Existing sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for the storage, use, or other consumption in this state, and provides various exemptions from those taxes.

The bill, on and after January 1, 2016, until January 1, 2020, 2021, would provide a partial exemption from those taxes with respect to the sale of specified low-emission vehicles, as provided.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

This bill would specify that this exemption does not apply to local sales and use taxes or transactions and use taxes.

This bill would take effect immediately as a tax levy.

Existing sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for the storage, use, or other consumption in this state, and provides various exemptions from those taxes.

The bill would, bill, on and after January 1, 2016, until January 1, 2020, would provide either a partial exemption or a partial exclusion from those taxes with respect to the sale of specified low-emission vehicles, as provided.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

This bill would take effect immediately as a tax levy.

Existing sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for the storage, use, or other consumption in this state, and provides various exemptions from those taxes.

The bill would, until January 1, 2020, provide either a partial exemption or a partial exclusion from those taxes with respect to the sale of specified low-emission vehicles, as provided.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.

This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse any local agencies for sales and use tax revenues lost by them pursuant to this bill.

This bill would take effect immediately as a tax levy.

Date of Hearing: May 27, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 945

Author:(Ting) – As Amended Ver:May 20, 2015

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

SUMMARY:

This bill allows, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, a partial sales and use tax exemption, from state sales and use tax only, for the purchase or use of a low emission motor vehicle that qualifies for the federal Qualified Plug-in Electric Drive Motor Vehicle tax credit or a state incentive under the Clean Vehicle Rebate Project, the California Hybrid and Zero-Emission Truck and Bus Voucher Initiative Project, or the On-Road Heavy-Duty Voucher Incentive Program. The bill specifies the exemption amount shall be based on the greater of the trade-in value of a motor vehicle traded in for the low emission vehicle, or the sum of the tax credits and rebates for which the low emission vehicle is eligible.

FISCAL EFFECT:

1) Potentially significant GF costs to the Board of Equalization to administer the changes to procedures and systems.

2) Estimated annual GF revenue decrease of $16.8 million.

COMMENTS:

1) Purpose. According to the author, this bill will help the state reach its greenhouse gas reduction goals by further incentivizing clean vehicles with a state sales tax exemption. The author argues California's transportation sector constitutes the greatest source of air pollution, accounting for 40% of the state's greenhouse gas emissions, and that electric vehicles emit only a quarter of the air pollutants of an average new car. The author believes consumers need greater incentives to buy cars with cleaner emissions technology because these vehicles are often more expensive than traditional internal combustion vehicles, and therefore attract higher sales taxes.

Supporters argue the higher costs for low emissions vehicles results, at least in part, from their advanced technologies and relatively low production volumes. Production of those vehicles has not yet achieved the economies of scale relative to conventional vehicles, and applying sales taxes based on purchase price further suppresses efforts to increase that production. Proponents argue reducing sales tax also harmonizes state tax policy with the other incentives offered to consumers, providing benefits to all Californians by creating clean energy jobs, incentivizing further technological development, and reducing overall use of fossil fuels.

2) But Who Will Pay For Our Roads? Opponents, led by the California Tax Reform Association, argue there are already several federal and state incentives, which together can total several thousands of dollars, for buying low-emission vehicles. In addition, those vehicles pay substantially less highway tax because those taxes are tied to the use of fuel. As a result, purchasers of low-emission vehicles already receive substantial purchase incentives as well as operating cost and operating tax savings over conventional vehicles.

Furthermore, opponents argue federal fuel standards will soon result in many more low-emission vehicle options, which could result in many more vehicles being purchased without paying state sales tax under this bill. Yet all vehicles, including electric vehicles with their heavy batteries, wear and tear on California roads. Reforming vehicle fuel and vehicle mileage taxes may be beyond the scope of this bill, but its need will become even more urgent with further reductions in tax revenues derived from vehicle purchases and use.

Lastly, because electric and plug-in hybrid vehicles tend to be more expensive than conventional vehicles, the benefits of a sales tax exemption will largely be enjoyed by those of greater means. Even the cheapest low-emission vehicles are still beyond the reach of lower-income persons. The committee may wish to consider whether an additional sales tax incentive is necessary or appropriate to achieve the state's policy aims for encouraging low-emission vehicle purchases.

