The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions in computing the income that is subject to the taxes imposed by that law, including miscellaneous itemized deductions that are allowed only to the extent that the aggregate amount of those deductions exceeds 2% of adjusted gross income.

This bill, upon appropriation of specified funds by the Legislature, on and after January 1, 2017, and before January 1, 2022, would allow as a deduction under that law for the amount paid or incurred by a taxpayer during the taxable year, not to exceed $500, for any security fence, security alarm system, and security surveillance system that is purchased and installed at a qualified residence located in this state, as specified.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions in computing the income that is subject to the taxes imposed by that law, including miscellaneous itemized deductions that are allowed only to the extent that the aggregate amount of those deductions exceeds 2% of adjusted gross income.

This bill, on and after January 1, 2017, would allow as a deduction under that law for the amount paid or incurred by a taxpayer during the taxable year, not to exceed $500, for any security fence, security alarm system, and security surveillance system that is purchased and installed at a qualified residence located in this state, as specified.

This bill would take effect immediately as a tax levy.

Date of Hearing: April 26, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 54

Author:(Steinorth) – As Amended Ver:April 3, 2017

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

SUMMARY:

This bill allows a Personal Income Tax (PIT) deduction for the purchase and installation of a security fence, security alarm system, or security surveillance system at a qualified residence. Specifically, this bill:

1. Allows a PIT deduction equal to the amount paid or incurred by a taxpayer during the taxable year, not to exceed $500, for the purchase or installation of a security fence, security alarm system, or security surveillance system at a qualified residence located in California.
2. Allows the deduction for taxable years beginning on or after January 1, 2017, and before January 1, 2022.
3. States that the deduction will become operative on the effective date of any budget measure that appropriates funds to the Franchise Tax Board (FTB) for administration of the deduction.

FISCAL EFFECT:

1. Minor GF cost pressures for FTB’s administration of the proposed deduction. These costs only materialize if FTB receives a budget appropriation to administer the provisions of this bill, as required.
2. Additional General Fund (GF) cost pressures in the range of $200,000 each year beginning in 2017-18. These cost pressures reflect the potential GF revenue loss if the proposed deduction becomes operative once FTB receives an appropriation to administer it.

COMMENTS:

1. Purpose. According to the author, AB 54 will help prevent homeowners from sacrificing necessities for the protection of their homes through security systems. The bill aims to make home security more accessible and affordable, which supporters say will improve overall public safety.
2. Fiscal implications of tax expenditures. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. These features of tax law are 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). One ongoing concern about tax expenditures is the lack of control over revenue losses, since the number of taxpayers taking advantage of any given tax expenditure can vary each year. This bill enacts a new tax expenditure program, in the form of a PIT deduction, to encourage the purchase of home security equipment.

A recent policy committee amendment that makes this new proposed PIT deduction operative on years when the FTB receives an appropriation to administer it is a step in the right direction for controlling its year-to-year costs, but significant cost pressures remain. As amended, this bill creates the expectation that a deduction will be available for home security systems and puts in place the conditions for that deduction to be made available. Moreover, the nature of PIT tax expenditures means that once the deduction is made operative by funding the administrative costs, the revenue loss associated with that deduction can no longer be managed or capped for that year.

1. Who benefits? Supporters of AB 54 point to the need for making home security systems affordable in order to improve overall public safety. However, as currently structured, AB 54 is more likely spend state dollars on taxpayers who would otherwise still be able to afford such security systems. Only taxpayers who itemize their deductions will be able to take advantage of the proposed tax subsidy, and those who itemize tend to have higher incomes or are homeowners.

