BILL ANALYSIS
AB 29 X1
Page 1
Date of Hearing: February 28, 2001
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Ellen M. Corbett, Chair
AB 29 X1 (Kehoe) - As Amended: February 20, 2001
2/3 vote. Urgency. Fiscal committee.
SUBJECT : Personal Income and Bank and Corporation Taxes:
Energy Conservation Tax Credit
SUMMARY : Authorizes a 30% credit for the costs paid or incurred
to replace a commercial refrigeration unit with a more
energy-efficient model and authorizes several programs intended
to encourage small businesses to reduce their energy
consumption. Specifically, the tax provisions of this bill :
1)Authorize a 30% credit for the costs paid or incurred by a
small business to replace a commercial refrigeration unit with
a more energy-efficient model.
2)Cap the value of the credit at $2,000.
3)Allow unused credits to be carried forward for up to five
years.
4)Define the small businesses eligible for the credit by
reference to Section 14837 of the Government Code. Under that
definition, the business must either be a manufacturer with
100 or fewer employees or must satisfy all of the following
criteria: independently owned and operated; not dominant in
its field of operation; have its principal office in
California; have its officers domiciled in California; have,
together with its affiliates, 100 or fewer employees; and have
averaged annual gross receipts of $10 million or less over the
previous three years.
5)Become operative for taxable years beginning on or after
January 1, 2002.
6)Require the Franchise Tax Board (FTB) to report to the
Legislature annually beginning on or before January 1, 2003
regarding utilization of the tax credits authorized by the
bill.
AB 29 X1
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7)Provide a gross income exclusion for the value of any grants
awarded pursuant to the bill's provisions.
EXISTING LAW does not offer any credits or other tax incentives
for the purchase or lease of energy-efficient refrigeration
units.
FISCAL EFFECT : Pending. FTB estimated that an earlier version
of the bill which authorized the credit under the Personal
Income Tax Law but not the Bank and Corporation Tax Law would
result in revenue losses in the range of $5 to $10 million
annually beginning in 2002-03. They commented that expanding
the credit by offering it under the Bank and Corporation Tax Law
would result in significant additional revenue losses.
COMMENTS :
1)This bill has been double-referred to the Revenue and Taxation
Committee and Energy Costs and Availability Committee. This
analysis will focus only on those parts of the bill which fall
under the jurisdiction of the Revenue and Taxation Committee.
2)Committee staff understand that the author plans to amend the
tax credit provisions out of the bill and substitute a
low-interest loan program to help small businesses purchase
energy efficient commercial refrigeration units. If amended
in this fashion, the bill would no longer fall under the
jurisdiction of the Revenue and Taxation Committee.
3)If the author chooses to retain the tax credit provisions of
the bill, amendments have been drafted by the Franchise Tax
Board to address the following policy and implementation
concerns.
a) As currently written, the bill fails to clarify whether
the $2,000 cap applies to the credit or to the cost against
which the credit may be claimed.
b) The bill lacks definitions for some of its terms,
including "cost of replacement" and "more
energy-efficient." Definitions for these terms are
necessary for FTB to administer the bill.
c) The bill lacks a mechanism for allowing FTB to verify
the purchase and installation of a more energy-efficient
AB 29 X1
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model.
d) The credit is not restricted to commercial refrigeration
units that are placed in service in California.
e) The bill may pose constitutional concerns by requiring
businesses to be domiciled in California in order to claim
the credit.
f) The bill lacks a sunset date.
g) The tax provisions of this bill will become operative on
January 1, 2002, thereby failing to serve as an incentive
for businesses to purchase more energy-efficient commercial
refrigeration models during 2001.
h) The bill requires FTB to report to the Legislature on or
before January 1, 2003 and each year thereafter regarding
utilization of the tax credit authorized by the bill. If
the tax credit provisions of the bill are not operative
until the 2002 tax year, FTB will not have the data
necessary to report to the Legislature regarding credit
utilization until 2004.
i) There is no mechanism for the state to recover the tax
credit if a taxpayer sells the commercial refrigeration
unit or fails to use it within a specified time period.
j) The language in the bill relating to a gross income
exclusion for the value of any grants awarded pursuant to
the bill's provisions does not achieve the author's intent.
Language providing for the gross income exclusion must be
added to the Revenue and Taxation Code in order to
accomplish what the author desires.
4)As currently written, the tax credit provisions of the bill
would result in General Fund revenue losses unassociated with
the bill's appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
Planning and Conservation League
Michael Shames, of UCAN
AB 29 X1
Page 4
Support if Amended
Building Owners and Managers Association of CA (BOMA)
Opposition
None on file.
Analysis Prepared by : Eileen A. Roush / REV. & TAX. / (916)
319-2098