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 945 (

Author:Ting) – As Amended Ver:April 27, 2015

Majority vote. Fiscal committee. Tax levy.

SUBJECT: Sales and use taxes: exemption: low-emission vehicles.

SUMMARY: Provides a partial Sales and Use Tax (SUT) exemption for the purchase or use of a qualified motor vehicle (QMV). Specifically, this bill:

1. Provides a partial SUT exemption for the purchase or use of a QMV. Specifies that the SUT exemption amount shall be equal to the greater of the following:

   1. The trade-in value of a motor vehicle that is traded in for a qualified motor vehicle if the value of the trade in-value motor vehicle is separately stated on the new motor vehicle invoice or bill of sale or similar document provided to the purchaser; or,

   2. The sum of both the following:

      1. The Qualified Plug-in Electric Drive Motor Vehicle tax credit;

      2. The Clean Vehicle Rebate Project;

      3. The California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project; or,

      4. The On-Road Heavy Duty Voucher Incentive Program under the Carl Moyer Program.

2. Defines a “qualified motor vehicle” as a motor vehicle that receives, or is awarded or allowed, the following:

3. A Qualified Plug-in Electric Drive Motor Vehicle tax credit pursuant to Internal Revenue Code (IRC) Section 30D; or,

4. A state incentive amount under the Clean Vehicle Rebate Project, the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project, or the On-Road Heavy-Duty Voucher Incentive Program under the Carl Moyer Program.

5. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, the extension shall not apply with respect to any tax levied by a county, city, or district pursuant to those laws.

6. Provides that the exemption shall not apply to the Local Revenue Fund (Revenue and Taxation Code [R&TC] Sections 6051.2 and 6201.2), Fiscal Recovery Fund (R&TC Sections 6051.5 and 6201.5), Local Public Safety Fund (California Constitution, Article XIII, Section 35), Education Protection Account (California Constitution, Article XIII, Section 36), or the Local Revenue Fund of 2011 (R&TC Sections 6051.15 or 6201.15).

7. Provides that this section shall become operative on January 1, 2016; sunsets on January 1, 2020; and as of that date, is repealed.

8. Takes effect immediately as a tax levy.

EXISTING FEDERAL LAW provides an income tax credit of up to $7,500 for purchases of electric and plug-in hybrid electric vehicles, which include passenger vehicles and light trucks. The credit amount varies based on the capacity of the battery used to fuel the vehicle. Small neighborhood electric vehicles do not qualify.

EXISTING STATE LAW:

1. Imposes a SUT on the sale of, or the storage, use, or other consumption of, tangible personal property (TPP), unless specifically exempted.

2. Provides that the SUT must be computed based on the sales price of the good sold.

3. Authorizes counties and cities to impose local SUTs on TPP.

4. Provides rebates of up to $2,500 for the purchase of zero-emission and plug-in hybrid electric vehicles under the Clean Vehicle Rebate Project. The rebates are available for light-duty cars and trucks, low-speed neighborhood electric cars, and zero-emission motorcycles.

5. Offers vouchers from $8,000 to $45,000, on a first-come, first-served basis, to offset approximately half of the additional cost of eligible new hybrid and electric trucks and buses under the California HVIP.

6. Offers vouchers from $10,000 to $45,000 for 10 or fewer vehicle fleets to quickly replace or retrofit older heavy-duty diesel vehicles under the Carl Moyer Program - VIP.

FISCAL EFFECT: The Board of Equalization (BOE) estimates an annual General Fund revenue loss of $16.8 million.

COMMENTS:

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

AB 945 seeks to help California reach its greenhouse gas reduction goals by incentivizing clean vehicles at the point of sale with a state sales tax exemption. In California, the transportation sector constitutes the greatest of source of pollution, accounting for 40% percent of the state’s greenhouse gas emissions.  According to the US [Environmental Protection Agency], electric vehicles emit only one quarter of pollutants of an average new car.

After buying a home, the purchase of a car is the most expensive purchase for most people. We must make electric vehicles more affordable for more people. We cannot confront climate change without changing the cars we drive.  Governor Brown has set a high bar for change and it needs a powerful jump start to be achieved.  There are more clean cars are on the market today than ever before but consumers need greater incentive to buy them. AB 945 seeks to get more clean cars on the road by reducing sticker shock and putting money immediately back into Californians’ pockets.

