BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 2329
                                                                  Page  1

          Date of Hearing:   May 21, 2014

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                  Mike Gatto, Chair

                    AB 2329 (Melendez) - As Amended:  May 15, 2014

          Policy Committee:                              Revenue &  
          Taxation     Vote:                            7-1

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              No

           SUMMARY  

          This bill excludes from gross income, for taxable years  
          beginning on or after January 1, 2015 and before January 1,  
          2020, Concurrent Retirement and Disability Pay (CRDP) payments  
          received by active, reserve, or retired members of the United  
          States military who served in active duty.  

           FISCAL EFFECT  

          1)Insignificant impact to the Franchise Tax Board's costs. 

          2)Estimated GF revenue decreases of $11 million, $19 million,  
            and $19 million in FY 2014-15, FY 2015-16, and FY 2016-17,  
            respectively.

           COMMENTS  

          1)  Purpose.   According to the author, service members who have  
            sustained injuries during battle receive compensation for  
            their sacrifice in the form of Combat-Related Special  
            Compensation (CRSC).  CRSC payments received by an eligible  
            individual who performed service in a combat zone are exempt  
            from state and federal taxes.

            CRDP is paid to eligible veterans who are retired and entitled  
            to receive disability income.  Currently, CRDP payments are  
            not excluded from federal and state tax liability.  The author  
            argues this bill would allow veterans to take full advantage  
            of their disability benefits by relieving them of CRDP tax  
            liability.









                                                                  AB 2329
                                                                  Page  2

          2)  Veteran Disability Compensation.   According to the FTB, before  
            2002, federal law prohibited the concurrent receipt of  
            military retired pay and disability compensation from the  
            Department of Veterans Affairs for the same period of service.  
             Consequently, the retired pay of a military retiree was  
            reduced by the amount of disability compensation received from  
            the VA.  In 2002, federal law was amended to authorize the  
            payment of additional compensation for a combat-related  
            disability to certain military retirees, known as CRSC.  CRSC  
            payments are considered disability compensation and are  
            excluded from gross income under both federal and state tax  
            laws.  In 2003, Congress authorized additional payments to  
            those military retirees whose retired pay was reduced by the  
            amount of disability compensation administered by the VA.  The  
            new retired pay, known as CRDP, is currently subject to both  
            federal and state income taxes.

           Analysis Prepared by  :    Joel Tashjian / APPR. / (916) 319-2081