BILL ANALYSIS �
SB 355
Page 1
SENATE THIRD READING
SB 355 (Beall)
As Amended August 18, 2014
Majority vote. Tax levy
SENATE VOTE :32-0
REVENUE & TAXATION 7-0 APPROPRIATIONS 17-0
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|Ayes:|Bocanegra, Beth Gaines, |Ayes:|Gatto, Bigelow, |
| |Gordon, Bloom, Pan, V. | |Bocanegra, Bradford, Ian |
| |Manuel P�rez, Ting | |Calderon, Campos, |
| | | |Donnelly, Eggman, Gomez, |
| | | |Holden, Jones, Linder, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Wagner, |
| | | |Weber |
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SUMMARY : Extends the Natural Heritage Preservation (NHP) tax
credit program until June 30, 2020, and extends the period of
time during which a taxpayer may carry forward any unused NHP
tax credit from eight to 15 years. Specifically, this bill :
1)Extends the NHP tax credit program until June 30, 2020.
2)Extends the period of time from eight to 15 years during which
a donor of a land contribution, made on or after January 1,
2015, may claim any unused NHP tax credit, under both the
Corporation Tax Law and the Personal Income Tax Law.
3)Takes effect immediately as a tax levy.
EXISTING LAW :
1)Requires the Wildlife Conservation Board (WCB) to authorize
and allocate specified funds for the purchase of property
suitable for recreation and the preservation, protection and
restoration of wildlife habitat.
2)Requires the WCB to implement the NHP tax credit program
(Program). Under the Program, upon the WCB's approval, a
"donor" may contribute qualified property to a "donee" and
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receive a nonrefundable tax credit equal to 55% of the fair
market value of any qualified contribution of property made
between January 1, 2010, and June 30, 2015. Any unused credit
may be carried over for eight years. Moreover, this credit is
in lieu of any other state credit or deduction that the
taxpayer may otherwise claim with respect to the contributed
property.
3)Defines a "donor" as a property owner that donates, or submits
an application to donate, property under the Program. The
term "property" is defined to include "any real property, and
any perpetual interest therein, including land, conservation
easements, and land containing water rights, as well as water
rights."
4)Defines a "donee" as any of the following:
a) A department to which a donor has applied to donate
property (a department, in turn, means the State Resources
Agency or any entity created by statute within the
Resources Agency and authorized to hold title to land);
b) A local government that has filed a joint application
with a donor requesting approval of a donation of property
to that local government; or,
c) A designated nonprofit organization.
5)Allows a taxpayer that is a member of a combined reporting
group, for taxable years beginning on or after June 30, 2008,
to transfer certain unused tax credits to a related
corporation, as defined. The election to transfer any credit
is irrevocable once made and is required to be made on the
taxpayer's return for the taxable year in which the assignment
is made.
6)Authorizes the WCB to use bond funds issued under the
California Clean Water, Clean Air, Safe Neighborhood Parks,
and Coastal Protection Act of 2002 (Proposition 40); the Water
Security, Clean Drinking Water, Coastal and Beach Protection
Act of 2002 (Proposition 50); or the Safe Drinking Water,
Water Quality and Supply, Flood Control, River and Coastal
Protection Bond Act of 2006 (Proposition 84), among other
sources, to reimburse the General Fund (GF) for the amount of
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a NHP tax credit, as specified.
7)Authorizes the NHP Tax Credit Reimbursement Account
established within the GF to receive bond funds used to
reimburse the GF for NHP tax credit allocations. Requires the
WCB to encumber bond funds in the amount needed to pay for the
entire NHP tax credit and to transfer bond funds to the NHP
Tax Credit Reimbursement Account in the amounts and the tax
years in which a donor claims the NHP tax credit.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Minor and absorbable administration costs to the Wildlife
Conservation Board (WCB) and Franchise Tax Board (FTB).
2)Estimated GF revenue decreases of $450,000, $1.3 million, and
$2.8 million in Fiscal Year (FY) 2014-15, FY 2015-16, and FY
2016-17, respectively, reimbursed from the NHP Tax Credit
Reimbursement Account. The reimbursement results in increased
utilization of bond funds or private donations to offset any
current General Fund revenue decrease, however the use of bond
funds will result in marginal increased debt service costs and
reduced interest revenue.
COMMENTS : The author provided the following statement in
support of this bill:
The Natural Heritage Preservation Tax Credit Program
(NHPTC) is a voluntary program for willing property
owners wishing to donate their high value conservation
properties. The NHPTC's objectives include fostering
public/private partnerships to resolve land and water
use disputes; encouraging quality habitat stewardship;
and demonstrating the state's commitment to protect
natural resources by rewarding landowners who perceive
habitat as an asset rather than a liability
Since 2000, the NHPTC has protected 8,006 acres of
high value resources property that has been obtained
at 55% of the land's fair market value - resulting in
a savings to the State of just under $40 million.