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

Date of Hearing: March 27, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 54 (

Author:Steinorth) – As Introduced Ver:December 5, 2016

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income taxes: deductions: security fence: security alarm system: security surveillance system

SUMMARY: Allows a deduction under the Personal Income Tax (PIT) Law for the purchase and installation of a security fence, security alarm system, or security surveillance system at a qualified residence. Specifically, this bill:

1. Allows, on and after January 1, 2017, a deduction under the PIT Law for the amount paid or incurred by a taxpayer during the taxable year, not to exceed $500, for the purchase or installation of a security fence, security alarm system, or security surveillance system at a qualified residence located in California.
2. Defines a "qualified residence" as having the same meaning as set forth in Section 163(h)(4)(A) of the Internal Revenue Code.
3. Defines a "security alarm system" as an assembly of equipment and devices arranged to signal the presence of a hazard requiring urgent attention and to which police are expected to respond that is installed, maintained, altered, sold on premises, monitored, serviced, or responded to by a licensed alarm company operator.
4. Defines a "security fence" as a barrier, railing, or other upright structure, made of any material, enclosing an area of ground to control or prevent unauthorized access to the front of the qualified residence. A security fences does not include a similar structure used to block access to the back of the qualified residence or to mark boundaries.
5. Defines a "security surveillance system" as an assembly of any combination of video, audio, or photographic recording devices installed for the purposes of surveillance or recording of activity occurring at the qualified residence.
6. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows individuals to deduct certain expenses in computing the income subject to tax under the PIT Law. State and federal law allows standard deductions, a fixed dollar amount intended to approximate deductible living expenses, and itemized deductions for various specific expenses, including miscellaneous itemized deductions.
2. Provides that miscellaneous itemized deductions are only allowed to the extent that they exceed 2% of adjusted gross income (AGI). Home security systems are generally not deductible as a miscellaneous itemized deduction, unless the home security system is a business expense for a home office, as specified.

FISCAL EFFECT: The Franchise Tax Board (FTB) estimates General Fund revenue losses of $200,000 in fiscal year (FY) 2017-18, $200,000 in FY 2018-19, and $200,000 in FY 2019-20.

COMMENTS:

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

AB 54 will allow homeowners to include in their miscellaneous itemized deductions up to $500 in qualifying home security purchases. These deductions would assist in preventing homeowners from sacrificing the necessities for the protection of their homes through security and surveillance devices. AB 54 will allow homeowners to make home security more accessible and affordable through up to $500 in deductions for qualifying costs.

1. Committee Staff Comments:
   1. Arguments in Support: Supporters of this bill state that "home security and surveillance systems have proven to be effective tools in protecting one's family and personal property. While there are a wide variety of security systems that vary in price currently on the market, alarm systems may still be cost prohibitive for some." By making security systems affordable for more people, this bill improves overall public safety.
   2. Arguments in Opposition: Opponents of this bill state that "the value of security to most people is a significant enough incentive that the state does not need to subsidize it" and that "public investment in public safety, in its many forms, will be far more effective than tax deductions for the very few who can use them."
   3. 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 of them (in the form of forgone revenues). This bill would enact a new tax expenditure program in the form of a deduction for the purchase and installation of a security fence, security alarm system, or security surveillance system at a qualified residence.
   4. Tax Expenditure vs. 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 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 does not include a sunset date. The Committee may wish to consider including a sunset date to allow for proper legislative review of the benefits and costs of this tax expenditure in the future.

• 1. Conformity Issues: California generally conforms to federal law regarding itemized deductions. In general, state conformity with federal law promotes greater simplicity and eases administration of complex tax laws. Federal law does not allow a specific deduction for home security systems, so the deduction proposed by this bill would bring California further out of conformity with federal law.
  2. Scope of This Deduction: As noted in the FTB's analysis of this bill, each owner of a qualified residence would be allowed a deduction of up to $500 per taxable year if a security system is installed. For example, if a qualified property is owned by two separate taxpayers, each taxpayer could be allowed a $500 deduction, generating a deduction of up to $1,000 in each taxable year associated with the qualified property. Furthermore, this bill defines a "qualified residence" to include a second home, thus allowing a taxpayer with two homes a deduction of up to $1,000 each taxable year ($500 for costs attributable to each residence). Lastly, although taxpayers generally cannot claim a deduction for a home security system under current law, there are specified instances when a home security system may be deducted as a business expense, thus allowing some taxpayers to claim multiple tax benefits for the same item of expense. If it is not the author’s intent to allow a deduction of more than $500 per property or $500 per taxpayer, or allow duplicative tax benefits, the author may wish to clarify the scope of this bill.

