The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill, for taxable years beginning on or after January 1, 2017, and before January 1, 2022, would allow a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as provided. The bill would require a taxpayer, in order to be eligible for the credit, to obtain 2 certifications from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located: one prior to seismic retrofit construction that certifies that the building is an at-risk property, and a second subsequent to construction that certifies that the completed construction is seismic retrofit construction, as defined, and specifies a dollar amount of qualified costs. The bill would further require the taxpayer to provide the second certification to and apply for allocation of the credit with the Franchise Tax Board, and would require the board to allocate credits on a first-come-first-served basis. The bill would provide that the credit would have an aggregate cap under both laws of $12,000,000 for each calendar year, as provided.

Existing law requires a bill that would authorize a new credit against the tax imposed by the Personal Income Tax Law or the Corporation Tax Law to contain specific goals, purposes, and objectives that the new credit will achieve and detailed performance indicators and data collection requirements for determining whether the new credit achieves these goals, purposes, and objectives.

This bill would make findings specifying the goals, purposes, and objectives of the above-described tax credits and detailing the performance indicators and data collection requirements for determining whether the credits meet these goals, purposes, and objectives.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, bill, for taxable years beginning on or after January 1, 2017, and before January 1, 2022, would allow a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as provided. The bill would require a taxpayer taxpayer, in order to be eligible for the credit, to obtain 2 certifications from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located: one prior to seismic retrofit construction that certifies that the building is an at-risk property property, and one a second subsequent to construction that certifies that the completed construction is seismic retrofit construction, as defined, has been completed. and specifies a dollar amount of qualified costs. The bill would further require the taxpayer to provide the second certification to and apply to for allocation of the credit with the Franchise Tax Board for allocation of the credit and to provide a specified certification and for the Franchise Tax Board Board, and would require the board to allocate credits on a first-come-first-served basis. The bill would provide that the credit would have an aggregate cap under both laws of $12,000,000 for each calendar year, as provided.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as defined. This bill, prior to seismic retrofit construction, would require a taxpayer to obtain certification from the appropriate jurisdiction with local building code enforcement authority that the building has been certified as an at-risk property, as defined. This bill would also require a taxpayer to obtain a certification from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located that seismic retrofit construction, as defined, has been completed, and to provide those certifications to the Franchise Tax Board upon the request of the Franchise Tax Board. 2017, and before January 1, 2022, a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as provided. The bill would require a taxpayer to obtain 2 certifications from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located: one that certifies that the building is an at-risk property and one that certifies that the seismic retrofit construction, as defined, has been completed. The bill would require the taxpayer to apply to the Franchise Tax Board for allocation of the credit and to provide a specified certification and for the Franchise Tax Board to allocate credits on a first-come-first-served basis. The bill would provide that the credit would have an aggregate cap under both laws of $12,000,000 for each calendar year, as provided.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as defined. This bill, prior to seismic retrofit construction, would require a taxpayer to obtain certification from the appropriate jurisdiction with local building code enforcement authority that the building has been certified as an at-risk property, as defined. This bill would also require a taxpayer to obtain a certification from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located that seismic retrofit construction, as defined, has been completed, and to provide that certification those certifications to the Franchise Tax Board upon the request of the Franchise Tax Board.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as defined. This bill would require a taxpayer to obtain a certification from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located that the building is an at-risk property, as defined, seismic retrofit construction, as defined, has been completed, and to provide that certification to the Franchise Tax Board upon the request of the Franchise Tax Board.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.

This bill would allow, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a tax credit under both laws in an amount equal to 30% of the qualified costs paid or incurred by a qualified taxpayer for any seismic retrofit construction on a qualified building, as defined. This bill would require a taxpayer to obtain a certification from the appropriate jurisdiction with authority for building code enforcement of the area in which the building is located that the building is an at-risk property, as defined, and to provide that certification to the Franchise Tax Board upon the request of the Franchise Tax Board.

This bill would take effect immediately as a tax levy.

GOVERNOR'S VETO

GV Bill Id:AB 428

Author:(Nazarian)

As Enrolled Ver:September 11, 2015

2/3 vote

Original Committee Reference: REV. & TAX.

SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction," as specified.

The Senate amendments:

1. Delay operation of the tax credit program by one year. Specifically, the tax credit shall be allowed for taxable years beginning on or after January 1, 2017, and before January 1, 2022.

2. Provide that, to be eligible for the credit, the qualified taxpayer must request and be granted an allocation of the credit from the Franchise Tax Board (FTB). To request an allocation, the taxpayer must sign and submit to the FTB an application to receive a credit for the seismic retrofit construction

3. Provide that the total amount of credit that may be allocated under this program shall not exceed the sum of the following:

   1. $12 million for the 2017 calendar year and each calendar year thereafter; and,

   2. The amount of previously unallocated credits.

4. Require the FTB to allocate the credit on a first-come-first-served basis.

5. Require the taxpayer to claim the credit on a timely filed original return.

6. Authorize the FTB to prescribe rules, guidelines, or procedures necessary to carry out the purposes of the program.

7. Add relevant findings and declarations to comply with Revenue and Taxation Code (R&TC) Section 41.

8. Make technical corrections.

9. Add coauthors.

AS PASSED BY THE ASSEMBLY, this bill:

1. Allowed the credit for taxable years beginning on or after January 1, 2016, and before January 1, 2021.

2. Defined a "qualified taxpayer" as an owner of a "qualified building" located in California. A taxpayer that owns a proportional share of a "qualified building" may claim the credit based on the taxpayer's share of the "qualified costs."

3. Defined "qualified costs" as costs paid or incurred by the qualified taxpayer for any completed "seismic retrofit construction" on a "qualified building," including any engineering or architectural design work necessary to permit or complete the "seismic retrofit construction." "Qualified costs" shall not include any of the following:

   1. Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the "seismic retrofit construction";

   2. Repair, including repair of earthquake damage;

   3. "Seismic retrofit construction" required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;

   4. Other work or improvement required by local building or planning codes as a result of the intended "seismic retrofit construction";

   5. Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;

   6. Replacement of existing building components, including equipment, except as needed to complete the "seismic retrofit construction";

   7. Bracing or securing nonpermanent building contents;

   8. The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,

   9. Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certifications required by this bill.