2. Arguments in Support: According to California Electric Transportation Coalition, “[t]he existing California state sales and use taxes on the sale or lease of alternative-fuel vehicles are higher than for comparable conventional-fuel vehicles because alternative-fuel vehicles currently cost more. The higher cost is largely due to the fact that these vehicles are currently produced in low volumes using newer and/or advanced technologies; therefore, their production has not yet achieved the economies of scale relative to conventional vehicles. As alternative-fuel vehicle production increases, the costs associated with these vehicles will decline.” The California Electric Transportation Coalition goes on to say that “[t]he current sales and use tax system unfairly penalize the alternative-fuel vehicles the state encourages through a number of monetary and non-monetary incentive programs. In some cases, consumers are penalized as a result of their choosing to purchase alternative-fuel vehicles that have been mandated by the state because they are paying higher rates of sales tax in amounts that reduce the benefits of the monetary incentives that they receive.” Finally, the California Electric Transportation Coalition makes note of the fact that “[a]lternative-fuel vehicles provide benefits to all Californians, including Californians that do not choose to purchase these vehicles. These benefits include diversifying of the transportation fuels sector creating jobs and benefiting the economy; providing more transportation choices for consumers and businesses, thus reducing our economic vulnerability to fuel price volatility; reducing air pollutants, climate change pollutants and toxic emissions from mobile sources; saving Californians $7-$8 billion in avoided health, climate change and societal damages associated with conventional vehicles.”

3. Arguments in Opposition: The California Tax Reform Association states that “there are both federal and state benefits for buying a low-emission vehicle. Beyond that, these high-mileage vehicles provide savings on gasoline costs and the cost of the gas tax. Buyers purchasing low-emission vehicles for a variety of reasons, including lowering their expenditures on fuel. In addition, rising fuel mileage standards, mandated by the federal government, will add greatly to the low emission fleet, through regulation, not tax incentives. And, current cap-and-trade revenues on fuels should be a source of assistance to the low-emission fuel fleet… Thus, given other revenue sources, the regulatory environment, and other benefits to purchases of these vehicles, we do not believe that the general fund should be footing the bill for this program, as this bill would provide.”

4. Background: The California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007 created the California Air Resources Board’s Air Quality Improvement Program (AQIP). AQIP administers the Clean Vehicle Rebate Project (CVRP) and the California Hybrid and Zero-Emission Truck and Bus Voucher Inventive Project (HVIP). Under the CVRP, $2,500 is provided to offset the cost of purchasing a zero-emission and plug-in hybrid electric vehicles. Under the HVIP, California also provides vouchers from $8,000 to $45,000 to offset approximately one-half of the additional cost of eligible new hybrid and electric trucks and buses. The state also offers vouchers from $10,000 to $45,000 for 10 or fewer vehicle fleets to quickly replace or retrofit older heavy duty diesel vehicles under the Carl Moyer Program. Additionally, state and local governments provide non-cash incentive programs for purchasing specified AFVs. Under a white or green sticker designation, certain vehicles are allowed to use the carpool lane regardless of number of occupants. Finally, cities such Sacramento provide free parking and recharging at designated parking facilities for specified AFVs.

5. Scope of Bill: This bill provides a SUT incentive for vehicles covered under specified federal and state incentive programs. The vehicles eligible for the Qualified Plug-in Electric Drive Motor Vehicle federal tax credit are electric and plug-in hybrid electric vehicles, which include passenger vehicles and light trucks. Vehicles eligible for the Clean Vehicle Rebate Project include light-duty, zero-emission vehicles; light-duty, plug-in hybrid electric vehicles; neighborhood electric vehicles; and zero-emission motorcycles. Some car models eligible for the federal and state subsidies include the Honda Accord Plug-In Hybrid, the Tesla Model S, the Nissan Leaf, the Chevrolet Volt, the Ford Fusion Energi, and the Fiat 500e. Vehicles under the California HVIP and the VIP programs include clean, low-carbon hybrid and electric trucks and buses.

