BILL ANALYSIS Ó
AB 1269
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
1269 (Dababneh)
As Amended September 4, 2015
2/3 vote
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|ASSEMBLY: | 80-0 | (June 1, |SENATE: | 40-0 | (September 10, |
| | |2015) | | |2015) |
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Original Committee Reference: REV. & TAX.
SUMMARY: Extends the authority of the California Alternative
Energy and Advanced Transportation Financing Authority (CAEATFA)
to grant financial assistance in the form of a sales and use tax
(SUT) exclusion for projects that promote the use of advanced
manufacturing until January 1, 2021.
The Senate amendments add chaptering out amendments for AB 199
(Eggman) of the current legislative session.
FISCAL EFFECT: According to the Senate Appropriations
Committee:
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1)Increased likelihood that up to $100 million from the General
Fund will be lost through sales and use tax exemptions.
2)Unknown costs to the General Fund for CAEATFA's administrative
costs that are not recovered through application and
administrative fees.
AS PASSED BY THE ASSEMBLY, this bill extended the authority of
the California Alternative Energy and Advanced Transportation
Financing Authority (CAEATFA) to grant financial assistance in
the form of a SUT exclusion for projects that promote the use of
advanced manufacturing until January 1, 2021.
COMMENTS:
1)Author's Statement: The author states that "[t]he [sales and
use tax exclusion] program for advanced manufacturing under
CAEATFA is critical for attracting and retaining cutting edge
high tech jobs and companies in California. To date the
program has created an estimated 1,356 jobs and generated a
net benefit to the state of $168,022,862. Extending the
sunset date of this successful program will allow business to
plan investments and help further grow the state's high tech
manufacturing industry."
2)CAEATFA Background: The California Alternative Energy Source
Financing Authority was established in 1980 with an
authorization of $200 million in revenue bonds to finance
projects utilizing alternative or renewable energy sources,
such as wind, solar, cogeneration and geothermal. In 1994,
the authority was renamed "CAEATFA" and its charge was
expanded to include the financing of "advanced transportation"
technologies. During the energy crisis of 2001, CAEATFA's
authority was expanded again to provide financial assistance
to public power entities, independent generators, and others
for new and renewable energy sources, and to develop clean
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distributed generation. The CAEATFA board consists of five
members: the Treasurer, Controller, Director of Finance,
Chairperson of the Energy Commission, and President of the
Public Utilities Commission.
CAEATFA may provide financial assistance to approved projects
via the issuance of bonds, loans, loan guarantees and credit
enhancements. CAEATFA may authorize up to $1 billion in
revenue or prepayment bonds to fund projects. Over the last
few years, CAEATFA has provided financial assistance through
various programs, including qualified energy conservation
bonds for projects that promote the use of alternative energy
and energy efficiency in state, local and tribal government
facilities, as well as clean renewable energy bonds for
renewable energy projects. In addition, with the passage of
SB 71 (Padilla), Chapter 10, Statutes of 2010, CAEATFA is
allowed to grant a SUT exemption to provide financial
assistance for the purchase of equipment that is used for the
design, manufacture, production, or assembly of "advanced
transportation technologies" or "alternative source" products,
components, or systems (SB 71 Program). Alternative source
products include cogeneration technology, energy conservation,
solar, biomass, wind, geothermal, specified hydro-electric, or
any other energy efficient technologies that reduce the use of
fossil and nuclear fuels. Alternative sources also include
advanced electric distributive generation technology and
energy storage technology. The SB 71 Program will sunset on
January 1, 2021.
In 2012, SB 1128 (Padilla), Chapter 677, Statutes of 2012,
expanded the SUT exclusion program to include advanced
manufacturing projects. Under the SUT exclusion program,
CAEATFA evaluates all applicants to determine whether the
benefits received by the state will outweigh forgone SUT
revenue. Specifically, the net benefits test established
within the SUT exclusion program is primarily designed to
evaluate the fiscal and environmental benefits of the project
will produce for the state. According to CAEATFA's annual
report, CAEATFA board began receiving applications for
advanced manufacturing projects in October of 2013, and
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approved two advanced manufacturing projects as its December
2013 meeting.
3)Partial Sales and Use Tax Exemption: The passage of AB 93
(Budget Committee), Chapter 69, Statutes of 2013, and SB 90
(Galgiani), Chapter 70, Statutes of 2013, created California's
first effort to grant a partial SUT exemption for taxpayers
performing manufacturing or research and development in the
state. The rationale for providing a SUT exemption on
business inputs, even if partial, is to reduce the imposition
of a tax on a tax, otherwise known as "pyramiding". The SUT
is paid when a business is considered to be the final consumer
of tangible item. The tax paid on tangible personal items is
then incorporated into the cost of a consumer product, leading
to double taxation. As noted by Joseph Henchman, "Ideally, a
sales tax should be levied on all goods and services sold at
retail, and to prevent distortions and hidden taxes, it should
be levied only once on each good or service sold at retail."
(Joseph Henchman, States Should Avoid Sales Taxes on Nonprofit
Hospital Purchases, Tax Foundation, April 2008.) Ideally,
taxes should only be levied once because pyramiding may cause
consumers to favor goods and services that are provided by a
single company instead of those that require multiple
production steps. (Id.)
4)Differences: There are a few differences between CAEATFA's
SUT exclusion and the state's partial SUT exemption. The
partial exemption rate is currently 4.1875%. The partial
exemption provides that sales of the qualifying property sold
to a qualified person be taxed at a rate of 3.3125% (7.50%
current statewide tax rate - 4.1875% partial exemption) plus
any applicable district taxes. Under CAEATFA, an approved
project does not pay any SUT tax, including local and district
taxes. Additionally, the state's SUT exemption is much
broader and more easily available. So long as a business
meets all requirements, a qualifying manufacturer can receive
a partial SUT exemption. CAEATFA, however, is a much
lengthier process, requiring an application and approval
process before the exclusion can apply. Furthermore, the
programs appear to accomplish different goals. Both programs
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reduce the economic distortions related to taxing business
inputs, but CAEATFA appears to also be concerned with
encouraging projects that provide a greater return on
investment for the state. As noted above, the anticipated
project benefits, measured by the fiscal and environmental
benefit to the state, must exceed the cost of forgone SUT. No
such analysis is needed for the partial SUT exemption.
5)No Chance of Double Dipping: Assuming a manufacturer
qualifies under both the state's partial SUT exemption and
CAEATFA's SUT exclusion, the taxpayer can, at most, take the
full exclusion from SUT, and only after successfully
completing the application process. However, a qualifying
manufacturer may take a partial SUT exemption on qualifying
purchases if those purchases meet all requirements under the
partial SUT exemption are not part of an approved project
under CAEATFA.
Analysis Prepared by:
Carlos Anguiano / REV. & TAX. / (916) 319-2098
FN:
0002357