4. Defined "seismic retrofit construction" as alteration of a "qualified building" or its components to substantially mitigate seismic damage. Seismic retrofit construction shall be for work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:

   1. Anchoring the structure to the foundation;

   2. Bracing cripple walls;

   3. Bracing hot water heaters;

   4. Installing automatic gas shutoff valves;

   5. Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;

   6. Anchoring fuel storage; and,

   7. Installing an earthquake-resistant bracing system for mobile homes registered with the Department of Housing and Community Development.

5. Provided that seismic retrofit construction does not include construction performed to bring a building into compliance with local building codes.

6. Defined a "qualified building" as a building that has been certified as an "at-risk property," as specified. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

7. Defined an "at-risk property" as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings.

8. Provided that, to be eligible for the credit, the following must apply:

   1. The qualified taxpayer must obtain certification, prior to construction, that the building is an at-risk property.

   2. The qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Upon request of the FTB, the qualified taxpayer must provide a copy of the certification to the FTB.

   3. The jurisdiction with authority for building code enforcement in which a qualified building is located has entered into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications.

9. Required the credit amount allowed to be claimed by a qualified taxpayer at the rate of one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years.

10. Provided that, in cases where the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to the following taxable year, and succeeding four taxable years, until the credit has been exhausted.

11. Provided that, for purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction.

12. Provided that this credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs.

13. Allowed the credit under both the Personal Income Tax Law and the Corporation Tax Law.

14. Provided that R&TC Section 41 shall not apply to the credit.

15. Took immediate effect as a tax levy.

16. Sunset the credit provisions on December 1, 2021.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. The FTB estimates that this bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

2. FTB staff estimate that this bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The recent earthquakes, which shook Southern California cities [in] 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California's resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.

2. Revenue and Taxation Committee Comments:

   1. What would this bill do? This bill would allow a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Proponents note that such action, in turn, could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

GOVERNOR'S VETO MESSAGE:

I am returning the following nine bills without my signature:

Assembly Bill 35

Assembly Bill 88

Assembly Bill 99

Assembly Bill 428

Assembly Bill 437

Assembly Bill 515

Assembly Bill 931

Senate Bill 251

Senate Bill 377

Each of these bills creates a new tax credit or expands an existing tax credit.

Despite strong revenue performance over the past few years, the state's budget has remained precariously balanced due to unexpected costs and the provision of new services. Now, without the extension of the managed care organization tax that I called for in special session, next year's budget faces the prospect of over $1 billion in cuts.

Given these financial uncertainties, I cannot support providing additional tax credits that will make balancing the state's budget even more difficult. Tax credits, like new spending on programs, need to be considered comprehensively as part of the budget deliberations.

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0002532

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 428

Author:(Nazarian)

As Amended Ver:August 31, 2015

Majority vote. Tax levy

Original Committee Reference: REV. & TAX.

SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction," as specified.

The Senate amendments:

1. Delay operation of the tax credit program by one year. Specifically, the tax credit shall be allowed for taxable years beginning on or after January 1, 2017, and before January 1, 2022.

2. Provide that, to be eligible for the credit, the qualified taxpayer must request and be granted an allocation of the credit from the Franchise Tax Board (FTB). To request an allocation, the taxpayer must sign and submit to the FTB an application to receive a credit for the seismic retrofit construction

3. Provide that the total amount of credit that may be allocated under this program shall not exceed the sum of the following:

   1. $12 million for the 2017 calendar year and each calendar year thereafter; and,

   2. The amount of previously unallocated credits.

4. Require the FTB to allocate the credit on a first-come-first-served basis.

5. Require the taxpayer to claim the credit on a timely filed original return.

6. Authorize the FTB to prescribe rules, guidelines, or procedures necessary to carry out the purposes of the program.

7. Add relevant findings and declarations to comply with Revenue and Taxation Code (R&TC) Section 41.

8. Make technical corrections.

9. Add coauthors.

AS PASSED BY THE ASSEMBLY, this bill:

1. Allowed the credit for taxable years beginning on or after January 1, 2016, and before January 1, 2021.

2. Defined a "qualified taxpayer" as an owner of a "qualified building" located in California. A taxpayer that owns a proportional share of a "qualified building" may claim the credit based on the taxpayer's share of the "qualified costs."

3. Defined "qualified costs" as costs paid or incurred by the qualified taxpayer for any completed "seismic retrofit construction" on a "qualified building," including any engineering or architectural design work necessary to permit or complete the "seismic retrofit construction." "Qualified costs" shall not include any of the following:

   1. Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the "seismic retrofit construction";

   2. Repair, including repair of earthquake damage;

   3. "Seismic retrofit construction" required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;

   4. Other work or improvement required by local building or planning codes as a result of the intended "seismic retrofit construction";

   5. Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;

   6. Replacement of existing building components, including equipment, except as needed to complete the "seismic retrofit construction";

   7. Bracing or securing nonpermanent building contents;

   8. The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,

   9. Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certifications required by this bill.

4. Defined "seismic retrofit construction" as alteration of a "qualified building" or its components to substantially mitigate seismic damage. Seismic retrofit construction shall be for work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:

   1. Anchoring the structure to the foundation;

   2. Bracing cripple walls;

   3. Bracing hot water heaters;

   4. Installing automatic gas shutoff valves;

   5. Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;

   6. Anchoring fuel storage; and,

   7. Installing an earthquake-resistant bracing system for mobile homes registered with the Department of Housing and Community Development.

5. Provided that seismic retrofit construction does not include construction performed to bring a building into compliance with local building codes.

6. Defined a "qualified building" as a building that has been certified as an "at-risk property," as specified. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

7. Defined an "at-risk property" as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings.

8. Provided that, to be eligible for the credit, the following must apply:

   1. The qualified taxpayer must obtain certification, prior to construction, that the building is an at-risk property.

   2. The qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Upon request of the FTB, the qualified taxpayer must provide a copy of the certification to the FTB.

   3. The jurisdiction with authority for building code enforcement in which a qualified building is located has entered into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications.

9. Required the credit amount allowed to be claimed by a qualified taxpayer at the rate of one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years.

10. Provided that, in cases where the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to the following taxable year, and succeeding four taxable years, until the credit has been exhausted.

11. Provided that, for purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction.

12. Provided that this credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs.

13. Allowed the credit under both the Personal Income Tax Law and the Corporation Tax Law.

14. Provided that R&TC Section 41 shall not apply to the credit.

15. Took immediate effect as a tax levy.

16. Sunset the credit provisions on December 1, 2021.

FISCAL EFFECT: According to the Senate Appropriations Committee:

1. The FTB estimates that this bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

2. FTB staff estimate that this bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The recent earthquakes, which shook Southern California cities [in] 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California's resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.