Furthermore, because this bill allows the deduction beginning on and after January 1, 2017, this bill would provide a tax benefit for home security systems already purchased and installed prior to its enactment. The Committee may wish to consider the policy implications of providing an incentive for behavior that is already occurring in the marketplace and instead specify that this bill shall only apply in future taxable years beginning on or after January 1, 2018.

• 1. Affording Home Security: A taxpayer may reduce his or her AGI by the larger of either the standard deduction or the total of his or her allowed itemized deductions. As a result, this bill generally only benefits taxpayers who itemize deductions in lieu of taking the standard deduction. According to a Tax Foundation analysis of Internal Revenue Service data from the 2013 tax year, 68.5% of households chose to take the standard deduction, but higher income taxpayers were more likely to itemize deductions – only 6% of tax returns reporting less than $25,000 in income itemized deductions, whereas 93.5% of tax returns reporting more than $200,000 in income itemized deductions. The analysis notes that deductions are more valuable for households that fall into higher tax brackets and high-income households are likely to have greater expenditures, such as larger mortgage payments and charitable donations, that lead to sizeable itemized deductions.

To the extent that the purpose of this bill is to make home security more accessible and affordable, it is important to note that the deduction allowed by this bill is most likely to benefit higher income taxpayers who itemize deductions. Instead of forgoing General Fund revenues in a manner that predominantly favors higher income taxpayers, the Committee may wish to consider whether funds would be better spent on other public safety programs.

REGISTERED SUPPORT / OPPOSITION:

Support

California Alarm Association

California Police Chiefs Association

Security Industry Association

One private individual

Opposition

Electronic Frontier Foundation

California Tax Reform Association

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098

Date of Hearing: March 13, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 54 (

Author:Steinorth) – As Introduced Ver:December 5, 2016

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income taxes: deductions: security fence: security alarm system: security surveillance system

SUMMARY: Allows a deduction under the Personal Income Tax (PIT) Law for the purchase and installation of a security fence, security alarm system, or security surveillance system at a qualified residence. Specifically, this bill:

1. Allows, on and after January 1, 2017, a deduction under the PIT Law for the amount paid or incurred by a taxpayer during the taxable year, not to exceed $500, for the purchase or installation of a security fence, security alarm system, or security surveillance system at a qualified residence located in California.
2. Defines a "qualified residence" as having the same meaning as set forth in Section 163(h)(4)(A) of the Internal Revenue Code.
3. Defines a "security alarm system" as an assembly of equipment and devices arranged to signal the presence of a hazard requiring urgent attention and to which police are expected to respond that is installed, maintained, altered, sold on premises, monitored, serviced, or responded to by a licensed alarm company operator.
4. Defines a "security fence" as a barrier, railing, or other upright structure, made of any material, enclosing an area of ground to control or prevent unauthorized access to the front of the qualified residence. A security fences does not include a similar structure used to block access to the back of the qualified residence or to mark boundaries.
5. Defines a "security surveillance system" as an assembly of any combination of video, audio, or photographic recording devices installed for the purposes of surveillance or recording of activity occurring at the qualified residence.
6. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows individuals to deduct certain expenses in computing the income subject to tax under the PIT Law. State and federal law allows standard deductions, a fixed dollar amount intended to approximate deductible living expenses, and itemized deductions for various specific expenses, including miscellaneous itemized deductions.
2. Provides that miscellaneous itemized deductions are only allowed to the extent that they exceed 2% of adjusted gross income (AGI). Home security systems are generally not deductible as a miscellaneous itemized deduction, unless the home security system is a business expense for a home office, as specified.

FISCAL EFFECT: The Franchise Tax Board (FTB) estimates General Fund revenue losses of $200,000 in fiscal year (FY) 2017-18, $200,000 in FY 2018-19, and $200,000 in FY 2019-20.