6. What Does this Bill Do? This bill provides a partial exemption from the SUT¹ by reducing the sales price of a QMV by a value equal to any applicable federal and state incentive program or the value of a trade-in vehicle, whichever is greater. As an example, the Nissan Leaf would qualify for a $7,500 credit under the Qualified Plug-in Electric Drive Motor Vehicle and a $2,500 credit under the Clean Vehicle Rebate Project. The partial sales tax exemption would be computed based on the sales price of the Nissan Leaf, which has a manufacturer's suggested retail price (MSRP) of $28,800, minus the $10,000 in federal and state credits. In this example, the SUT would be computed based on a sales price of $18,800. However, if a person trades in their old BMW and receives $12,000 for the car, the partial sales tax exemption would be computed based on the $28,800 MSRP minus the $12,000, for a total sales price of $16,800.

7. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States 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 enact a new tax expenditure program in the form of partial SUT exemption for QMVs.

8. 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. 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, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This bill includes a sunset date of January 1, 2020.

9. Negative externalities: In economics, a negative externality is a cost which results from an activity or transaction which affects an otherwise uninvolved party who did not choose to incur that cost. With respect to the environment, externalities are generally considered negative because the use of certain resources impose a cost on society, but the user of that resource is not charged the price equal to the cost imposed. For example, the smoke emitted by a gasoline engine worsens the air quality for neighbors, but the operator of the gasoline engine only pays for the price of fuel, not the use of the clean air. Thus, the negative externality is the pollution of the clean air. The state can choose several avenues to encourage environmental polluters to consider the negative externalities when making choices about the pollution they generate. The most common types of incentives are taxes, subsidies, quotas, and tradable permits. The author of this bill expresses a need to reduce green-house gasses, air pollutants, and toxic emissions by incentivizing consumers to purchase QMVs that are better for the environment.

In a supply and demand model, the supply curve can be thought of as marginal cost and the demand curve can be thought of as marginal benefit. Equilibrium is reached where the marginal cost equals marginal benefit. Everything to the left of the equilibrium point and between the marginal benefit and marginal cost curves is a benefit to society because the marginal benefit is higher than the marginal cost. However, in light of environmental pollution, the marginal cost may not necessarily capture the negative externalities (e.g., pollution, health problems, global warming) borne by society. Therefore, the marginal cost may actually be higher than expected. Ideally, society would want the individual's marginal cost and society's marginal cost to be the same. Assuming that society’s marginal cost is greater than those borne by the individual purchaser, a reduction in gasoline use can be accomplished by imposing a tax or providing a subsidy. California imposes an excise fuel tax on gasoline at a rate of $0.36 a gallon and will be lowered to $0.30 per gallon starting July 1, 2015. The tax lowers consumption of gasoline, mitigating some of the pollutants expelled by gasoline powered vehicles. Despite the excise tax applied to gasoline, there appears to be additional need to reduce pollutants. Thus, the subsidy provided for in this bill should increase the number of fuel efficient vehicles on the road, further reducing the negative effects associated with the use of gasoline.

10. Prior Legislation:

    1. AB 1077(Ting and Muratsuchi), of the 2013-14 Legislative Session, provided a partial SUT exemption for QMV, as specified, and reduced the amount of vehicle license fee imposed on an owner of a QMV. AB 1077 was held on the Assembly Appropriation Committee’s Suspense File.

    2. SB 221 (Pavley), of the 2013-14 Legislative Session, exempts from the SUT any amount allowed as a federal tax credit, and any amount received, awarded, or allowed under a state AFV incentive program. SB 221 was never heard by the Senate Governance and Finance Committee.

    3. AB 1304 (Saldana), introduced in the 2009-10 Legislative Session, would have exempted the sale and purchase of electric vehicles, as defined, from state and local SUTs. The exemption would have been limited to 100 electric vehicles per manufacturer. AB 1304 held on the Assembly Appropriations Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

California Electric Transportation Coalition (Sponsor)

Bay Area Air Quality Management District

Blood Centers of California

California New Car Dealers Association

CalStart

California Trucking Association

First Priority Bus Sales

Pacific Gas and Electric Company

Sacramento Municipal Utility District

San Diego Gas & Electric Company

Opposition

Tax Reform Association

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