2. Revenue and Taxation Committee Comments:

   1. What would this bill do? This bill would allow a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Proponents note that such action, in turn, could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0001931

 THIRD READING  

Bill No: AB 428

Author: Nazarian (D)

Amended: 8/31/15 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-1, 7/1/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley

NOES: Moorlach

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/27/15

AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen

ASSEMBLY FLOOR: 78-0, 6/1/15 - See last page for vote

SUBJECT: Income taxes: credit: seismic retrofits

SOURCE: Author

DIGEST: This bill allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction.

ANALYSIS:

Existing law:

1. Allows various income tax credits, deductions, and sales and use tax exemptions to provide incentives to compensate taxpayers that incur certain expenses, such as child adoption, or to influence behavior, including business practices and decisions, such as research and development credits.

2. Requires the Department of Finance is required to annually publish a list of tax expenditures.

3. Requires the reassessment of property, based on the fair market value, upon a change in ownership, or on new construction. The determination of fair market value is known as the base year value and is adjusted annually for inflation, which may not exceed 2% per year. Newly constructed or new construction includes additions to the real property, or the alteration of the real property that amounts to a rehabilitation or conversion of the property to a different use since the preceding lien date.

4. Requires assessors to determine the added value of the new construction when completed and add that amount to the assessed value of the property. In general, if the new construction replaces existing improvements, the value attributable to the existing improvements is deducted from the base year value of the property.

5. Excludes from the definitions of newly constructed and new construction, the construction or reconstruction of seismic retrofitting components of an existing structure.

This bill:

1. Allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. Allows a credit amount allowed of one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years. For purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction.

2. Caps the total credit amount available to $12 million per year, plus any carryover of unused funds from the prior year.

3. Requires a qualified taxpayer to obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Each jurisdiction with authority for building code enforcement in which a qualified building is located must enter into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications. A taxpayer must then request and be granted an allocation of the credit from the Franchise Tax Board (FTB). To request an allocation, the taxpayer must sign and submit to FTB an application to receive a credit for the retrofit construction, and provide a copy of the certification. Upon receipt of the application and certification, FTB shall notify the taxpayer of the amount of credit allocated. Upon request of FTB, the qualified taxpayer must provide a copy of the certification to FTB.

4. Defines a qualified taxpayer as an owner of a qualified building located in California. A taxpayer that owns a proportional share of a qualified building may claim the credit based on the taxpayer's share of the qualified costs.

5. Defines qualified costs are defined as costs paid or incurred by the qualified taxpayer for any completed seismic retrofit construction on a qualified building, including any engineering or architectural design work necessary to permit or complete the seismic retrofit construction. Qualified costs shall not include any of the following:

• Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the seismic retrofit construction;

• Repair, including repair of earthquake damage;

• Seismic retrofit construction required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;

• Other work or improvement required by local building or planning codes as a result of the intended seismic retrofit construction;

• Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;

• Replacement of existing building components, including equipment, except as needed to complete the seismic retrofit construction;

• Bracing or securing nonpermanent building contents;

• The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,

• Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certification required by this bill.

6. Defines seismic retrofit construction as alteration of a qualified building or its components to substantially mitigate seismic damage. Seismic retrofit construction refers only to work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:

• Anchoring the structure to the foundation;

• Bracing cripple walls;

• Bracing hot water heaters;

• Installing automatic gas shutoff valves;

• Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;

• Anchoring fuel storage; and,

• Installing an earthquake-resistant bracing system for mobile homes registered with the California Department of Housing and Community Development.

7. Defines a qualified building as a building that has been certified as an at-risk property by the local building code enforcement for the area within which the building is located. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

8. Defines an at-risk property as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, non-ductile concrete residential buildings, and pre-1994 concrete residential buildings.

9. Takes effect immediately, and applies to taxable years beginning on or after January 1, 2017, and before January 1, 2022.

Comments

1. Author’s statement. According to the author, “AB 428 accomplishes three goals; it saves lives, protects property, and creates jobs. The recent earthquakes, which shook Southern California cities in 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California’s resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.”

2. Lifesaver. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Improving the seismic safety of homes and apartment buildings could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

Prior Legislation

AB 1510 (Nazarin), of the 2013-14 Regular Session, would have allowed a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction". AB 1510 was held on the Assembly Appropriations Committee's Suspense File.

AB 1756 (Scott), of the 1999-2000 Regular Session, would have allowed a credit equal to 55% of the amount incurred for seismic retrofit construction on residential dwellings built prior to 1979. AB 1756 was held on the Assembly Appropriations Committee's Suspense File.

SB 677 (McPherson), of the 2001-02 Regular Session, would have allowed a credit equal to an unspecified percentage of the final cost of seismic retrofitting, as specified. SB 677 was never heard by the Senate Committee on Revenue and Taxation.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee:

1. The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

2. FTB staff estimate that the bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

The Senate Appropriations Committee amendments require the bill to state the specific goals and objectives of the tax credit.

SUPPORT: (Verified 8/28/15)

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Building Owners and Management Association of Los Angeles

California Apartment Association

California League of Cities

California Southern Cities Apartment Association

City of Berkeley

City of Burbank

City of Long Beach

City of Los Angeles

City of Martinez

City of West Hollywood

Coalition for Economic Survival

East Bay Rental Housing Association

Los Angeles Business Council Institute

League of California Cities

Mayor of Berkeley

Mayor of Los Angeles

Mayor of Oakland

Mayor of San Francisco

Mayor of Santa Monica

Nor Cal Rental Property Association

North Valley Property Owners Association

Rent Stabilization Board of the City of Berkeley

San Diego Apartment Association

Santa Barbara Rental Property Association

Sonoma County Board of Supervisors

State Farm Insurance

Structural Engineers Association of California

Western Center on Law & Poverty

Western Manufacturing Housing Communities Association

OPPOSITION: (Verified 8/28/15)

None received

ARGUMENTS IN SUPPORT: The supporters of this bill argue that this bill will help alleviate the difficulty of making seismic improvements to buildings by defraying the cost. Making seismic improvements to buildings will help save countless lives when the next earthquake hits California.

