AB 2166: Personal Income Tax Law: net operating loss.
- Session Year: 2019-2020
- House: Assembly
- Latest Version Date: 2020-05-04
No summary is available yet.
No bill text is available yet.
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Date
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Status
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|---|---|
| May 5, 2020 | Re-referred to Com. on REV. & TAX. |
| May 4, 2020 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Mar 16, 2020 | In committee: Hearing postponed by committee. |
| Feb 20, 2020 | Referred to Com. on REV. & TAX. |
| Feb 12, 2020 | From printer. May be heard in committee March 13. |
| Feb 11, 2020 | Read first time. To print. |
No voting activity has been recorded yet.
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
* Testimony in a hearing
** Position recorded in bill analysis
*** Position recorded in written testimony
No support or opposition from interest groups has been recorded yet.
* Testimony in a hearing
** Position recorded in bill analysis
*** Position recorded in written testimony
Date of Hearing: March 16, 2020
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Autumn R. Burke, Chairwoman
ABPCA Bill Id:AB 2166 (
Author:Kiley) – As Introduced Ver:February 11, 2020
FOR TESTIMONY ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal income taxes: credits: residential fire insurance policy premiums
SUMMARY: Provides a credit under the Personal Income Tax (PIT) Law equal to the increase in residential fire insurance premium, as specified. Specifically, this bill:
- Provides a credit, for taxable years beginning on or after January 1, 2020, and before January 1, 2026, equal to the difference between the annual premium amount paid during the taxable year for a residential fire insurance policy for the coverage of a qualified principal residence and the annual premium amount paid during the following calendar year, whichever is later:
- The 2016 calendar year for a residential fire insurance policy for coverage of that same qualified principal residence; or,
- The calendar year in which the qualified taxpayer first purchased the residential fire insurance policy for coverage of that same qualified principal residence.
- Defines the term "qualified principal residence" as a single-family residence, whether detached or attached, that is the principal residence of the taxpayer and is eligible for the homeowner's exemption.
- Defines the term "qualified taxpayer" as a taxpayer who has paid or incurred a premium amount during the taxable year for a residential fire insurance policy for coverage of the taxpayer's qualified principal residence that is an amount equal to an increase of 5% or more above the premium amount paid or incurred by that taxpayer for a residential fire insurance policy for coverage of that same qualified principal residence of the taxpayer during the 2016 calendar year or the calendar year in which the taxpayer first purchased the residential fire insurance policy, whichever calendar year is later.
- Defines the term "residential fire insurance policy" as a residential fire insurance policy subject to the Insurance Code for coverage of the qualified principal residence of the qualified taxpayer.
- Allows the excess credit to be credited against other amounts due, if any, and the balance paid from the Tax Relief and Refund Account and refunded to the qualified taxpayer upon appropriation by the Legislature.
- Provides that the goal, purpose, or objective of this credit is to make property owners whole from unexpected premium increases in residential fire insurance policies that result in unaffordable policies.
- Finds that the performance of this credit will be measured by its utilization rate.
- Requires the Franchise Tax Board (FTB) to annually publish, on its Website, the number of taxpayers that are allowed this credit.
- Provides that this credit is in lieu of any other credit or deduction that the qualified taxpayer may otherwise be allowed.
- Repeals this credit on December 1, 2026.
- Takes effect immediately as a tax levy.
EXISTING LAW:
- Allows various tax credits designed to provide tax relief for taxpayers who incur certain expenses or to influence taxpayers' behavior.
- Lacks any tax credit for homeowners who incur large fire insurance premium increases.
FISCAL EFFECT: The FTB estimates a General Fund revenue loss of $24 million in fiscal year (FY) 2020-21, $22 million in FY 2021-22, and $28 million in FY 2022-23.
COMMENTS:
- The author has provided the following statement in support of this bill:
AB 2166 will allow homeowners who are significantly impacted by wildfire risk premium increases to leverage a refundable tax credit valued at the difference between 2016 base year premiums and today's rates. This tax credit will make Californians whole by providing much needed relief to those impacted by the Fire Insurance crisis, allowing them to continue to afford coverage.
- Supporters "believes that by providing tax credits to qualified property owners/taxpayers, it could alleviate some of the financial difficulties they experience simply for residing in wildfire-risk areas. As such, AB 2166 is a much-needed effort that would relieve Californians impacted by the homeowners insurance crisis."
- Opponents state that "California requires a comprehensive approach to combating climate change and the dangerousness of the wildfire season; however, as written, AB 2166 would do little to address this statewide epidemic, while the most vulnerable residents of fire prone areas – the poor – and those who do not own their own homes, would receive little to no assistance from the measure."
