BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
SB 560 (Anderson) - Disaster relief: sales and use tax:
exemption: income taxes: gross income: exclusion
Amended: January 15, 2014 Policy Vote: G&F 5-0
Urgency: No Mandate: No
Hearing Date: January 21, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 560 would establish an income tax exclusion and
a sales and use tax exemption for taxpayers that currently do
not have nexus in California who perform disaster-related work
in the State, as defined.
Fiscal Impact: The fiscal impacts of this bill are exceptionally
uncertain. Specifically, they would be determined by the number
of future declared disasters in the State, whose number, type
and magnitude are unknown.
The Franchise Tax Board (FTB) estimates that for every
$100 million in payments made to taxpayers affected by the
bill, the revenue loss would be $1.2 million (General
Fund).
The Board of Equalization estimates that, depending on
the duration of the declared disaster period, the annual
revenue loss would be between $968,000 and $4.6 million
(General Fund and special funds).
Additionally, both tax agencies would incur increased
administrative costs to implement the provisions of the
bill. BOE would incur costs to (1) develop regulations and
administrative procedures, (2) program computer systems,
(3) revise manuals and publications, (4) notify taxpayers
of new exemption, (5) train staff, and (6) answer inquiries
from the public. Some of these costs would be incurred
after the effective date. Other costs would not be incurred
until the period of the declared disaster or emergency.
These costs have not yet been determined, but would likely
be between $250,000 and $1 million (General Fund and
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special funds). FTB's costs have also not been determined,
but would likely exceed $50,000 annually (General Fund).
Background: Under current law, taxpayers have income tax nexus
in the State if they are "doing business in the state," which
means that the taxpayer actively engaged in any transaction for
the purpose of financial or pecuniary gain or profit in
California, or is organizationally or commercially housed in the
state. When a taxpayer has nexus, he or she must comply with the
state's tax law, including filing returns in a timely fashion,
even if he or she derived no income from the state.
Current law imposes a sales and use tax (currently 7.5 percent,
plus any locally adopted sales taxes of up to two), on gross
receipts when transferring tangible personal property in the
State. Many items are fully exempted from the sales and use tax
(such as prescription drugs, food consumed at home), but only a
handful are partially exempted from the sales tax at the rate of
5.5 percent; specifically: farm equipment and machinery; diesel
fuel used for farming and food processing; teleproduction and
postproduction equipment; timber harvesting equipment and
machinery; and racehorse breeding stock.
Natural disasters such as flood, fire, drought, and hurricanes
sever power and telecommunication lines, destroy cell towers,
and damage water and sewer pipelines. State and local agencies
may contract with firms to help restore damaged infrastructure.
However, firms that previously did not have a taxable nexus in a
state will likely gain it if they deploy personnel and purchase
items for use in disaster relief.
Proposed Law: SB 560 would enact exclusions against the income
tax, and exemptions from the sales and use tax for purchasing
property, for taxpayers that currently do not have nexus in
California who perform disaster-related work repairing
infrastructure in the State, as defined. The disaster must be a
state of emergency declared by the Governor or the President.
Exclusions and exemptions apply only during the disaster period,
which must begin within ten days of the Governor or President's
proclamation, and last up to 60 days after the Governor or
President declares the disaster terminated. Additionally, the
exclusion and exemption apply only when a state or local agency,
or a registered business, requests the taxpayer to perform the
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work.
The income tax exclusion applies to taxable years beginning on
or after January 1, 2015, while the sales and use tax exemption
applies to purchases made on or after January 1, 2015, and to
any property used to repairing, installing, building, or
rendering services that relate to infrastructure damaged,
impaired, or destroyed by the disaster. The taxpayer will be
exempt from both state and local shares of the sales and use
tax. Additionally, the taxpayer must furnish the retailer with
an exemption certificate, and more than one-half of the property
must be used in disaster or emergency related work, for the
exemption to apply.
Staff Comments: As noted above, disasters and emergencies will
vary from year to year and can be dramatically different with
regard to type, geographic size, infrastructure impact costs and
duration. The following is a summary of the California disasters
or emergencies declared since 2003:
2012 - 3-Fires
2011 - 4-Fires, 1-Tsunami
2010 - 6-Fires, 2-Storms, 1-Earthquake (Imperial County)
2009 - 10-Fires
2008 - 18-Fires
2007 - 19-Fires, 1-Freeze
2006 - 8-Fires, 1-Storm
2005 - 7-Fires, 2-Storms, 1-Katrina Evacuation
2004 - 2-Fires, 1-Strom, 1-Flood (Levee Break)
2003 - 17-Fires, 1-Earthquake (San Luis Obispo County)
SB 560 reflects language from the National Conference of State
Legislatures to exclude the income gained by individuals and
businesses that currently lack nexus, but gain it when they come
into a state to help with a disaster.