ASSEMBLY FLOOR: 78-0, 6/1/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Gonzalez, Obernolte

Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119

8/31/15 15:41:56

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 428 (Nazarian) - Income taxes: credit: seismic retrofits.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 27, 2015

Bill Summary:

AB 428 would allow a tax credit equal to 30 percent of a qualified taxpayer's qualified costs incurred for seismic retrofit construction.

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

• FTB staff estimate that the bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

Author Amendments:

Specify goals and objectives of the tax credit.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 428 (Nazarian) - Income taxes: credit: seismic retrofits.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 27, 2015

Bill Summary:

AB 428 would allow a tax credit equal to 30 percent of a qualified taxpayer's qualified costs incurred for seismic retrofit construction.

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

• FTB staff estimate that the bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

Author Amendments:

Specify goals and objectives of the tax credit.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 428 (Nazarian) - Income taxes: credit: seismic retrofits.

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 428 would allow a tax credit equal to 30 percent of a qualified taxpayer's qualified costs incurred for seismic retrofit construction.

Fiscal Impact:

• The Franchise Tax Board (FTB) estimates that the bill would result in General Fund revenue losses of $700,000 in 2016-17, $2.7 million in 2017-18, and $4.6 million in 2018-19.

• FTB staff estimate that the bill would result in increased costs of $255,000 in 2015-16 and $128,000 annually thereafter (General Fund), resulting from new administration and information technology workload.

Background:

Current law requires the reassessment of property based on fair market value, upon either a change in ownership or new construction. The determination of fair market value is referred to as the “base year value” and is adjusted annually for inflation. The adjustment is capped at two percent per year. The term “new construction” includes additions to the real property, or the alteration of real property that amounts to a rehabilitation or conversion to a different use since the preceding lien date. County assessors are required to determine the added value of the new construction when completed and add that amount to the assessed value of the property. In general, if the new construction replaces existing improvements, the value attributable to the existing improvements is deducted from the base year value of the property. In 2010, voters approved Proposition 13, which excludes from the definitions of newly constructed and new construction, the construction or reconstruction of seismic retrofitting components of an existing structure.

Proposed Law:

This bill would allow a credit equal to 30 percent of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. The credit is capped at $12 million annually, plus any carryover of previously unused credits.

To obtain the credit, a qualified taxpayer must obtain certification, as specified. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Each jurisdiction with authority for building code enforcement in which a qualified building is located must enter into an agreement with the State to provide certifications and to not seek reimbursement for any costs incurred during the certification process. A taxpayer must then request and be granted an allocation of the credit from FTB, as specified.

The bill defines a qualified taxpayer as an owner of a qualified building located in California. A taxpayer that owns a proportional share of a qualified building may claim the credit based on the taxpayer's share of the qualified costs.

Qualified costs are defined as costs paid or incurred by the qualified taxpayer for any completed seismic retrofit construction on a qualified building, including any engineering or architectural design work necessary to permit or complete the seismic retrofit construction. Qualified costs do not include any of the following:

• Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the seismic retrofit construction.

• Repair, including repair of earthquake damage.

• Seismic retrofit construction required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy.

• Other work or improvement required by local building or planning codes as a result of the intended seismic retrofit construction.

• Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender.

• Replacement of existing building components, including equipment, except as needed to complete the seismic retrofit construction.

• Bracing or securing nonpermanent building contents.

• The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others.

• Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certification required by this bill.

The bill defines “seismic retrofit construction” as alteration of a qualified building or its components to substantially mitigate seismic damage. Seismic retrofit construction refers only to work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2017. Seismic retrofit construction includes the following:

• Anchoring the structure to the foundation.

• Bracing cripple walls.

• Bracing hot water heaters.

• Installing automatic gas shutoff valves.

• Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage.

• Anchoring fuel storage.

• Installing an earthquake-resistant bracing system for mobile homes registered with the California Department of Housing and Community Development.

The bill defines a qualified building as a building that has been certified as an at-risk property by the local building code enforcement. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

The bill defines an at-risk property as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, non-ductile concrete residential buildings, and pre-1994 concrete residential buildings.

The tax credit amount allowed is one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years. For purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction. This credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs.

As a tax levy, the bill would take effect immediately, and apply to taxable years 2017 through 2021.

Related Legislation:

• AB 1510 (Nazarian, 2013/2014) would have allowed a credit equal to 30 percent of the qualified taxpayer’s qualified costs for retrofitting at-risk property. AB 1510 did not pass out of the Assembly Revenue and Taxation Committee.

• SB 677 (McPherson, 2001/2002) would have allowed a credit equal to an unspecified percentage of the final cost of seismic retrofitting to comply with the seismic retrofit building standards for hospitals. SB 677 did not pass out of the Senate Revenue and Taxation Committee.

Staff Comments:

Based on discussions with industry experts and 2013 U.S. Census data on buildings in earthquake areas, FTB estimates that approximately 2,150 buildings would annually undergo retrofitting. Data provided by the California Seismic Safety Commission indicates the retrofitting cost is approximately $20,000 for residential housing, $10,000 for mobile homes, and $100,000 for commercial buildings. These data result in an estimated $83 million dollars in 2013 retrofitting costs. This amount was then grown (to $89 million) through 2017, but then reduced to reflect an estimated $10 million in annual retrofitting grants. Consequently, FTB estimates a total of $79 million in qualified retrofitting costs would be incurred in 2017.

Because the credit is equal to 30 percent of qualified costs, about $24 million in credits would be generated in 2017. This credit amount exceeds the $12 million maximum credit allocation for 2017. The same is true for the four subsequent years. Because the credit must be taken evenly over the five-year period, the credit would be $2.4 million available in 2017, and would peak at $12 million in 2021. FTB assumes that 70 percent of the available credit will be used in the year the credit is generated and the remaining 30 percent of the credit will be used over the subsequent four years. This results in an estimated credit usage beginning at approximately $1.7 million in 2017 and peaking in 2021 at approximately $10.6 million. FTB then made a downward adjustment to reflect the decreased depreciation deduction allowed when the credit is claimed.

To the extent that property owners wait until 2017 to seismically retrofit buildings, the bill’s tax credit could delay retrofitting activity relative to the timeline that would have occurred on the natural.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

INCOME TAXES: CREDIT: SEISMIC RETROFITS

Allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction.

Background and Existing Law

California law allows various income tax credits, deductions, and sales and use tax exemptions to provide incentives to compensate taxpayers that incur certain expenses, such as child adoption, or to influence behavior, including business practices and decisions, such as research and development credits. The Legislature typically enacts such tax incentives to encourage taxpayers to do something that but for the tax credit, they would not do. The Department of Finance is required to annually publish a list of tax expenditures.

