CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 614

Author:(Eggman)

As Amended Ver:June 13, 2019

Majority vote

SUMMARY:

Expands the existing tax credit program under the Personal Income Tax (PIT) and Corporation Tax (CT) Laws for contributions to food banks of fresh fruits or fresh vegetables by qualified taxpayers to include qualified donations of specified food items, raw agricultural products, and processed foods.

The Senate Amendments:

1. Delete the exclusion of a wholesaler of qualified donation items as an eligible qualified taxpayer.
2. Define "retailer" as a person primarily engaged in the business of making retail sales directly to the public related to the exclusion of a retailer as an eligible qualified taxpayer.

COMMENTS:

What does this bill do? This bill expands the pre-existing 15% tax credit currently limited to fresh fruits and vegetables donated to food banks to donations of specified food items, processed foods, and raw agricultural products. In 2011, this tax credit was created for donating fresh fruits and vegetables to food banks located in California. In 2016, the tax credit percentage was increased from 10% to 15%. Additionally, the method of calculating the tax credit amount was simplified from an inventory cost basis to wholesale price basis. This credit sunsets on December 1, 2022.

How will value be determined? The existing definitions skew toward commodities that have wholesale prices based upon the same grade or like grade. This "qualified value" definition may be ill-suited for the new food items eligible for a tax credit.

Would these items be donated to food banks and other nonprofit organizations without the added incentive of a state tax credit? Tax credits are typically enacted to encourage specific taxpayer behavior that presumably would not take place without the credit. Existing federal law allows an enhanced deduction for contributions of food inventory. This bill's proposed state tax credit expansion could augment this federal tax incentive to increase food donation and prevent food waste. On the other hand, these donations may already occur without the added incentive of a state tax credit.

According to the Author:

California's agricultural industry is the leading producer of agricultural products in the United States with the San Joaquin Valley producing nearly half of our nation's fresh produce. And yet, California throws out nearly 6 million tons of food waste each year. At the same time, 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 614 would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families while simultaneously reducing the amount of food waste accumulating in our landfills.

Arguments in Support:

The expansion of the tax credit to include other nutritious, California-grown and processed grains, proteins and dairy products would further encourage the donation of these items to food banks and reduce food waste.

Arguments in Opposition:

None received.

FISCAL COMMENTS:

The Franchise Tax Board (FTB) indicates that this bill would result in General Fund revenue losses of $200,000 in 2019-20, $400,000 in 2020-21, and $200,000 in 2021-22. This bill would not significantly affect the FTB's costs.

VOTES:

ASM REVENUE AND TAXATION: 11-0-0

YES: Burke, Brough, Chu, Gray, Mayes, Melendez, Mullin, Petrie-Norris, Quirk, Luz Rivas, Ting

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

ASSEMBLY FLOOR: 78-0-2

YES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie‑Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Cooley, Eduardo Garcia

SENATE FLOOR: 40-0-0

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Chang, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

UPDATED:

VERSION: June 13, 2019

CONSULTANT: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098 FN: 0001924

 THIRD READING  

Bill No: AB 614

Author: Eggman (D), et al.

Amended: 6/13/19 in Senate

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 6/12/19

AYES: McGuire, Moorlach, Beall, Hurtado, Nielsen, Wiener

NO VOTE RECORDED: Hertzberg

SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/30/19

AYES: Portantino, Bates, Bradford, Durazo, Hill, Jones, Wieckowski

ASSEMBLY FLOOR: 78-0, 5/23/19 - See last page for vote

SUBJECT: Income taxes: credits: food banks

SOURCE: Author

DIGEST:

This bill expands the existing Fresh Fruits or Vegetables Tax Credit to include qualified donations of specified food items, raw agricultural products, and processed foods.

ANALYSIS:

Existing law:

1. Allows various tax credits under existing Gross Premiums Tax, the Personal Income Tax (PIT) Law, and the Corporation Tax (CT) Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
2. Allows for the deduction of all ordinary and necessary expenses of a trade or business.
3. Allows taxpayers to claim a deduction for charitable contributions made to qualified organizations.
4. Allows the Fresh Fruits or Vegetables Tax Credit (Credit), under the PIT Law and the CT Laws, to qualified taxpayers in an amount equal to 15 percent of the qualified value of fresh fruits and vegetables donated to food banks, as defined in Food and Agricultural Code, located in California.
5. Defines a "qualified taxpayer" as the person responsible for planting a crop, managing the crop, and harvesting the crop from the land.
6. Defines “qualified value” by using 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. If no wholesale sales occurred in the same month as the donation, then the qualified value is equal to 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.
7. Requires the food bank to provide a certificate to the taxpayer that includes specified information including, but not limited to, the type and quantity of fresh fruits or vegetables donated, and the name of the qualified taxpayer.
8. Requires the qualified taxpayer to provide a copy of the certificate to the Franchise Tax Board (FTB) upon request.
9. Stipulates that a qualified taxpayer must reduce any deduction otherwise allowed under the PIT Law or the CT Law for the amount of cost paid or incurred by the qualified taxpayer for the Credit.
10. Defines the Credit’s goals, purposes, and objectives to comply with Revenue and Taxation Code Section 41 requirements. Also in accordance with Section 41, FTB must submit an annual report to the Legislature containing specified information on the Credit.
11. Provides the Credit is available through taxable year 2021.

