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 storage, use, or other consumption in this state. Those laws provide various exemptions from those taxes.

This bill, on and after January 1, 2019, and before January 1, 2030, 2024, would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, retail hydrogen vehicle fuel, as defined.

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 laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Amendments to the Sales and Use Tax Law are automatically incorporated into the local tax laws.

Existing law requires the state to 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.

The Planning and Zoning Law authorizes the legislative body of any county or city to adopt an ordinance that regulates the use of buildings, structures, and land. Existing law prohibits the imposition of parking standards for multifamily housing developments that are subject to a streamlined, ministerial approval process, except under limited circumstances.

This bill would prohibit a city, county, or city and county from imposing minimum parking requirements for new housing developments where offstreet parking is permitted. By imposing new requirements on local agencies, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to the statutory provisions noted above.

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 3000

Author:(Friedman) – As Amended Ver:May 8, 2018

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

SUMMARY:

This bill establishes, from January 1, 2019, through December 31, 2023, a sales and use tax (SUT) exemption for retail hydrogen vehicle, as defined.

FISCAL EFFECT:

General Fund Revenue loss of $660,000 in 2019 and $930,000 in 2020.

COMMENTS:

1. Background and purpose. AB 8 (Perea), Chapter 401, Statutes of 2013, established an annual $20 million funding for the construction of at least 100 hydrogen fuel stations in California. The California Energy Commission (Commission), in consultation with the Air Resources Board (ARB), is responsible for allocating the $20 million annually until 2024, to fund the number of stations identified as operational, until there are at least 100 publicly available hydrogen-fueling stations in California. As of August 2017, there were 1,600 registered fuel cell electric vehicles in California and 29 open-retail stations. Proponents of AB 3000 note that fuel cell electric vehicles, powered by hydrogen fuel, are just now being introduced by major automakers.
2. Purpose. According to the author, AB 3000 will create parity among technologies that allow for a faster adoption of zero emission vehicles. While electricity is exempt from state and local sales tax, hydrogen fuel is not.
3. Fiscal implications of tax expenditures. Existing law allows for various tax expenditures such as credits, deductions, exclusions, and exemptions for particular taxpayer groups. These features of the tax code can result in significant state costs through foregone tax revenue and, in many cases, policymakers have little control over the revenue loss that occurs in any given year. As a result, many tax expenditure bills now include provisions designed to give the Legislature more control over costs. Examples of such provisions include placing a sunset date or making a bill’s provisions contingent upon a separate budget appropriation. AB 3000 contains a sunset.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: April 30, 2018

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 3000 (

Author:Friedman) – As Amended Ver:March 22, 2018

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and use taxes: exemption: retail hydrogen vehicle fuel

SUMMARY: Establishes a sales and use tax (SUT) exemption for "retail hydrogen vehicle fuel". Specifically, this bill:

1. Provides that the SUT exemption shall apply on and after January 1, 2019, and before January 1, 2030.
2. Defines "retail hydrogen vehicle fuel" as hydrogen sold in a retail setting, either exclusively or concurrently with other motor vehicle fuels, for any zero-emission motor vehicle that uses hydrogen in a "fuel cell" for some or all of its propulsion.
3. Defines a "fuel cell" as a device that directly or indirectly creates electricity through an electrochemical process using hydrogen or hydrogen-rich fuel and oxygen or another oxidizing agent.
4. Provides that, notwithstanding existing law, the state shall not reimburse any local agency for any SUT revenues lost as a result of this exemption.
5. Sunsets the exemption on January 1, 2030.
6. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
2. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser; and unless the purchaser pays the use tax to an out-of-state retailer registered to collect California's use tax, the purchaser remains liable for the tax. The use tax is set at the same rate as the state's sales tax and must generally be remitted to the California Department of Tax and Fee Administration (CDTFA).
   
3. Establishes the Alternative and Renewable Fuel and Vehicle Technology Program (Program) administered by the State Energy Resources Conservation and Development Commission (Commission). The Program provides, upon appropriation by the Legislature, competitive grants, revolving loans, loan guarantees, loans, or other appropriate funding measures to specified entities to develop and deploy innovative technologies that transform California's fuel and vehicle types to help attain the state's climate change policies. State law provides that the Program's emphasis shall be to develop and deploy technology and alternative and renewable fuels in the marketplace, without adopting any one preferred fuel or technology. (Health and Safety Code Section 44272)

FISCAL EFFECT: Staff estimates SUT revenue losses of $1.4 million in 2019 and $2 million in 2020.

COMMENTS:

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

On January 26, 2018, Governor Brown issued Executive Order B-48-14 which, among other things, called for a new and ambitious target of five million zero emission vehicles (ZEVs) by 2030. Despite California's stated commitment to a ZEV future, consumer adoption remains a challenge. With just 300,000 zero emission vehicles on California roads today, it is critical that we employ a wide range of near-term tools to encourage and accelerate consumer adoption if we are to achieve our important transportation sector climate change goals.

Fuel cell electric vehicles, like their plug in battery counterparts, are zero emission battery electric vehicles, but are powered by hydrogen. California is one of the largest hydrogen producing states, with its hydrogen fuel sales subject to the sales and use tax.