Existing law requires the reassessment of property, based on the fair market value, upon a change in ownership, or on new construction. The determination of fair market value is known as the base year value and is adjusted annually for inflation, which may not exceed 2% per year. Newly constructed or new construction includes additions to the real property, or the alteration of the real property that amounts to a rehabilitation or conversion of the property to a different use since the preceding lien date. The assessor is required to determine the added value of the new construction when completed and add that amount to the assessed value of the property. In general, if the new construction replaces existing improvements, the value attributable to the existing improvements is deducted from the base year value of the property. In 2010, voters approved Proposition 13, which excludes from the definitions of newly constructed and new construction, the construction or reconstruction of seismic retrofitting components of an existing structure.

Proposed Law

Assembly Bill 428 allows a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. The yearly maximum amount is $12 million per year, plus any carryover of unused funds from the prior year.

To obtain the credit, a qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Each jurisdiction with authority for building code enforcement in which a qualified building is located must enter into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications. A taxpayer must then request and be granted an allocation of the credit from the Franchise Tax Board (FTB). To request an allocation, the taxpayer must sign and submit to FTB an application to receive a credit for the retrofit construction, and provide a copy of the certification. Upon receipt of the application and certification, FTB shall notify the taxpayer of the amount of credit allocated. Upon request of FTB, the qualified taxpayer must provide a copy of the certification to FTB. The bill defines a qualified taxpayer as an owner of a qualified building located in California. A taxpayer that owns a proportional share of a qualified building may claim the credit based on the taxpayer's share of the qualified costs.

Qualified costs are defined as costs paid or incurred by the qualified taxpayer for any completed seismic retrofit construction on a qualified building, including any engineering or architectural design work necessary to permit or complete the seismic retrofit construction. Qualified costs shall not include any of the following:

• Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the seismic retrofit construction;

• Repair, including repair of earthquake damage;

• Seismic retrofit construction required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;

• Other work or improvement required by local building or planning codes as a result of the intended seismic retrofit construction;

• Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;

• Replacement of existing building components, including equipment, except as needed to complete the seismic retrofit construction;

• Bracing or securing nonpermanent building contents;

• The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,

• Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certification required by this bill.

AB 428 defines seismic retrofit construction as alteration of a qualified building or its components to substantially mitigate seismic damage. Seismic retrofit construction refers only to work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:

• Anchoring the structure to the foundation;

• Bracing cripple walls;

• Bracing hot water heaters;

• Installing automatic gas shutoff valves;

• Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;

• Anchoring fuel storage; and,

• Installing an earthquake-resistant bracing system for mobile homes registered with the California Department of Housing and Community Development.

The bill defines a qualified building as a building that has been certified as an at-risk property by the local building code enforcement for the area within which the building is located. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

AB 428 defines an at-risk property as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, non-ductile concrete residential buildings, and pre-1994 concrete residential buildings.

The credit amount allowed is one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years. For purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction. This credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs and Section 41 does not apply to the credit.

As a tax levy, AB 428 takes effect immediately, and applies to taxable years beginning on or after January 1, 2017, and before January 1, 2022.

State Revenue Impact

FTB estimates that this bill will reduce General Fund revenues by $700,000 in fiscal year 2016-17, by $2.7 million in 2017-18, and by $4.6 million in 2018-19.

Comments

1. Purpose of the bill. According to the author, “AB 428 accomplishes three goals; it saves lives, protects property, and creates jobs. The recent earthquakes, which shook Southern California cities in 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California’s resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.”

2. Incentive? Generally, tax expenditures are enacted to encourage socially beneficial behavior that would not take place without a financial incentive. AB 428 seeks to encourage property owners to improve the seismic safety of homes and apartment buildings. According to structural engineer Chris Poland in an interview with KQED, seismic retrofits would cost an average of $10,000 to $20,000 per apartment unit in San Francisco. Given the high cost property owners would have to pay for seismic improvements, even after benefiting from the credit, it is unclear whether the tax incentive ultimately encourages new behavior or rewards behavior that was going to occur regardless.

3. Lifesaver. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Improving the seismic safety of homes and apartment buildings could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

4. A new tax expenditure. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). This bill would create new tax expenditure, costing the general fund almost $100,000 dollars in foregone revenue each year. The tradeoff for providing new tax expenditure, resulting in revenue losses, is higher taxes or reductions to other services or programs.

5. How is tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy, without a supermajority vote.

6. Section 41 shall not apply. On September 29, 2014, Governor Brown signed SB 1335 (Leno, 2014), which added R&TC Section 41. SB 1335 recognized that the Legislature should apply the same level of review used for government spending programs to tax preference programs, including tax credits. Thus, Section 41 requires any bill introduced on or after January 1, 2015 that allows a new income tax credit to contain specific goals, purposes, and objectives that the tax credit will achieve. In addition, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives. This bill provides that R&TC Section 41 shall not apply to this credit. The Committee may wish to consider the appropriateness of this Section 41 exemption.

7. Prior legislation:

• AB 1510 (Nazarin), of the 2013-14 Regular Session, would have allowed a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction". AB 1510 was held on the Assembly Appropriations Committee's Suspense File.

• AB 1756 (Scott), of the 1999-2000 Regular Session, would have allowed a credit equal to 55% of the amount incurred for seismic retrofit construction on residential dwellings built prior to 1979. AB 1756 was held on the Assembly Appropriations Committee's Suspense File.

• SB 677 (McPherson), of the 2001-02 Regular Session, would have allowed a credit equal to an unspecified percentage of the final cost of seismic retrofitting, as specified. SB 677 was never heard by the Senate Committee on Revenue and Taxation.