This bill:

1. Replaces fresh fruits or vegetables with “qualified donation item”.
2. Defines qualified donation item to include the following specified raw agricultural products, processed foods, and food items: fruits; nuts; vegetables; meat food product; poultry; eggs; fish; rice; beans; fruits, nuts, and vegetables in canned, frozen, dried, dehydrated, and 100% juice forms; cheese; milk; yogurt; butter; dehydrated milk; infant formula; vegetable oil; olive oil; soup; pasta sauce; salsa; bread; pasta; canned meats; and canned seafood.
3. Expands the definition of qualified taxpayer to include the person responsible for growing or raising a qualified donation item, or harvesting, packing, or processing a qualified donation item, provided that the person is not a retailer.
4. Stipulates the amendments made to the Credit by this bill apply for taxable years beginning on or after January 1, 2020.

Background

Donated Fresh Fruits or Vegetables Tax Credit. In 2011, the Legislature passed AB 152 (Fuentes, Chapter 503, Statutes of 2011), which created the Donated Fresh Fruits or Vegetables Tax Credit (credit). The credit was equal to 10 percent of the cost of fresh fruits or vegetables donated by a qualified taxpayer to a California food bank, as defined in the state’s Food and Agriculture Code. AB 152 defined the cost of donated produce as the cost of the produce that would be included in inventory costs, which generally includes both the direct and allocated indirect costs required to produce the fresh produce. To be eligible for the credit, the taxpayer must be the person responsible for planting the crop, managing the crop, and harvesting the crop from the land.

To claim the credit, the food bank must provide a certificate to the taxpayer that includes the following:

• A statement signed and dated by a person, authorized by the food bank, which states the donation was made under the Food and Agricultural Code as specified;
• The type and quantity of fresh fruits or fresh vegetables donated; and
• The name(s) of the taxpayer(s).

The credit also requires taxpayers to provide the estimated value of the donated fresh fruits or vegetables to food banks, as well as information regarding the origin of where the donated fruits or vegetables were grown. The credit requires the taxpayer to provide a copy of the certificate to FTB upon request. If a taxpayer claims the credit, then he or she cannot take a deduction for costs used to calculate the credit, and any remaining unused credit can be carried forward for the next six years. AB 152 also requires FTB to provide a report regarding the utilization of the credit to the Legislature to the extent that data is available.

The credit was set to expire on January 1, 2017, but the Legislature extended it through December 1, 2022 (SB 837, Committee on Budget and Fiscal Review, Chapter 32, Statutes of 2016). SB 837 also increased the credit’s percentage amount from 10 to 15 percent and changed the basis on which the credit is calculated. Additionally, the SB 837 updated the credit to comply with Revenue and Taxation Code’s Section 41 reporting requirements.

Section 41. In 2014, Governor Brown signed SB 1335 (Leno, Chapter 845, Statutes of 2014), which added Section 41 to the Revenue and Taxation Code.  In the hopes of applying the same level of review used for government spending programs to tax expenditure programs, including tax credits, Section 41 requires any bill introduced on or after January 1, 2015, that allows a new income tax credit to contain specific goals, purposes, and objectives that the tax credit will achieve.  In addition, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets its goals, purposes, and objectives.  This year, the Assembly Revenue and Taxation Committee adopted a new policy, requiring that all new tax expenditure proposals including sales and use tax exemptions, comply with Section 41’s requirements. 

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, FTB indicates that this bill would result in General Fund revenue losses of $200,000 in 2019-20, $400,000 in 2020-21, and $200,000 in 2021-22. This bill would not significantly affect the department’s costs.