- Committee Staff Comments:
- 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 tax expenditure in the form of a tax credit to offset the rising cost of home insurance premiums.
- Committee's Tax Expenditure Policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the Corporation Tax Law, and the Sales and Use Tax Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. This bill, as currently drafted, provides that the performance of this credit will be measured by how many people utilize the credit. The Committee may wish to add additional indicators to measure whether this credit successfully increases coverage by comparing the number of homeowners with coverage prior to the enactment of this bill and the number of homeowners with coverage after the enactment of this bill.
In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. According to the new policy, an "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean ten years. This bill contains a six-year sunset and is not in compliance with the Committee's policy. The Committee may wish to make the credit available beginning on or after January 1, 2021 and before January 1, 2026.
- Devastating fires and unaffordable insurance: According to Governor Newsom's Strike Force report, wildfires are not only more frequent but far more devastating. Fifteen of the twenty most destructive wildfires in the state's history have occurred since 2000; ten of the most destructive fires have occurred since 2015. With record high losses from catastrophic wildfires, insurers are responding by filing for rate increases and retrenching their coverage eligibility standards. Additionally, the California Department of Insurance (CDI) finds that many regions of the state face insurance availability and affordability constraints. This is evidenced by increasing non-renewals and significant insurance premium increases in the areas of the state affected by wildfires.
- Credit may do little if insurance is unavailable: According to CDI, new data show that insurance is also becoming harder to find for those in high wildfire-risk areas as a result of recent wildfires. There was a 6% increase in insurer-initiated homeowner policy non-renewals in Cal-Fire State Responsibility Areas from 2017 to 2018, while zip codes affected by the devastating fires from 2015 and 2017 experienced a 10% increase in insurer-initiated non-renewals last year. From 2015 to 2018, the number of new and renewed homeowners' policies fell by 8,700 in the 10 counties with the most homes in high- or very high-risk areas. These same counties saw a steady increase in new California Fair Access to Insurance Requirements (FAIR) Plan policies during that timeframe, growing 177%, compared to only a 4% increase for the five counties with the lowest risk. In addition to the non-renewals, a large number of homeowners are also choosing not to renew. According to the Senate Committee on Insurance, 36,000 homeowners in 2016 chose not to renew, presumably because of steep premium increases or lower coverage reasons[1]. Although this bill attempts to make fire insurance more affordable by covering the increased cost, this credit will have little impact if homeowners are no longer able obtain insurance. Of course, homeowners may be able to obtain insurance through the FAIR Plan, which is commonly known as the insurer of last-resort, but providing a credit for this type of insurance may present other problems as explained below.
- Subsidizing risk: According to the Legislative Analyst's Office (LAO), "property insurance rates reflect, to some extent, the risk of damage related to wildfires (and other factors). The differences in rates could provide a financial incentive for homeowners to build and purchase properties in lower-risk regions, or potentially invest in different risk reduction activities (such as home hardening).”[2] However, according to the LAO, regulations generally require insurers to consider historical losses and strictly limit their ability to consider expectations about future risk, which likely reduces the degree to which property insurance rates serve as an effective mechanism to encourage wildfire risk reduction. In other words, existing law may be preventing insurers from increasing rates in a way that more accurately reflects present conditions. Similar concerns have been raised with the National Flood Insurance Program (NFIP). The highly subsidized rates provided for in the NFIP have inadvertently encouraged people to live in vulnerable floodprone areas, leading to a moral hazard problem[3]. A subsidy, like the one proposed in this bill, would make high-risk fire areas more affordable but may inadvertently exacerbate the problem.
- Very broad credit: This bill, as currently drafted, is extremely broad and could apply to a wide group of taxpayers, including those that are not impacted by fire risk. As an example, if a homeowner decides to increase their coverage beyond the value that was covered in 2016, the state would pay for the additional benefit even though the homeowner is not impacted by wildfire-related adjustments to the fire insurance premium. Also, this bill applies to any taxpayer, irrespective of whether the homeowner is able to pay for the increase. As such, a taxpayer who owns a $4 million property and earns several million dollars per year, is eligible for the credit.
- Implementation concerns: According to the FTB, "[t]his bill would require regular annual appropriations by the Legislature to pay for the refundable portion of this credit. If there are insufficient funds available to cover all of the refunds due, the department would suspend payment of the refunds until additional funds were appropriated. Interest would have to be paid to refund recipients for the period the refund was delayed. This delay would result in additional contacts to the department by refund recipients, which would likely increase departmental costs."
