BILL ANALYSIS                                                                                                                                                                                                    



                                                                      SB 35


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          Date of Hearing:  June 22, 2015





                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                                 Philip Ting, Chair





          SB  
          35 (Wolk) - As Amended June 16, 2015


              


          Majority vote.  Fiscal committee.  Tax levy.


          SENATE VOTE:  38-0


          SUBJECT:  Income and corporation taxes:  deductions:  disaster  
          relief.


          SUMMARY:  Provides, under the Personal Income Tax (PIT) Law and  
          the Corporation Tax (CT) Law, automatic disaster loss relief for  
          any disaster occurring in any city or county in California that  
          is proclaimed by the Governor to be in a state of emergency.   
          Specifically, this bill:  










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          1)Applies, for taxable years beginning on or after January 1,  
            2014 and before January 1, 2024, Internal Revenue Code (IRC)  
            Section 165(i) to any loss sustained as a result of any  
            disaster occurring in any city, county, or city and county in  
            California that is proclaimed by the Governor to be in a state  
            of emergency.


          2)Provides that the election under IRC Section 165(i) may be  
            made on a return or amended return filed on or before the due  
            date of the return, determined with regard to any extension of  
            time for filing the return, for the taxable year in which the  
            disaster occurred.


          3)Provides that the provisions of this bill apply  
            notwithstanding Revenue and Taxation Code (R&TC) Section  
            18572.


          4)Precludes, other than those specific to net operating loss  
            (NOL) treatment under the R&TC, any law that suspends, defers,  
            reduces, or otherwise diminishes the deduction of an NOL from  
            applying to an NOL attributable to disaster losses proclaimed  
            by the Governor.


          5)Provides that the automatic disaster loss relief shall remain  
            in effect only until December 1, 2024, and as of that date is  
            repealed.


          6)Provides that this act fulfills a statewide public purpose  
            because it is consistent with, and supplements, the proclaimed  
            disaster assistance relief by providing necessary tax relief  
            to persons affected jurisdictions by allowing them to maintain  
            essential basic services and repair damage to, and restore,  
            their homes and businesses.









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          7)Makes findings and declarations.


          8)Takes effect immediately as a tax levy.


          EXISTING LAW: 


          1)Allows a taxpayer that suffers a disaster loss to elect to  
            deduct the loss in the year immediately preceding the year the  
            disaster occurred if it is a Presidentially-declared disaster  
            loss.  (IRC Section 165(i).)  The election is not available  
            for a Governor-declared disaster area until enabling state  
            legislation has been enacted.

          2)Allows an individual taxpayer with a disaster loss that is not  
            reimbursed by insurance or otherwise, to deduct disaster  
            losses to the extent that each loss exceeds $100 and aggregate  
            net losses for the taxable year exceed 10 percent of adjusted  
            gross income.  Business and income-producing property are not  
            subject to these limitations.

          3)Provides that if a disaster loss deduction creates a NOL,  
            carry forward and carry back treatment apply.

          4)Allows individual and corporate taxpayers to utilize NOLs to  
            offset their tax liabilities.  For NOLs incurred in taxable  
            years beginning on or after January 1, 2008, existing law  
            provides a carryover period of 20 years. 

          5)Allows NOLs attributable to taxable years beginning on or  
            after January 1, 2013, to be carried back to each of the  
            preceding two taxable years, as provided.  The allowable NOL  
            carryback percentage increases during the phase-in period as  
            follows: 50% for the 2013 taxable year, 75% for the 2014  
            taxable year, and 100% for the 2015 taxable year and any  
            subsequent taxable year thereafter.








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          FISCAL EFFECT:  The Franchise Tax Board has historically  
          estimated revenue losses of approximately $1,000.


          COMMENTS:  


           1)Author's Statement  :  The author has provided the following  
            statement in support of this bill:


               The purpose of the bill is to allow taxpayers that recently  
               suffered from August, 2014 Napa earthquake to apply losses  
               to their tax returns filed the previous year, resulting in  
               a tax refund which can immediately be used to rebuild and  
               recover from the earthquake.  The Legislature has enacted  
               identical treatment for almost every significant disaster  
               that has occurred in California for the last 25 years.   
               Additionally, the measure expands state disaster loss  
               treatment for state purposes for taxpayers in Sonoma  
               County.


           2)Filing Extension  :  This bill allows taxpayers who recently  
            suffered from the August 2014 Napa earthquake to apply losses  
            to their tax returns filed the previous year, resulting in a  
            tax refund which can immediately be used to rebuild and  
            recover from the earthquake.  To apply the loss in the  
            previous year, state and federal law require the taxpayer to  
            amend his/her return by the next year's filing deadline, which  
            is generally April 15th.  While a Presidential declaration  
            automatically extends the deadline for carrying back disaster  
            losses for federal tax, the Legislature must affirmatively  
            enact a statute doing so for state purposes.  Because many  
            taxpayers have not yet determined the amount of uninsured  
            losses the earthquake created, this bill extends the state  
            deadline to allow taxpayers more time to claim disaster losses  
            on their 2013 tax returns.  








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           3)Sonoma County  :  In the case of disaster losses, a taxpayer may  
            elect to file an amended return to deduct the loss in the  
            taxable year prior to the taxable year in which the disaster  
            loss actually occurred, resulting in an expedited refund.   
            This election may be made for any Presidentially-declared  
            disaster prior to the passage of any state legislation  
            allowing this treatment as California conforms to federal  
            disaster tax law treatment.  The election is not available,  
            however, for a "Governor-only" declared disaster unless  
            special state legislation is enacted.


            On August 24, 2014, the Governor, declared a state of  
            emergency in the Counties of Napa, Solano, and Sonoma.  On  
            September 11, 2014, President Obama also declared a major  
            disaster for those areas affected by the earthquake.  However,  
            Sonoma County was not included in the President's declaration.  
             As such, disaster loss relief is not available to Sonoma  
            County.  This bill extends disaster loss relief for state tax  
            purposes to taxpayers in Sonoma County.  


           4)Governor Declares State of Emergency  :  As explained by the  
            author, the Legislature has enacted similar disaster loss  
            relief legislation in every significant disaster that has  
            occurred in California for the last 25 years.  As noted above,  
            this bill extends disaster loss relief to Sonoma County; but  
            instead of specifically naming affected counties, this bill  
            provides automatic disaster loss relief to any disaster area  
            proclaimed by the Governor to be in a state of emergency.  Not  
            only will this bill provide relief to the counties affected by  
            the earthquake, it will also provide ongoing relief to any  
            future declared disaster by the Governor.  Doing so will  
            expedite disaster relief to affected areas and eliminate  
            future disaster-relief related legislation.










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          REGISTERED SUPPORT / OPPOSITION:




          Support


          None on file




          Opposition


          None on file




          Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)  
          319-2098