Date of Hearing: March 11, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 282 (

Author:Voepel) – As Introduced Ver:January 28, 2019

FOR TESTIMONY ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal income taxes: credit: qualified principal residence

SUMMARY: Allows a $1,000 tax credit to any taxpayer who purchases a "qualified principal residence" that is a newly constructed single-family residence. Specifically, this bill:

1. Allows a taxpayer to claim a tax credit of $1,000 for the purchase of a "qualified principal residence".
2. Applies to taxable years beginning on or after January 1, 2022, and before January 1, 2025.
3. Defines a "qualified principal residence" as a single-family residence, whether detached or attached, that is all of the following:
   1. Completed as new construction on or after January 1, 2021, and before January 1, 2025;
   2. Purchased to be the taxpayer's principal residence within the meaning of Internal Revenue Code (IRC) Section 121^[1]; and,
   3. Has never been occupied.
4. Allows unlimited carryover of the tax credit.
5. Makes inapplicable Revenue and Taxation Code (R&TC) Section 41's purpose statement, performance standard, and data collection requirements.
6. Repeals these provisions on December 1, 2025.
7. Takes immediate effect as a tax levy.

EXISTING FEDERAL/STATE LAW:

1. Allows various tax credits designed to provide tax relief for taxpayers who incur certain expenses or to influence taxpayers' behavior.
2. Lacks any tax credit for buying a newly constructed home.

FISCAL EFFECT: Pending

COMMENTS:

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

AB 282 works to help hard working Californians a step closer to home ownership. The goal of this measure is to provide a tax credit of $1,000 for Californians who purchase their home for the only purpose to live in. In other words, in order to qualify for this tax credit an owner of the home should be the first person to live in that home.

1. Committee Staff Comments:
   1. What does this bill do? This bill allows, under the Personal Income Tax Law, a $1,000 tax credit to a taxpayer who purchases a never-occupied newly constructed home, provided the home's completion date occurs in calendar years 2021, 2022, 2023, or 2024.
   2. Prior tax credits for never occupied homes: The Legislature authorized tax credits for taxpayers purchasing a home between March 1, 2009, and March 1, 2010, that had never been previously occupied. Qualifying taxpayers could claim a tax credit equal to the lesser of 5% of the purchase price or $10,000 [SBx2 15 (Ashburn), Chapter 11, Statutes of 2009-10 Second Extraordinary Session]. SBx2 15 authorized $100 million in tax credits, which the FTB allocated on a first-come, first-served basis. The following year, the Legislature extended the SBx2 15 credit with some modifications, and also allowed a credit for first-time homebuyers [AB 183 (Caballero), Chapter 12, Statutes of 2009-10]. AB 183 authorized $100 million each for new homes and first-time homebuyers, as defined, which FTB again allocated on a first-come, first-served basis. FTB fully allocated both credits by August 2011; both expired on December 1, 2014.^[2]
   3. No tax credit cap: This bill does not cap the total amount of tax credits available. During the prior real estate downturn, state tax credits were made available for the purchase of certain principal residences up to a specific amount. As noted above, these credits were fully allocated in a short period of time.
   4. Sunset provisions. This bill's proposed tax credit includes an automatic sunset on December 1, 2025 to repeal its provisions consistent with this Committee's longstanding sunset-date-inclusion policy. Tax credits result in foregone revenue losses. As such, they are characterized as "tax expenditures". Without sunsets, once enacted, tax expenditures may be reviewed infrequently and may result in uncontrolled revenue losses. The Department of Finance's 2017-18 Tax Expenditure Report identifies $61.3 billion in such tax expenditures. Moreover, absent a sunset provision, tax expenditures can be conferred by a majority vote but can only be rescinded with a supermajority vote. For these reasons, this Committee's policy is to include a sunset date to allow the Legislature to periodically reevaluate tax expenditure programs.
   5. 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. This Committee has recently adopted a new policy requiring all new tax expenditures, including tax credits, to comply with the requirements of R&TC Section 41. 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. According to this Committee's tax expenditure policy, a tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. This bill, as currently drafted, does not comply with the Committee's policy as to R&TC Section 41.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

None on file

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

1. IRC Section 121 sets forth the capital gains exclusion from the sale of a principal residence of $250,000 if single or $500,000 if married. ↑

2. Former R&TC Section 17059.1. ↑