SUPPORT: (Verified 8/29/19)

Alameda County Community Food Bank

California Association of Food Banks

California Farm Bureau Federation

California Food and Farming Network

California Food Policy Advocates

California Food Producers

Californians Against Waste

Central California Food Bank

Community Action Agency of Butte County

Community Action Partnership of Orange County

Community Action Partnership San Bernardino

Dignity Health

Feeding San Diego

Food Bank Coalition of San Luis Obispo County

Food Bank of Contra Costa and Solano

Food for People - The Food Bank for Humboldt County

Food in Need of Distribution Food Bank

Hunger Advocacy Network

Kings Community Action Organization

Los Angeles Regional Food Bank

Northern California Recycling Association

Redwood Empire Food Bank

Sacramento Food Bank and Family Services

San Diego Food Bank

San Diego Food System Alliance

San Francisco-Marin Food Bank

Second Harvest Food Bank of Orange County

Second Harvest Food Bank of Santa Clara and San Mateo Counties

Second Harvest Food Bank Santa Cruz County

Second Harvest Valley of Silicon Valley

Solid Waste Association of North America - California Chapters

Stopwaste

Western Growers Association

Yolo Food Bank

OPPOSITION: (Verified 8/29/19)

None received

ARGUMENTS IN SUPPORT: According to the author’s office, “California's agricultural industry is the leading producer of agricultural products in the United States with the San Joaquin Valley producing nearly half of our nation's fresh produce. And yet, California throws out nearly 6 million tons of food waste each year. At the same time, 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 614 would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families while simultaneously reducing the amount of food waste accumulating in our landfills.”

ASSEMBLY FLOOR: 78-0, 5/23/19

AYES: Aguiar-Curry, Arambula, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Cooley, Eduardo Garcia

Prepared by: Marnie Brown / GOV. & F. / (916) 651-4119

9/1/19 11:04:06

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 614 (Eggman) - Income taxes: credits: food banks

Bill Summary:

AB 614 would expand the existing Fresh Fruits or Vegetables Tax Credit to include qualified donations of specified food items, raw agricultural products, and processed foods.

Fiscal Impact:

The Franchise Tax Board (FTB) indicates that this bill would result in General Fund revenue losses of $200,000 in 2019-20, $400,000 in 2020-21, and $200,000 in 2021-22. The bill would not significantly affect the department’s costs.

Background:

Tax expenditure programs (TEPs) are special tax provisions that reduce the amount of revenues the “basic” tax system would otherwise generate in order to provide (1) benefits to certain groups of taxpayers, and/or (2) incentives to encourage certain types of behavior and activities, such as charitable giving. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. The Department of Finance is required to publish a list of TEPs (currently totaling several hundred), which currently total $65 billion annually. Two common TEPS are tax deductions and tax credits. Unlike tax deductions, which reduce the amount of earnings subject to tax, credits are applied after taxable income is calculated, and reduce (dollar for dollar) the amount of taxes owed.

Under current federal law, a deduction is generally permitted for charitable contributions, subject to limitations dependent upon the type of taxpayer, the property contributed, and the organization receiving the donation. The amount of any charitable contribution deduction usually equals the fair market value of the contributed property on the date the donation was made. The State conforms to the federal rules relating to charitable contributions as of January 1, 2015. However, it does not conform to the enhanced charitable deduction, enacted with the passage of the federal tax changes in 2017.

In 2011, the Legislature passed AB 152 (Fuentes, 2011), which created the Donated Fresh Fruits or Vegetables Tax Credit. The Credit was equal to 10 percent of the cost of fresh fruits or vegetables donated by a qualified taxpayer to a California food bank, as defined in statute. That bill defined the cost of donated produce as the cost of the produce that would be included in inventory costs, which generally includes both the direct and allocated indirect costs required to produce the fresh produce. To be eligible for the Credit, the taxpayer must be the person responsible for planting the crop, managing it, and harvesting it from the land. To claim the Credit, the food bank must provide a certificate to the taxpayer that includes specified information.

The Credit also requires taxpayers to provide the estimated value of the donated fresh fruits or vegetables to food banks, as well as information regarding the origin of where the donated fruits or vegetables were grown. The credit also requires the taxpayer to provide a copy of the certificate to FTB upon request. A taxpayer claiming the credit, cannot take a deduction for costs used to calculate the credit, and any remaining unused credit can be carried forward for the next six years.

The Credit was set to expire on January 1, 2017, but in 2016 the Legislature extended it through December 1, 2022. At the same time, the Legislature increased the Credit’s percentage amount from 10 to 15 percent and changed the basis on which the credit is calculated.

Proposed Law:

This bill would modify the existing Fresh Fruits or Vegetables Tax Credit by expanding the definition of qualified donation items to include specified raw agricultural products, processed foods, and food items. It would extend the current qualified value calculation, which requires taxpayers to use the weighted average wholesale price of the taxpayer’s total like grade wholesale sales of the donated items, to the newly added qualified donated items. The credit’s original sunset of December 1, 2022 would be retailed; however, the bill stipulates that its changes would apply beginning with taxable year 2020.

Staff Comments:

FTB’s revenue assumes (based on data from the California Association of Food Banks) that $3.4 million in newly qualified donations will occur in 2020. Applying the credit rate of 15 percent would result in $510,000 of estimated credits for tax year 2020. FTB assumes that 80 percent (or $410,000) would be generated by personal income taxpayers, and 20 percent (or $100,000) would be generated by corporate taxpayers. Based on data from the existing Fruits and Vegetables Credit, FTB estimates that 90 percent of taxpayers would have a tax liability to offset with the credit. Of that amount, 80 percent (or $380,000) would claim the credit in the year generated and the majority of the remaining credit would be used over the three subsequent years.