- Related legislation:
- SB 944 (McGuire) would allow a credit for home hardening and vegetation management. SB 944 is currently pending hearing by the Senate Committee on Governance and Finance.
- SB 295 (McGuire) would have allowed a credit for home hardening and vegetation management. SB 295 was held on the Assembly Committee on Appropriation's Suspense file.
REGISTERED SUPPORT / OPPOSITION:
Support
Rural County Representatives of California
Opposition
California Tax Reform Association
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098
Date of Hearing: March 16, 2020
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Autumn R. Burke, Chairwoman
ABPCA Bill Id:AB 2166 (
Author:Kiley) – As Introduced Ver:February 11, 2020
FOR TESTIMONY ONLY
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Personal income taxes: credits: residential fire insurance policy premiums
SUMMARY: Provides a credit under the Personal Income Tax (PIT) Law equal to the increase in residential fire insurance premium, as specified. Specifically, this bill:
- Provides a credit, for taxable years beginning on or after January 1, 2020, and before January 1, 2026, equal to the difference between the annual premium amount paid during the taxable year for a residential fire insurance policy for the coverage of a qualified principal residence and the annual premium amount paid during the following calendar year, whichever is later:
- The 2016 calendar year for a residential fire insurance policy for coverage of that same qualified principal residence; or,
- The calendar year in which the qualified taxpayer first purchased the residential fire insurance policy for coverage of that same qualified principal residence.
- Defines the term "qualified principal residence" as a single-family residence, whether detached or attached, that is the principal residence of the taxpayer and is eligible for the homeowner's exemption.
- Defines the term "qualified taxpayer" as a taxpayer who has paid or incurred a premium amount during the taxable year for a residential fire insurance policy for coverage of the taxpayer's qualified principal residence that is an amount equal to an increase of 5% or more above the premium amount paid or incurred by that taxpayer for a residential fire insurance policy for coverage of that same qualified principal residence of the taxpayer during the 2016 calendar year or the calendar year in which the taxpayer first purchased the residential fire insurance policy, whichever calendar year is later.
- Defines the term "residential fire insurance policy" as a residential fire insurance policy subject to the Insurance Code for coverage of the qualified principal residence of the qualified taxpayer.
- Allows the excess credit to be credited against other amounts due, if any, and the balance paid from the Tax Relief and Refund Account and refunded to the qualified taxpayer upon appropriation by the Legislature.
- Provides that the goal, purpose, or objective of this credit is to make property owners whole from unexpected premium increases in residential fire insurance policies that result in unaffordable policies.
- Finds that the performance of this credit will be measured by its utilization rate.
- Requires the Franchise Tax Board (FTB) to annually publish, on its Website, the number of taxpayers that are allowed this credit.
- Provides that this credit is in lieu of any other credit or deduction that the qualified taxpayer may otherwise be allowed.
- Repeals this credit on December 1, 2026.
- Takes effect immediately as a tax levy.
EXISTING LAW:
- Allows various tax credits designed to provide tax relief for taxpayers who incur certain expenses or to influence taxpayers' behavior.
- Lacks any tax credit for homeowners who incur large fire insurance premium increases.
FISCAL EFFECT: The FTB estimates a General Fund revenue loss of $24 million in fiscal year (FY) 2020-21, $22 million in FY 2021-22, and $28 million in FY 2022-23.
COMMENTS:
- The author has provided the following statement in support of this bill:
AB 2166 will allow homeowners who are significantly impacted by wildfire risk premium increases to leverage a refundable tax credit valued at the difference between 2016 base year premiums and today's rates. This tax credit will make Californians whole by providing much needed relief to those impacted by the Fire Insurance crisis, allowing them to continue to afford coverage.
- Supporters "believes that by providing tax credits to qualified property owners/taxpayers, it could alleviate some of the financial difficulties they experience simply for residing in wildfire-risk areas. As such, AB 2166 is a much-needed effort that would relieve Californians impacted by the homeowners insurance crisis."
- Opponents state that "California requires a comprehensive approach to combating climate change and the dangerousness of the wildfire season; however, as written, AB 2166 would do little to address this statewide epidemic, while the most vulnerable residents of fire prone areas – the poor – and those who do not own their own homes, would receive little to no assistance from the measure."
- Committee Staff Comments:
- 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 tax expenditure in the form of a tax credit to offset the rising cost of home insurance premiums.
- Committee's Tax Expenditure Policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the PIT Law, the Corporation Tax Law, and the Sales and Use Tax Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. This bill, as currently drafted, provides that the performance of this credit will be measured by how many people utilize the credit. The Committee may wish to add additional indicators to measure whether this credit successfully increases coverage by comparing the number of homeowners with coverage prior to the enactment of this bill and the number of homeowners with coverage after the enactment of this bill.