California's taxation of zero emission vehicle fuels is inconsistent. Section 6353 of the Revenue and Taxation Code completely exempts electricity from state and local sales and use tax. By exempting hydrogen sold as transportation fuel from the sales and use tax, AB 3000 will simply treat equally the consumers of two differing zero emission vehicle technologies. Moreover, creating tax parity among technologies will reduce the consumer's cost of ownership and accelerate the adoption of fuel cell electric vehicles.

Because of its nascent use as a transportation fuel, fueling costs cannot yet compete with gasoline. However, as the industry grows, the cost of fuel will decline substantially.

AB 3000's exemption of hydrogen fuel from the state and local sales and use taxes sunsets on January 1, 2030. This 2030 sunset date reflects industry estimates for fueling costs becoming competitive with gasoline and electricity.

1. This bill is supported by FirstElement Fuel Inc., which notes the following:

FirstElement Fuel, a company founded and headquartered in Irvine, California, is the state's largest owner and operator of retail hydrogen stations. At the core of our mission is to enhance the customer experience for retail hydrogen fueling and thereby accelerate the adoption of zero emission fuel cell electric vehicles. Our company's mission is strongly aligned with California's goals of carbon emissions reduction and air quality improvement, as well as with the Governor's Executive Order B-48-18, which calls for a new and [ambitious] target of five [million] zero emission vehicles (ZEVs) by 2030.

1. This bill is opposed by the California State Association of Counties, which notes the following:

We recognize the intent of the measure but have ongoing concerns with proposals such as these that erode the sales tax base for cities and counties. As such, we request that only the state portion of the sales tax is provided for the exemption and critical funds for locally administered state programs – such as those under Realignment – as well as county-based services and programs are not impacted.

1. 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. 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 effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.
   3. An overview of the SUT Law: California's SUT Law imposes a sales tax on retailers for the privilege of selling TPP, absent a specific exemption. The tax is based upon a retailer's gross receipts from TPP sales in California. The SUT Law also imposes a mirror "use tax" on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser, and unless the purchaser pays the use tax to an out-of-state retailer registered to collect California's use tax, the purchaser remains liable for the tax. The use tax is set at the same rate as the state's sales tax and must generally be remitted to the CDTFA.

The SUT represents the state's second largest source of General Fund (GF) revenues. Nevertheless, the past 60 years have seen a dramatic reduction in the state's reliance on the SUT and a corresponding increase in its reliance on personal income tax revenues. In fiscal year (FY) 2016-17, SUT revenues were estimated to comprise roughly 20% of the state's GF revenues, down from nearly 60% in FY 1950-51.

• 1. What accounts for the state's reduced reliance on SUT revenues? The SUT Law was enacted in a very different era. In the 1930s, California's economy was largely dominated by manufacturing, and residents mostly bought and sold tangible goods. Thus, in establishing the base for a new consumption tax, it made sense to impose the tax on sales of TPP, defined as personal property that may be "seen, weighed, measured, felt, or touched." Over the past 80 years, however, California's economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base. For example, the Commission on the 21^st Century Economy noted that spending on taxable goods represented 34.6% of personal income in 2008, down from 55.4% in 1980. As a result, tax experts and economists from across the political spectrum argue that California should expand its SUT base.

It could be argued that, while well-intentioned, additional SUT exemptions further erode an already shrinking SUT base. This, in turn, increases fiscal pressures to maintain or even increase California's relatively high SUT rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. What would this bill do? This bill would establish a SUT exemption for retail hydrogen vehicle fuel. The SUT exemption would apply for a period of 11 years – namely, on and after January 1, 2019, and before January 1, 2030.

Proponents note that fuel cell electric vehicles (FCEVs), powered by hydrogen fuel, are just now being introduced in mass volumes by automakers, including Toyota, Honda, and Hyundai. Additional automakers are reportedly preparing for market entry. While these vehicles are being commercialized throughout the world, California's mandate for zero-emission vehicles makes the state one of the focal points for the initial introduction and rollout of this new technology. Proponents note that FCEVs can be two to three times more efficient than conventional vehicles. Moreover, FCEVs are fueled with hydrogen gas, which is stored in the vehicle; they emit no pollutants – only water and heat.

• 1. Current state support: AB 8 (Perea), Chapter 401, Statutes of 2013, established $20 million in annual funding for hydrogen refueling stations through grants administered by the Commission. The funding is available until there are at least 100 operational and publicly available hydrogen refueling stations in California, or until January 1, 2024.
  2. A shortened sunset date: This bill's SUT exemption would apply for a period of 11 years. This Committee, however, has a longstanding policy favoring the inclusion of five-year sunset dates. This allows the Legislature to revisit tax expenditure programs in a timely fashion, to assess both efficacy and cost. The Committee may wish to consider shortening this bill's SUT exemption to five years.
  3. Prior legislation: AB 2673 (Harper), of the 2015-16 Legislative Session, would have established a SUT exemption for hydrogen refueling station equipment sold to a qualified grant recipient. AB 2673 failed passage in this Committee and was returned to the Chief Clerk.
  4. Suggested technical amendment: On page 3, in line 6, strike "which" and insert "that".

REGISTERED SUPPORT / OPPOSITION:

Support

AAA Northern California, Nevada and Utah

Air Liquide

American Honda Motor Co., Inc.

California Hydrogen Business Council

FirstElement Fuel Inc.

Toyota

Opposition

California State Association of Counties

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