Date of Hearing: March 16, 2020

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 2243 (

Author:Eggman) – As Introduced Ver:February 13, 2020

FOR TESTIMONY ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income tax: credits: food banks

SUMMARY: Extends the 15% credit, under the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law for donations of fruits, vegetables, agricultural products, processed foods and other food items to California food banks for five additional tax years. Specifically, this bill:

1. Allows the income tax credit to be claimed for five additional tax years, specifically tax years beginning on or after January 1, 2022, and before January 1, 2027.
2. Repeals the income tax credit provisions on December 1, 2027.
3. Provides, in accordance with R&TC Section 41, the following Legislative findings and declarations:
   1. The specific goal, purpose, and objective of this bill is to increase the variety of raw agricultural products or processed foods donated to food banks.
   2. The performance indicator used to track the performance of this bill shall be the types of qualified items donated after the effective date of this bill.
   3. Data collection requirements and baseline measurements shall be the types of donated raw agricultural products or processed foods collected before the effective date of this bill.
   4. Data to collect include the types of raw agricultural products or processed foods donated after the tax credit is put in place.
4. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Allows various tax credits generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
2. Allows a tax credit, under the PIT Law and the CT Law, to "qualified taxpayers" in an amount equal to 15% of the "qualified value" of "qualified donation items" generally consisting of fruits, vegetables, agricultural products, processed foods and other food items donated to food banks located in California for taxable years beginning on or after January 1, 2017, and before January 1, 2022.
3. Specifies the tax credit applies when the donation is under Food and Agricultural Code (F&AC) Sections 58501 through 58509.^[1]
4. Defines a "qualified taxpayer" as:
   1. The person responsible for planting a crop, managing the crop, and harvesting the crop from the land; or
   2. The person responsible for growing or raising a qualified donation item, or harvesting, packing, or processing a qualified donation item, provided that person is not a "retailer".
5. Defines a "retailer" to mean a person primarily engaged in the business of making retail sales to the public.
6. Defines a "qualified donation item" (QDI) as the following specified raw agricultural products, processed foods, and food items:
   1. "Fruit, nuts, or vegetables" as defined in F&AC Section 42510;
   2. "Meat food product" as defined in F&AC Section 18665;
   3. "Poultry" as defined in F&AC Section 18675;
   4. "Eggs" as defined in F&AC Section 75027;
   5. "Fish" as defined in F&AC Section 58609; and,
   6. All of the following food items as defined in Health and Safety Code (H&SC) Section 109935:
      1. Rice;
      2. Beans;
      3. Fruit, nuts, and vegetables in canned, frozen, dried, dehydrated, and 100% juice forms;
      4. Cheese, milk, yogurt, butter, or dehydrated milk that meets the requirements in Division 15 (commencing with Section 32501) of the F∾
      5. Infant formula subject to H&SC Section 114094.5;
      6. Vegetable oil and olive oil;
      7. Soup, pasta sauce, and salsa;
      8. Bread and pasta; and,
      9. Canned meats and canned seafood.
7. Specifies the calculation of "qualified value" by using:
   1. The weighted average wholesale price based on the taxpayer's total like grade wholesale sales of the donated items sold within the same month as the donation; or, if no wholesale sales occurred in the same month as the donation,
   2. The nearest regional wholesale market price based upon the same grade products for the same month as the donation, as published by US Department of Agriculture's Agricultural Marketing Service.
8. Reduces any deduction otherwise allowed under the PIT Law or CT Law for that amount of cost paid or incurred by the qualified taxpayer for the QDIs by the credit amount provided.
9. Allows for the deduction of all ordinary and necessary expenses of a trade or business.
10. Conforms generally to federal law regarding deductions for charitable contributions, but does not conform to an enhanced deduction for donations of food inventory that federal law provides.^[2]
11. Allows taxpayers to claim a deduction for charitable contributions made to qualified organizations. For corporations, the deduction is generally limited to 10% of net income.
12. Allows a 50% tax credit for costs to transport donated agricultural products to nonprofit charitable organizations. ^[3]
13. Repeals the tax credit provisions of law on December 1, 2022.
14. Provides, in accordance with R&TC Section 41, the following:
    1. The tax credit's purpose is to increase donations to food banks.
    2. Requires the Franchise Tax Board (FTB) to annually report to Legislature beginning on January 1, 2019, based upon certifications available to the FTB, the following:
       1. The credits utilized;
       2. The qualified value of QDIs donated;
       3. The county in which the QDIs originated; and,
       4. The month the donation was made.

FISCAL EFFECT: The FTB estimates General Fund revenue losses of $0 in 2020-21, $100,000 in 2021-22, and $250,000 in 2022-23.

COMMENTS:

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

California's agricultural industry is the leading producer of agricultural products in the United States with San Joaquin Valley producing nearly half of our nation's fresh produce. And yet, it is estimated that over six million Californians—including 1 in 4 children—are food insecure. Food banks are a steady source of relief for food insecure California families who lack access to fresh and healthy foods. AB 2243 extends the sunset date of the Food Donation Tax Credit to December 1, 2027. By providing needed certainty to food donors by extending the authorization for this program, AB 2243 will help alleviate food insecurity for California families and work to avoid food waste in our landfills.

1. This bill is supported by the California Farm Bureau Federation, which notes the following:

As the leading agricultural producer in the Nation, it is paradoxical that so many Californians, especially in our agricultural areas, still suffer from food insecurity on a daily basis. The existing Farm to Food Bank Tax Credit has proven effective, further encouraging our members and others in agricultural production to make donations to those in need.