Assembly Actions

Assembly Revenue and Taxation 9-0

Assembly Appropriations 17-0

Assembly Floor 78-0

Support and Opposition

(6/24/15)

Support: Apartment Association of Greater Los Angeles; Apartment Association of Orange County; Berkeley Mayor, Tom Bates; Building Owners and Management Association of Los Angeles; California Apartment Association; California League of Cities; California Southern Cities Apartment Association; City of Berkeley; City of Burbank; City of Los Angeles; City of Martinez; City of West Hollywood; Coalition for Economic Survival; East Bay Rental Housing Association; League of California Cities; Los Angeles Business Council Institute; Los Angeles Mayor, Eric Garett; Nor Cal Rental Property Association; North Valley Property Owners Association; Oakland Mayor, Libby Schaaf; Rent Stabilization Board of the City of Berkeley; San Francisco Mayor, Ed Lee; San Diego County Apartment Association; Santa Barbara Rental Property Association; Santa Monica Mayor, Kevin McKeown; State Farm Mutual Automobile Insurance Company; Structural Engineers Association of California; Western Center on Law & Poverty; Western Manufactured Housing Communities Association.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 428

Author:(Nazarian)

As Amended Ver:May 21, 2015

Majority vote. Tax levy

SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction," as specified. Specifically, this bill:

1. Allows the credit for taxable years beginning on or after January 1, 2016, and before January 1, 2021.

2. Defines a "qualified taxpayer" as an owner of a "qualified building" located in California. A taxpayer that owns a proportional share of a "qualified building" may claim the credit based on the taxpayer's share of the "qualified costs."

3. Defines "qualified costs" as costs paid or incurred by the qualified taxpayer for any completed "seismic retrofit construction" on a "qualified building," including any engineering or architectural design work necessary to permit or complete the "seismic retrofit construction." "Qualified costs" shall not include any of the following:

   1. Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the "seismic retrofit construction";

   2. Repair, including repair of earthquake damage;

   3. "Seismic retrofit construction" required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;

   4. Other work or improvement required by local building or planning codes as a result of the intended "seismic retrofit construction";

   5. Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;

   6. Replacement of existing building components, including equipment, except as needed to complete the "seismic retrofit construction";

   7. Bracing or securing nonpermanent building contents;

   8. The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,

   9. Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certifications required by this bill.

4. Defines "seismic retrofit construction" as alteration of a "qualified building" or its components to substantially mitigate seismic damage. Seismic retrofit construction shall be for work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:

   1. Anchoring the structure to the foundation;

   2. Bracing cripple walls;

   3. Bracing hot water heaters;

   4. Installing automatic gas shutoff valves;

   5. Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;

   6. Anchoring fuel storage; and,

   7. Installing an earthquake-resistant bracing system for mobile homes registered with the Department of Housing and Community Development.

5. Provides that seismic retrofit construction does not include construction performed to bring a building into compliance with local building codes.

6. Defines a "qualified building" as a building that has been certified as an "at-risk property," as specified. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.

7. Defines an "at-risk property" as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings.

8. Provides that, to be eligible for the credit, the following must apply:

   1. The qualified taxpayer must obtain certification, prior to construction, that the building is an at-risk property.

   2. The qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Upon request of the Franchise Tax Board (FTB), the qualified taxpayer must provide a copy of the certification to the FTB.

   3. The jurisdiction with authority for building code enforcement in which a qualified building is located has entered into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications.

9. Requires the credit amount allowed to be claimed by a qualified taxpayer at the rate of one-fifth of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years.

10. Provides that, in cases where the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to the following taxable year, and succeeding four taxable years, until the credit has been exhausted.

11. Provides that, for purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction.

12. Provides that this credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs.

13. Allows the credit under both the Personal Income Tax Law and the Corporation Tax Law.

14. Provides that Revenue and Taxation Code (R&TC) Section 41 shall not apply to the credit.

15. Takes immediate effect as a tax levy.

16. Sunsets the credit provisions on December 1, 2021.

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1) Potentially significant General Fund (GF) costs to the FTB to administer the changes to forms and systems.

2) Estimated GF revenue decreases of $1.4 million, $5.2 million, and $9.1 million in fiscal year (FY) 2015-16, FY 2016-17, and FY 2017-18, respectively.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The recent earthquakes, which shook Southern California cities [in] 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California's resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.

2. Revenue and Taxation Committee Comments:

   1. What would this bill do? This bill would allow a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Proponents note that such action, in turn, could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

   2. R&TC Section 41 shall not apply: On September 29, 2014, Governor Brown signed into law SB 1335 (Leno), Chapter 845, Statutes of 2014, which added R&TC Section 41. SB 1335 recognized that the Legislature should apply the same level of review used for government spending programs to tax preference programs, including tax credits. Thus, R&TC Section 41 requires any bill introduced on or after January 1, 2015, that allows a new credit to contain specific goals, purposes, and objectives that the tax credit will achieve. In addition, R&TC Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives so-identified.

The present bill provides that R&TC Section 41 shall not apply to this credit. The Legislature may wish to consider the appropriateness of this R&TC Section 41 exemption. Critics of an R&TC Section 41 exemption might argue that the exemption exacerbates one of the primary problems inherent in crafting tax expenditure measures – namely, it is often unclear what objectives the Legislature is aiming to achieve.

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0000674

Date of Hearing: May 27, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 428

Author:(Nazarian) – As Amended Ver:May 12, 2015

Urgency: Yes State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill allows a tax credit under the personal income tax and corporate tax laws, for tax years beginning on or after January 1, 2016 and before January 1, 2021, equal to 30% of a qualified taxpayer's costs incurred for seismic retrofit construction. In summary, this bill:

1) Defines a "qualified taxpayer" as an owner of a qualified building located in California; and allows a taxpayer that owns a proportional share of a qualified building to claim the credit based on the taxpayer's share of the costs incurred for seismic retrofit construction.

2) Defines a "qualified building" as a building that has been certified by the local building code enforcement authority for the area within which the building is located as an "at-risk property," which is further defined as a building, including certain mobile homes, deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, and permits the Franchise Tax Board (FTB) to request a copy of that certificate.

3) Defines "seismic retrofit construction" as specified changes or additions to the structure of a qualified building to mitigate seismic damage, and excludes from the definition activities performed to bring a qualified building into compliance with local building codes.

4) Provides that, to be eligible for the credit:

a) The qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction.

b) The jurisdiction with authority for building code enforcement in which a qualified building is located has entered into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications.

5) Requires the credit amount allowed to be claimed by a qualified taxpayer at the rate of one-fifth of the credit amount for the taxable year in which the credit is allocated, and one-fifth of the credit amount for each of the subsequent four taxable years.

6) Provides that the credit shall be in lieu of any other credit or deduction the taxpayer may otherwise claim with respect to the qualified costs.

FISCAL EFFECT:

1) Potentially significant GF costs to Franchise Tax Board (FTB) to administer the changes to forms and systems.

