BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1338| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1338 Author: Lara (D), et al. Amended: 5/4/16 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/27/16 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/27/16 AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen SUBJECT: Sales and use taxes: exemption: zero-emission and near-zero-emission equipment SOURCE: Author DIGEST: This bill provides a partial sales and use tax (SUT) exemption for zero and near zero-emission port equipment. ANALYSIS: Existing law: 1)Imposes a sales and use tax (SUT) on the sale, storage, or use of tangible personal property unless exempted by state law. Cities and Counties may increase the SUT rate up to 2% as a transactions and use tax for either specific or general purposes with a vote of the people. 2)Imposes a SUT rate of 7.5%, but beginning January 1, 2017, the state SUT rate on tangible personal property will be 7.25%. SB 1338 Page 2 This bill provides a partial SUT exemption for zero and near zero-emission port equipment. Specifically this bill: 1)Provides a General Fund (3.9375%) SUT tax exemption for "qualified TPP" purchased by a "qualified person" to be used "primarily" in, at, or on a marine terminal of a California public port for carriage, handling, or movement of freight, cargo, and goods. 2)Defines "qualified tangible personal property" as any of the following: a) Zero-emission or near-zero-emission equipment used in conjunction with the movement of goods or freight, including computers, data-processing equipment, and computer software required to operate, control, regulate, or maintain the qualified equipment. b) Parts used for the repair and replacement of qualified equipment with a useful life of one or more years. c) Special purpose buildings and foundations used as an integral part of the utilization process of zero-emission or near-zero-emission equipment. d) Leases of qualified tangible personal property. 3)Defines "primarily" as 50% or more of the time. 4)Defines "qualified person" as a stevedore, marine terminal operator, operator of a port, rail ramp, rail yard, imtermodal facility, or freight yard, or any other person that is engaged in cargo and freight loading, delivery, movement, storage, and conveyance at or within a California public seaport. 5)Defines "Zero-emission or near-zero-emission equipment" as equipment, off-road vehicles, and related technologies used within the boundaries of a California public seaport that reduces or eliminates greenhouse gas emissions and improves air quality as identified by the State Air Resources Board in consultation with the State Energy Resources Conservation and Development Commission. Additionally, "zero-emission and near-zero-emission equipment" may include advanced or SB 1338 Page 3 alternative fuel engines and hybrid or alternative fuel technologies for seaport equipment. 6)Provides that the exemption does not apply if, within one year from the date of purchase, the qualified person (a) uses the qualified property in a manner not qualifying for the exemption, (b) converts the qualified property from an exempt use to a non-qualifying use, or (c) removes the qualified property from California. Finally, this bill contains reporting requirements, as specified. 7)Applies to taxable years beginning January 1, 2017, and before January 1, 2030. Background The ports of Los Angeles and Long Beach are the busiest in the nation and generate more air pollution than any other facility in the Los Angeles Basin. In 2006, the ports of Long Beach and Los Angeles together adopted the landmark Clean Air Action Plan (CAAP). The CAAP focuses on strategies to reduce health risks to communities surrounding the ports by reducing air pollutants. Both the ports of Los Angeles and Long Beach have each reduced diesel particulates by over 80 percent, but more needs to be done. According to the Air Resources Board, despite substantial progress over the last decade, the remaining localized risks of cancer and other adverse effects near major freight hubs must be significantly reduced. Infants and children are 1.5 to three times more sensitive to the harmful effects of exposure to air toxics, like those emitted from freight equipment, than previously understood, which heightens the need for further risk reduction. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee: The Board of Equalization (BOE) indicates that this bill would SB 1338 Page 4 result in an annual General Fund revenue loss of $4.6 million. BOE's implementation costs have yet to be determined, but would minimally reach the hundreds of thousands of dollars annually (General Fund). SUPPORT: (Verified5/27/16) Bay Area Air Quality Management District Breathe California California Electronic Transportation Coalition California League of Conservation Voters Coalition for Clean Air Environment California Environmental Defense Fund Move LA Natural Resources Defense Council Pacific Merchant Shipping Association OPPOSITION: (Verified5/27/16) International Longshore and Warehouse Union ARGUMENTS IN SUPPORT: According to the author, "The California economy is largely dependent on international trade and commerce. The state is home to three of the largest ports in the nation, located in Los Angeles, Long Beach, and Oakland, and eight smaller public-owned ports situated from Humboldt Bay and south to San Diego. More than 40% of containerized cargo arriving in the United States enters through the state's 11 seaports. The Southern California region allows for the quickest, direct shipping routes to the Pacific Rim. 75% of total container volume coming through the Ports of Los Angeles and Long Beach come from East Asia alone. However, greenhouse gas emissions from the transportation sector continue to impact public health throughout the state. According the American Lung Association's State of the Air 2016 report, the Los Angeles region leaders the nation in harmful ozone pollution. Simply SB 1338 Page 5 put, air quality degradation, congestion, and additional infrastructure impacts cripple not only the economic viability of a region, but also the health and quality of life for those living in communities situated in high volume transportation corridors. Capital expenses associated with the procurement of the latest zero-emission or near-zero emission cargo handling equipment is in the tens of billions of dollars. Replacing current equipment at the ports of Los Angeles, Long Beach, and Oakland is estimated to cost $23 billion. Smart investments to offset and eliminate negative environmental impacts from freight transport positions the state to work towards achieving clean energy and climate goals established by landmark legislation such as AB 32 (Nunez, Chaptered 2006) and SB 350 (De Leon, Chaptered 2015). To that end, the state has a critical role in assisting California ports transition from the more conventional to next generation infrastructure to improve the public health of communities in and around our goods movement sector." ARGUMENTS IN OPPOSITION: Opponents argue this bill will lead to jobs loss and will not address the true source of harmful emissions, idle trucks. Specifically, the opponents argue this bill may lead to automation of jobs currently held by union members. Prepared by:Myriam Bouaziz / GOV. & F. / (916) 651-4119 5/28/16 17:12:00 **** END ****