The proponents of this bill state that "not a single eligible
entity had taken advantage of the NHPTC since 2006." They
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believe that the primary reason for this lack of interest is the
fact that landowners do not have sufficient state tax liability
to take advantage of the NHP tax credit. The proponents propose
to modify the existing NHP tax credit Program to allow
landowners who are unable to utilize the credit to transfer it
to interested corporate entities that can use it to offset their
state tax liability. The proponents argue that by allowing
taxpayers to transfer the NHP tax credit to unrelated parties,
the "state would once again have a valuable tool for high
priority resources land protection" and would advance
important conservation goals "by providing a financial incentive
to private landowners and potential partners at no cost to the
state government."
Assembly Revenue and Taxation Committee comments:
Legislative History of the Natural Heritage Preservation Tax
Credit: The Legislature enacted the Program to compensate
landowners who donate land to the state for preservation
purposes [SB 1647 (O'Connell), Chapter 113, Statutes of 2000].
The Program had a number of stated objectives, including
accommodating economic development and resolving land use and
water disputes in a manner beneficial to both the people of
California and to California's environment. Initially, the
aggregate amount of all credits was limited to $100 million. In
response to fiscal pressures on the GF, the Legislature
suspended the awarding of tax credits in FY 2002-03 [AB 3009
(Budget Committee), Chapter 1033, Statutes of 2002]. Following
this suspension, the Legislature extended the tax credit through
FY 2007-08, but provided that credits could be awarded between
July 1, 2002, and June 30, 2005, only if the amount of all lost
revenue resulting from the credits was reimbursed by transfer to
the GF of moneys not from the GF [SB 1100 (Budget and Fiscal
Review Committee), Chapter 226, Statutes of 2004]. The
Legislature then allowed bond funds (approved by voters in
separate propositions) to reimburse the GF for the tax credit's
costs [AB 2722 (Laird), Chapter 715, Statutes of 2004). The WCB
awarded $48.6 million in credits through 2006-07, but taxpayers
only claimed $23.4 million, for an average of $4 million per
year. In 2010, the Legislature again reauthorized the credit
until 2015 and eliminated the $100 million cap [AB 94 (Evans),
Chapter 220, Statutes of 2009].
A different kind of credit: The Program provides state and
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local governments, as well as nonprofit organizations, with the
ability to protect and preserve California's open space by
compensating donors for 55% of the donated property's fair
market value. To qualify for the credit, landowners must apply
to the WCB for approval to donate a parcel of property and for
certification that the property meets certain requirements. If
the WCB approves the contribution, the landowner may claim a tax
credit equal to 55% of the property's fair-market value, and may
carry the credit forward to the succeeding seven years.
Taxpayers may alternatively choose to take a charitable
contribution deduction instead of the NHP tax credit. However,
the alternative minimum tax limits the value of deductions.
Furthermore, the "value" of a deduction varies with the marginal
tax rate (or tax bracket) of the taxpayer, whereas the value of
a tax credit, on other hand, is the same regardless of the
taxpayer's tax rate. Tax credits directly reduce a person's tax
liability and, hence, have the same value for all taxpayers with
tax liability at least equal to the credit. Thus, a tax credit
is generally more appealing to taxpayers; especially to
corporate taxpayers whose charitable contribution deductions are
generally limited to 10% of the net income.
The NHP tax credit operates differently from other tax credits.
Specifically, this credit is funded by bond funds, private
donations, and other specified moneys instead of foregone tax
revenues that would normally flow to the GF. Unlike other tax
credits, the WCB must approve the credit and reimburse the
Natural Heritage Preservation Tax Credit Account in the GF
within 60 days of FTB's notification that a taxpayer claimed a
NHP tax credit. Because these credits have no impact on the GF,
in 2009 the Legislature removed the $100 million cap contained
in the original act that established the NHP tax program.
Tax credits can either be nonrefundable or refundable.
Nonrefundable credits, like the NHP tax credit, work only to
reduce a taxpayer's tax liability. Usually, any remaining
credit amount left after reducing the taxpayer's liability to
zero can be carried forward to offset the taxpayer's tax
liability in future years. With a refundable credit, however,
the state must refund the remaining value of the credit after
tax due is reduced to zero.
Credit carryforward: This bill allows donors to carry forward
any unused tax credits issued under the program for an
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additional seven years, potentially leading to greater
utilization of the incentive and encouraging land owners to
donate additional properties. No property owners have
contributed land under the program since 2006. WCB indicates it
is currently in contact with three land owners who are
considering a contribution under the program, and the revenue
estimates above reflect the potential donation of those
projects. It remains unclear, however, whether the additional
tax credit carry forward period will make those potential
contributions more attractive.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0005162