San Bruno gas pipeline
explosion [AB 50 (Hill), Chapter 18, Statutes of 2011].
d) What would this bill do ? This bill would enact a new,
California-specific exclusion for awards and prize money
received in connection with the Olympic or Paralympic
Games. This bill is designed to provide modest tax relief
to successful athletes, many of whom have made enormous
personal sacrifices in pursuit of Olympic and Paralympic
success.
Unlike the athletes of numerous other nations, the USOC
notes that the nation's athletes receive no government
funding and, instead, rely on the generosity of the
American public and private sponsors for support. The USOC
does provide honoraria to medaling athletes. Specifically,
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the author notes that athletes are generally awarded
$25,000 for a gold medal, $15,000 for a silver medal, and
$10,000 for a bronze medal. Under this bill, such awards
would not be subject to state taxation. Moreover, this
bill would also exclude from state taxation the value of
the actual gold, silver, and bronze medals as well.
e) A proud California tradition : California has a proud
Olympic history, having served as host of the Los Angeles
Olympic Games in 1932 and 1984, and the 1960 Olympic Winter
Games in Squaw Valley. In addition, California is home to
one of three national Olympic Training Centers. Finally,
the USOC notes that approximately 14% of all Olympic and
Paralympic athletes reside in California.
f) Reverse conformity : At the federal level, Senator John
Thune (R - South Dakota) introduced legislation (S.2026) on
February 12, 2014, to exclude from gross income the value
of any medal awarded by, or any prize money received from,
the USOC on account of competition in the Olympic or
Paralympic Games. On the day of its introduction, S.2026
was referred to the Senate Committee on Finance, where it
appears no further action has been taken to date. While
the USOC contends that positive action on AB 2323 would
send a strong message to Washington, D.C., Committee staff
questions whether it may be more appropriate to await
federal action and conform to the precise exclusion
language enacted by Congress.
g) But what about me ? Successful Olympic athletes are by
no means the only individuals who receive a monetary award
on account of their laudable accomplishments. On November
27, 1895, Alfred Nobel signed a will stipulating that the
bulk of his estate should be invested into a fund, the
income from which would be distributed annually in the form
of prizes "to those who during the preceding year have
conferred the greatest benefit on mankind." Today, the
Nobel Prize is accompanied by a monetary award of roughly
$1.2 million. Nobel prizes are often awarded in
recognition of groundbreaking discoveries with far-reaching
implications for humanity as a whole. The state, however,
does not exclude such award payments from gross income.
Thus, the Committee may wish to consider the precedent this
bill might set for award payments, and whether it is
equitable to treat such payments in a dissimilar manner.
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h) Absence of a sunset date : In its current form, this
bill's exclusion lacks an automatic sunset provision. This
Committee has a longstanding policy favoring the inclusion
of sunset dates to allow the Legislature periodically to
review the cost of tax expenditures. The author may wish
to consider the addition of an appropriate sunset
provision, specifically given that this bill places no
limitations on the amount that may be excluded from gross
income in any given taxable year.
i) Technicalities : As currently drafted, this bill
excludes from gross income the value of any "award" given
by, or any prize money received from, the USOC. Committee
staff assumes that the term "award" is intended to cover
the actual medals themselves, but it may be useful to
clarify this point. Moreover, while the USOC is the body
that awards monetary prizes to successful U.S. athletes,
the medals themselves are actually awarded by the
International Olympic Committee, and not the USOC. Thus,
Committee staff recommends appropriate amendments for the
sake of accuracy and clarity.
j) Prior legislation : AB 1786 (Mansoor), of the 2011-12
Regular Session, would have excluded from gross income the
value of any prize or award won by the taxpayer in athletic
competition in the Olympic Games. AB 1786 was held by the
Senate Committee on Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
5 individuals
United States Olympic Committee
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
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