1. Committee Staff Comments:
   1. Overview of food bank donation credit: For taxable years beginning on or after January 1, 2020, and before January 1, 2022, the law allows a tax credit, which the FTB refers to as the "Agriculture Product Donations Credit", which is equal to 15% of the qualified value of the qualified donation of fresh fruits or fresh vegetables and other specified agricultural products or processed foods.

When making a donation, qualified taxpayers, which are generally agricultural product-related businesses, provide to the food bank the qualified value of the QDIs and information regarding the origin of where the QDIs were grown, processed, or both grown and processed. In turn, the food bank provides a certificate to the qualified taxpayer. The certificate must contain a statement signed and dated by a person authorized by the food bank that the donation items are accepted. The certificate also contains the type and quantity of items donated; the name of the qualified taxpayer or qualified taxpayers; the name and address of the food bank; and, as provided by the qualified taxpayer, the origin of the donated items, and the qualified value of the donated items. Upon FTB's request, the qualified taxpayer must provide a copy of the certification.

• 1. What would this bill do? This bill would, very simply, extend the sunset for the existing 15% income tax credit for donations of fruits, vegetables, agricultural products, processed foods and other food items to California food banks for five additional tax years.
  2. Recent significant food bank tax credit expansion: Last year, the tax credit for food items donated to food banks was expanded in scope from fresh fruits and vegetables to other categories of food products such as frozen and canned food, meat and dairy products, and bread. The pre-existing tax credit limited to fresh produce applies for five taxable years starting on January 1, 2017 and contained a December 1, 2022 sunset date. Since the expanded list of qualifying items was amended into this pre-existing law, the tax credit expansion for these other food products was effectively limited to two tax years. Typically, new tax credits are authorized for five tax years.
  3. Too soon and too long? The tax credit this bill extends will not sunset until December 1, 2022. On the one hand, the tax credit for processed foods was authorized for only two tax years, while on the other hand, this bill would effectively allow the tax credit for processed foods to extend for a total of seven tax years. Committee staff notes that an earlier credit for fresh fruit and vegetables has been available to food donors since January 1, 2012. The Committee may wish to consider whether it is appropriate to extend the tax credit's sunset provisions at this time and, if so, if the extension should be reduced from five to three tax years.
  4. Codified and uncodified Section 41 provisions: As currently drafted, this bill includes both codified and uncodified provisions to comply with Section 41. The author may wish to consolidate this bill's codified and uncodified provisions to enhance the clarity of the reporting provisions.
  5. Related legislation: AB 614 (Eggman), Chapter 431, Statutes of 2019, expanded the former tax credit limited to donations of fresh fruit and vegetables to include donations of specified agricultural products, processed foods, and a variety of other food items designated as QDIs.
  6. Prior legislation:
     1. SB 837 (Committee on Budget and Fiscal Review), Chapter 32, Statutes of 2016, established the fresh fruit and vegetable tax credit for taxable years beginning on or after January 1, 2017, and before January 1, 2022. SB 837's tax credit was similar to a prior fresh fruit and vegetable tax credit [former R&TC Section 17053.88 added by AB 152 (Fuentes), Chapter 503, Statutes of 2011] poised to sunset on December 1, 2017. SB 837's tax credit differed from AB 152's sunsetting tax credit in two ways. First, the tax credit percentage increased from 10% to 15%. Second, the tax credit calculation method changed from an inventory-cost-basis to a wholesale-price-basis of the donated item.
     2. AB 515 (Eggman), of the 2015-16 Legislative Session, would have, in part, expanded the fresh fruit and vegetable tax credit to include other food items. Governor Brown vetoed AB 515 stating in his veto message "despite strong revenue performance over the past few years, the states' budget has remained precariously balanced due to unexpected costs and the provision of new services," and that tax credits, "like new spending on programs, need to be considered comprehensively as part of the budget deliberations."
     3. AB 1577 (Eggman) of the 2015-16 Legislative Session, would have, in part, expanded the fresh fruit and vegetable tax credit to include other food items.
     4. AB 2768 (Thurmond), of the 2015-16 Legislative Session, would have created a 10% PIT tax credit and a 15% CT tax credit for prepackaged food, as defined in H&SC Section 113876, donated to a nonprofit charitable organization located in California. AB 2768 was held on the Assembly Committee on Appropriations' Suspense File.
     5. AB 1255 (Thurmond), of the 2015-16 Legislative Session, would have created a 10% PIT tax credit and 15% CT tax credit for prepackaged food, as defined in H&SC Section 113876, donated to a nonprofit charitable organization located in California. AB 1255 was never heard by this Committee.
     6. AB 152 (Fuentes), Chapter 503, Statutes of 2011, created a 10% tax credit for fresh fruit and vegetables for taxable years beginning on January 1, 2012, and before January 1, 2017. This credit sunset on December 1, 2017.

REGISTERED SUPPORT / OPPOSITION:

Support

California Farm Bureau Federation

Californians Against Waste

Food for People, the Food Bank of Humboldt County

Mendocino Food & Nutrition Program

Sacramento Food Bank & Family Services

San Francisco-Marin Food Bank

Second Harvest Food Bank of Orange County

Second Harvest Food Bank of Santa Cruz County

Opposition

None on file

Analysis Prepared by: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098

1. Specifically, Chapter 5 (commencing with Section 58501) of Part 1 of Division 21 of the F&AC. ↑

2. Internal Revenue Code (IRC) Section 170(e)(3)(C). ↑

3. Revenue and Taxation Code (R&TC) Sections 17053.12 and 23608. Added by SB 38 (Lockyer), Chapter 954 of the Statutes of 1996. ↑