2) Estimated GF revenue decreases of $1.4 million, $5.2 million, and $9.1 million in FY 2015-16, FY 2016-17, and FY 2017-18, respectively.

COMMENTS:

1) Purpose. According to the author, this measure will improve California's preparedness for earthquakes, saving taxpayers money that would otherwise be required for disaster relief. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%.

Proponents of the bill argue the cost of retrofitting buildings can be very expensive, and this bill will encourage owners of older properties to upgrade safety features, protecting both owners and tenants from future earthquakes.

2) Opposition. The California Tax Reform Association (CTRA) notes that property owners are already strongly incentivized to retrofit their buildings in order to preserve the value of their investment. CTRA argues since an earthquake would likely cause a total loss to property owner, there is no need for an additional tax credit. Such credit would only reward activity that would otherwise have been undertaken.

3) Is Section 41 Already Doomed? Tax credits are often used to encourage or influence socially beneficial behavior, and provide relief to taxpayers who incur expenses from desired behavior. Tax credits are often more appealing than tax deductions as the taxpayer may take the same credit regardless of income. This is particularly true among corporate taxpayers.

This bill ignores the requirements of Section 41 of the revenue and taxation code, authorized just last year in SB 1335 (Leno), Statutes of 2014, which requires tax credits to articulate specific goals, purposes, and objectives for the credit, as well as establish performance indicators to measure the credit's success in achieving those goals. While the policy goals of this bill may be laudable, there is no indication to suggest 30% of qualified expenses is the appropriate credit to achieve the desired increase in seismic upgrades, and that taxpayers seeking the credit would not have performed the upgrades anyway. In addition, there are no metrics proposed with which to evaluate whether the credit is achieving its aims. Ensuring the Legislature conducts some objective and dispassionate evaluation of tax credits was the goal of SB 1335, and the committee might wish to consider whether this is precisely the type of tax credit for which Section 41 ought to apply.

4) Prior legislation. This bill is substantially similar to AB 1510 (Nazarian) of last year. AB 1510 was held on the Suspense File of this committee.

Analysis Prepared by: Joel Tashjian / APPR. / (916) 319-2081

Date of Hearing: May 18, 2015

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Philip Ting, Chair

ABPCA Bill Id:AB 428 (

Author:Nazarian) – As Amended Ver:May 12, 2015

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income taxes: credit: seismic retrofits

SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction", as specified. Specifically, this bill:

1. Allows the credit for taxable years beginning on or after January 1, 2016, and before January 1, 2021.
   
   

2. Defines a "qualified taxpayer" as an owner of a "qualified building" located in California. A taxpayer that owns a proportional share of a "qualified building" may claim the credit based on the taxpayer's share of the "qualified costs".
   
   

3. Defines "qualified costs" as costs paid or incurred by the qualified taxpayer for any completed "seismic retrofit construction" on a "qualified building", including any engineering or architectural design work necessary to permit or complete the "seismic retrofit construction". "Qualified costs" shall not include any of the following:

1. Maintenance, including abatement of deferred or inadequate maintenance, and correction of violations unrelated to the "seismic retrofit construction";
   
   

2. Repair, including repair of earthquake damage;
   
   

3. "Seismic retrofit construction" required by local building codes as a result of addition, repair, building relocation, change of use, or occupancy;
   
   

4. Other work or improvement required by local building or planning codes as a result of the intended "seismic retrofit construction";
   
   

5. Rent reductions or other associated compensation, compliance actions, or other related coordination involving the qualified taxpayer and any other party, including a tenant, insurer, or lender;
   
   

6. Replacement of existing building components, including equipment, except as needed to complete the "seismic retrofit construction";
   
   

7. Bracing or securing nonpermanent building contents;
   
   

8. The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to others; or,
   
   

9. Amounts paid to the jurisdiction with authority for building code enforcement for issuing the certification required by this bill.
   
   

1. Defines "seismic retrofit construction" as alteration of a "qualified building" or its components to substantially mitigate seismic damage. Seismic retrofit construction shall be for work performed voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016. Seismic retrofit construction shall include the following:
   
   

   1. Anchoring the structure to the foundation;
      
      

   2. Bracing cripple walls;
      
      

   3. Bracing hot water heaters;
      
      

   4. Installing automatic gas shutoff valves;
      
      

   5. Repairing or reinforcing the foundation to improve the foundation's integrity against seismic damage;
      
      

   6. Anchoring fuel storage; and,
      
      

   7. Installing an earthquake-resistant bracing system for mobile homes registered with the California Department of Housing and Community Development.
      
      

2. Defines a "qualified building" as a building that has been certified as an "at-risk property" by "the local building code enforcement" for the area within which the building is located. A qualified building specifically includes a mobile home registered by the Department of Housing and Community Development.
   
   

3. Defines an "at-risk property" as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including soft story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings.
   
   

4. Provides that, to be eligible for the credit, the following must apply:
   
   

   1. The qualified taxpayer must obtain certification from the appropriate jurisdiction with authority for building code enforcement, upon a review of the building, that the completed construction satisfies the definition of seismic retrofit construction. The certification shall identify what part of the completed construction, if any, is not seismic retrofit construction. Upon request of the Franchise Tax Board (FTB), the qualified taxpayer must provide a copy of the certification to the FTB.

2. The jurisdiction with authority for building code enforcement in which a qualified building is located has entered into an agreement with the state to provide certifications and to not seek reimbursement for any costs incurred in providing those certifications.
   
   

1. Requires the credit amount allowed to be claimed by a qualified taxpayer at the rate of 1/5^th of the credit amount for the taxable year in which the credit is allowed, and one-fifth of the credit amount for each of the subsequent four taxable years.
   
   

2. Provides that, in cases where the credit amount exceeds the taxpayer's tax liability, the excess credit amount may be carried over to the following taxable year, and succeeding four taxable years, until the credit has been exhausted.
   
   

3. Provides that, for purposes of computing the credit, the qualified costs shall be reduced by any grant provided by a public entity for the seismic retrofit construction.
   
   

4. Provides that this credit shall be in lieu of any other credit or deduction that the qualified taxpayer may otherwise claim with respect to qualified costs.
   
   

5. Allows the credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law.
   
   

6. Provides that Revenue and Taxation Code (R&TC) Section 41 shall not apply to the credit.
   
   

7. Takes immediate effect as a tax levy.
   
   

8. Sunsets the credit provisions on December 1, 2021.

EXISTING LAW:

1. Allows various tax credits under both the PIT Law and the CT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
   
   

2. Allows taxpayers engaged in a trade or business to deduct expenses considered ordinary and necessary in conducting that trade or business.
   