In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote. According to the new policy, an "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean ten years. This bill contains a six-year sunset and is not in compliance with the Committee's policy. The Committee may wish to make the credit available beginning on or after January 1, 2021 and before January 1, 2026.
- Devastating fires and unaffordable insurance: According to Governor Newsom's Strike Force report, wildfires are not only more frequent but far more devastating. Fifteen of the twenty most destructive wildfires in the state's history have occurred since 2000; ten of the most destructive fires have occurred since 2015. With record high losses from catastrophic wildfires, insurers are responding by filing for rate increases and retrenching their coverage eligibility standards. Additionally, the California Department of Insurance (CDI) finds that many regions of the state face insurance availability and affordability constraints. This is evidenced by increasing non-renewals and significant insurance premium increases in the areas of the state affected by wildfires.
- Credit may do little if insurance is unavailable: According to CDI, new data show that insurance is also becoming harder to find for those in high wildfire-risk areas as a result of recent wildfires. There was a 6% increase in insurer-initiated homeowner policy non-renewals in Cal-Fire State Responsibility Areas from 2017 to 2018, while zip codes affected by the devastating fires from 2015 and 2017 experienced a 10% increase in insurer-initiated non-renewals last year. From 2015 to 2018, the number of new and renewed homeowners' policies fell by 8,700 in the 10 counties with the most homes in high- or very high-risk areas. These same counties saw a steady increase in new California Fair Access to Insurance Requirements (FAIR) Plan policies during that timeframe, growing 177%, compared to only a 4% increase for the five counties with the lowest risk. In addition to the non-renewals, a large number of homeowners are also choosing not to renew. According to the Senate Committee on Insurance, 36,000 homeowners in 2016 chose not to renew, presumably because of steep premium increases or lower coverage reasons[1]. Although this bill attempts to make fire insurance more affordable by covering the increased cost, this credit will have little impact if homeowners are no longer able obtain insurance. Of course, homeowners may be able to obtain insurance through the FAIR Plan, which is commonly known as the insurer of last-resort, but providing a credit for this type of insurance may present other problems as ++++++++++++explained below.
- Subsidizing risk: According to the Legislative Analyst's Office (LAO), "property insurance rates reflect, to some extent, the risk of damage related to wildfires (and other factors). The differences in rates could provide a financial incentive for homeowners to build and purchase properties in lower-risk regions, or potentially invest in different risk reduction activities (such as home hardening).”[2] However, according to the LAO, regulations generally require insurers to consider historical losses and strictly limit their ability to consider expectations about future risk, which likely reduces the degree to which property insurance rates serve as an effective mechanism to encourage wildfire risk reduction. In other words, existing law may be preventing insurers from increasing rates in a way that more accurately reflects present conditions. Similar concerns have been raised with the National Flood Insurance Program (NFIP). The highly subsidized rates provided for in the NFIP have inadvertently encouraged people to live in vulnerable floodprone areas, leading to a moral hazard problem[3]. A subsidy, like the one proposed in this bill, would make high-risk fire areas more affordable but may inadvertently exacerbate the problem.
- Very broad credit: This bill, as currently drafted, is extremely broad and could apply to a wide group of taxpayers, including those that are not impacted by fire risk. As an example, if a homeowner decides to increase their coverage beyond the value that was covered in 2016, the state would pay for the additional benefit even though the homeowner is not impacted by wildfire-related adjustments to the fire insurance premium. Also, this bill applies to any taxpayer, irrespective of whether the homeowner is able to pay for the increase. As such, a taxpayer wo owns a $4 million property and earns several million dollars per year, is eligible for the credit.
- Implementation concerns: According to the FTB, "[t]his bill would require regular annual appropriations by the Legislature to pay for the refundable portion of this credit. If there are insufficient funds available to cover all of the refunds due, the department would suspend payment of the refunds until additional funds were appropriated. Interest would have to be paid to refund recipients for the period the refund was delayed. This delay would result in additional contacts to the department by refund recipients, which would likely increase departmental costs."
- Related legislation:
- SB 944 (McGuire) would allow a credit for home hardening and vegetation management. SB 944 is currently pending hearing by the Senate Committee on Governance and Finance.
- SB 295 (McGuire) would have allowed a credit for home hardening and vegetation management. SB 295 was held on the Assembly Committee on Appropriation's Suspense file.
REGISTERED SUPPORT / OPPOSITION:
Support
Rural County Representatives of California
Opposition
California Tax Reform Association
Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098
Bill Author
Bill Co-Author(s):