COMMENTS:

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

AB 54 will allow homeowners to include in their miscellaneous itemized deductions up to $500 in qualifying home security purchases. These deductions would assist in preventing homeowners from sacrificing the necessities for the protection of their homes through security and surveillance devices. AB 54 will allow homeowners to make home security more accessible and affordable through up to $500 in deductions for qualifying costs.

1. Committee Staff Comments:
   1. Arguments in Support: Supporters of this bill state that "home security and surveillance systems have proven to be effective tools in protecting one's family and personal property. While there are a wide variety of security systems that vary in price currently on the market, alarm systems may still be cost prohibitive for some." By making security systems affordable for more people, this bill improves overall public safety.
   2. Arguments in Opposition: Opponents of this bill state that "the value of security to most people is a significant enough incentive that the state does not need to subsidize it" and that "public investment in public safety, in its many forms, will be far more effective than tax deductions for the very few who can use them."
   3. 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 of them (in the form of forgone revenues). This bill would enact a new tax expenditure program in the form of a deduction for the purchase and installation of a security fence, security alarm system, or security surveillance system at a qualified residence.
   4. Tax Expenditure vs. 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 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 does not include a sunset date. The Committee may wish to consider including a sunset date to allow for proper legislative review of the benefits and costs of this tax expenditure in the future.

• 1. Conformity Issues: California generally conforms to federal law regarding itemized deductions. In general, state conformity with federal law promotes greater simplicity and eases administration of complex tax laws. Federal law does not allow a specific deduction for home security systems, so the deduction proposed by this bill would bring California further out of conformity with federal law.
  2. Scope of This Deduction: As noted in the FTB's analysis of this bill, each owner of a qualified residence would be allowed a deduction of up to $500 per taxable year if a security system is installed. For example, if a qualified property is owned by two separate taxpayers, each taxpayer could be allowed a $500 deduction, generating a deduction of up to $1,000 in each taxable year associated with the qualified property. Furthermore, this bill defines a "qualified residence" to include a second home, thus allowing a taxpayer with two homes a deduction of up to $1,000 each taxable year ($500 for costs attributable to each residence). Lastly, although taxpayers generally cannot claim a deduction for a home security system under current law, there are specified instances when a home security system may be deducted as a business expense, thus allowing some taxpayers to claim multiple tax benefits for the same item of expense. If it is not the author’s intent to allow a deduction of more than $500 per property or $500 per taxpayer, or allow duplicative tax benefits, the author may wish to clarify the scope of this bill.

Furthermore, because this bill allows the deduction beginning on and after January 1, 2017, this bill would provide a tax benefit for home security systems already purchased and installed prior to its enactment. The Committee may wish to consider the policy implications of providing an incentive for behavior that is already occurring in the marketplace and instead specify that this bill shall only apply in future taxable years beginning on or after January 1, 2018.

• 1. Affording Home Security: A taxpayer may reduce his or her AGI by the larger of either the standard deduction or the total of his or her allowed itemized deductions. As a result, this bill generally only benefits taxpayers who itemize deductions in lieu of taking the standard deduction. According to a Tax Foundation analysis of Internal Revenue Service data from the 2013 tax year, 68.5% of households chose to take the standard deduction, but higher income taxpayers were more likely to itemize deductions – only 6% of tax returns reporting less than $25,000 in income itemized deductions, whereas 93.5% of tax returns reporting more than $200,000 in income itemized deductions. The analysis notes that deductions are more valuable for households that fall into higher tax brackets and high-income households are likely to have greater expenditures, such as larger mortgage payments and charitable donations, that lead to sizeable itemized deductions.

To the extent that the purpose of this bill is to make home security more accessible and affordable, it is important to note that the deduction allowed by this bill is most likely to benefit higher income taxpayers who itemize deductions. Instead of forgoing General Fund revenues in a manner that predominantly favors higher income taxpayers, the Committee may wish to consider whether funds would be better spent on other public safety programs.

REGISTERED SUPPORT / OPPOSITION:

Support

California Alarm Association

California Police Chiefs Association

One private individual

Opposition

California Tax Reform Association

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098