   

3. Requires any bill authorizing a new credit to contain all of the following:

   1. Specific goals, purposes, and objectives that the tax credit will achieve;

   2. Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,

   3. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. The requirements shall include the specific data and baseline measurements to be collected and remitted in each year the credit is in effect, for the Legislature to measure the change in performance indicators, and the specific taxpayers, state agencies, or other entities required to collect and remit data. (R&TC Section 41.)

FISCAL EFFECT: The FTB estimates that this bill will reduce General Fund revenues by $1.4 million in fiscal year (FY) 2015-16, by $5.2 million in FY 2016-17, and by $9.1 million in FY 2017-18.

COMMENTS:

1. The author has provided the following statement in support of this bill:

The recent earthquakes, which shook Southern California cities [in] 2014, remind us that an earthquake can strike at any given moment and it is imperative that we ensure our structures are suitable to withstand a catastrophic earthquake. According to the Southern California Earthquake Center, California has a 99.7% chance of having a magnitude 6.7 or larger earthquake during the next 30 years, and the likelihood of an even more powerful quake of magnitude 7.5 or greater in the next 30 years is 46%. It is imperative that we take every precaution to make sure that human life and property is saved in the event of a catastrophic earthquake. This measure will improve California's resilience against earthquakes, saving the public money that would otherwise have been required for disaster relief.

2. Proponents of this bill note the following:

We all know that the cost to retrofit a building is very expensive. While older buildings were constructed according to building codes in place at the time, new studies have found that some of these buildings may not survive a strong earthquake. Your bill will help and encourage property owners to have work done to their buildings to ensure they are safe. Your bill is important not only to property owners, but also to tenants who live in these buildings.

3. Committee Staff Comments

   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).

   2. How is a tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. While this affords taxpayers greater financial predictability, it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date, effectively resulting in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their cost or efficacy, without a supermajority vote.

   3. What would this bill do? This bill would allow a credit equal to 30% of a qualified taxpayer's qualified costs incurred for seismic retrofit construction. According to the United States Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike California in the next 30 years. This bill's tax credit is designed to lower the overall cost for property owners to improve the seismic safety of their buildings. Proponents note that such action, in turn, could save countless lives in the event of a catastrophic earthquake, and would reduce the demand for state and local emergency services by hopefully minimizing structural damage. Older concrete structures are particularly vulnerable to earthquake damage; last year, the author noted that recent research has identified 1,500 concrete buildings that are seismically vulnerable in the Los Angeles area alone.

   4. Implementation considerations: Committee staff has identified certain implementation concerns with this bill's current language. Committee staff is available to work with the author's office to resolve these and any other concerns that may be identified. These issues include the following:

      1. This bill currently requires a taxpayer to obtain a "certification" from the "appropriate jurisdiction with authority for building code enforcement." This certification, in turn, must attest to the fact that the completed construction satisfies the statutory definition of "seismic retrofit construction." The certification must also identify what part of the completed construction, if any, is not seismic retrofit construction. This bill does not, however, currently require this certification to verify a building's "at-risk" status prior to construction, which may ease administration of the credit.

These provisions raise a number of additional issues. First, this bill provides little definitional guidance for identifying the "appropriate jurisdiction" with building code enforcement authority. Additional ambiguity is created by this bill's definition of a "qualified building", which is deemed one that has been certified as an at-risk property by the local "building code enforcement" for the area within which the building is located. The author may wish to consider appropriate amendments clarifying which entities will have certification authority.

2. This bill defines an "at-risk property" as a building deemed hazardous and in danger of collapse in the event of a catastrophic earthquake, including, but not limited to, soft-story buildings, nonductile concrete residential buildings, and pre-1994 concrete residential buildings. This language may create ambiguity regarding which building types potentially qualify for this designation. On one hand, this language would appear to vest local building code entities with unfettered discretion to designate any building as "at-risk" as long as it is deemed in danger of collapse in the event of an earthquake. On the other hand, references to specific building types such as "pre-1994" concrete residential buildings may suggest that concrete buildings constructed after 1994 do not qualify.

3. This bill currently specifies that seismic retrofit construction must be for work performed "voluntarily"; it is not entirely clear what this term means. If a local government were to enact an ordinance requiring certain seismic safety improvements for specified buildings, would compliance with this ordinance be considered "voluntary"? What if the ordinance gave all property owners three years to comply? Would improvements completed before the ordinance's operative date be considered "voluntary"? The author may wish to consider amendments clarifying these issues, especially given that tax credits are generally allowed, as a matter of legislative grace, to encourage action that otherwise would not occur.

1. R&TC Section 41 shall not apply: On September 29, 2014, Governor Brown signed into law SB 1335 (Leno), Chapter 845, Statutes of 2014, which added R&TC Section 41. SB 1335 recognized that the Legislature should apply the same level of review used for government spending programs to tax preference programs, including tax credits. Thus, Section 41 requires any bill introduced on or after January 1, 2015 that allows a new credit to contain specific goals, purposes, and objectives that the tax credit will achieve. In addition, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives so-identified.

The present bill provides that R&TC Section 41 shall not apply to this credit. The Committee may wish to consider the appropriateness of this Section 41 exemption. Critics of a Section 41 exemption might argue that the exemption exacerbates one of the primary problems inherent in crafting tax expenditure measures – namely, it is often unclear what objectives the Legislature is aiming to achieve.

6. Prior legislation:

1. AB 1510 (Nazarian), of the 2013-14 Regular Session, would have allowed a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for "seismic retrofit construction". AB 1510 was held on the Assembly Appropriations Committee's Suspense File.
   
   

2. AB 1756 (Scott), of the 1999-2000 Regular Session, would have allowed a credit equal to 55% of the amount incurred for seismic retrofit construction on residential dwellings built prior to 1979. AB 1756 was held on the Assembly Committee on Appropriations' Suspense File.

3. SB 677 (McPherson), of the 2001-02 Regular Session, would have allowed a credit equal to an unspecified percentage of the final cost of seismic retrofitting, as specified. SB 677 was never heard by the Senate Committee on Revenue and Taxation.

REGISTERED SUPPORT / OPPOSITION:

Support

California Apartment Association

Western Manufactured Housing Communities Association

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098