To arrive at the offsetting tax effect of the expense deduction that would otherwise be

allowed under current law, FTB estimates that qualified taxpayers would be unable to

deduct approximately $500,000 in qualified expenses in taxable year 2020. Applying

an average tax rate of 6 percent results in an offsetting revenue gain of about

$30,000. Thus, net revenue loss is estimated to be $350,000 in taxable

year 2020, which is then converted to a fiscal-year basis.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Income taxes: credits: food banks

Expands the existing Fresh Fruits or Vegetables Tax Credit to include qualified donations of specified food items, raw agricultural products, and processed foods.

Background

Tax expenditures. California law allows various income tax credits, deductions, exemptions, and exclusions. The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behavior, such as charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something that but for the tax credit, they would otherwise not do. The Department of Finance is required annually to publish a list of state tax expenditures, currently totaling around $65.2 billion per year.

Unlike deductions, which reduce the amount of earnings subject to tax, credits are applied after taxable income is calculated. Tax credits reduce—dollar for dollar—the amount of taxes owed.

Charitable contributions. Under current federal law, in general, a deduction is permitted for charitable contributions, subject to limitations dependent upon the type of taxpayer, the property contributed, and the organization receiving the donation. Generally, the amount of any charitable contribution deduction equals the fair market value of the contributed property on the date the donation was made. The State’s Personal Income Tax Law and Corporation Tax Law conform to the federal rules relating to charitable contributions as of January 1, 2015. However, the state does not conform to the enhanced charitable deduction, which was enacted with the passage of HR 1 on December 22, 2017.

Donated Fresh Fruits or Vegetables credit. In 2011, the Legislature passed Assembly Bill 152 (Fuentes, 2011), which created the Donated Fresh Fruits or Vegetables Tax Credit (credit). The credit was equal to 10 percent of the cost of fresh fruits or vegetables donated by a qualified taxpayer to a California food bank, as defined in the state’s Food and Agriculture Code. AB 152 defined the cost of donated produce as the cost of the produce that would be included in inventory costs, which generally includes both the direct and allocated indirect costs required to produce the fresh produce. To be eligible for the credit, the taxpayer must be the person responsible for planting the crop, managing the crop, and harvesting the crop from the land.

To claim the credit, the food bank must provide a certificate to the taxpayer that includes the following:

• A statement signed and dated by a person, authorized by the food bank, which states the donation was made under the Food and Agricultural Code as specified;
• The type and quantity of fresh fruits or fresh vegetables donated; and
• The name(s) of the taxpayer(s).

The Credit also requires taxpayers to provide the estimated value of the donated fresh fruits or vegetables to food banks, as well as information regarding the origin of where the donated fruits or vegetables were grown. The credit requires the taxpayer to provide a copy of the certificate to the Franchise Tax Board (FTB) upon request. If a taxpayer claims the credit, then he or she cannot take a deduction for costs used to calculate the credit, and any remaining unused credit can be carried forward for the next six years. AB 152 also requires FTB to provide a report regarding the utilization of the credit to the Legislature to the extent that data is available.

The credit was set to expire on January 1, 2017, but the Legislature extended it through December 1, 2022 (Committee on Budget and Fiscal Review, SB 837, 2016). SB 837 also increased the Credit’s percentage amount from 10 to 15 percent and changed the basis on which the credit is calculated. Additionally, the SB 837 updated the credit to comply with Revenue and Taxation Code’s Section 41 reporting requirements.

The author would like to expand the current Credit to encourage taxpayers to donate other edible items to food banks, not just fresh fruits or vegetables.

Proposed Law

Assembly Bill 614 modifies the existing Fresh Fruits or Vegetables Tax Credit by expanding the definition of qualified donation items to include the following raw agricultural products, processed foods, and food items:

• Fruits; nuts; vegetables; meat food product; poultry; eggs; fish; rice; beans; fruits, nuts, and vegetables in canned, frozen, dried, dehydrated, and 100% juice forms; cheese; milk; yogurt; butter; dehydrated milk; infant formula; vegetable oil; olive oil; soup; pasta sauce; salsa; bread; pasta; canned meats; and canned seafood.

All qualified donation items are defined using various code sections throughout the state’s Food and Agricultural Code as well as the state’s Health and Safety Code. The bill extends the current qualified value calculation, which requires taxpayers to use the weighted average wholesale price of the taxpayer’s total like grade wholesale sales of the donated items, to the newly added qualified donated items. The bill expands the definition of a qualified taxpayer to include a person responsible for growing or raising a qualified donation item, or harvesting, packing, or processing a qualified donation item.

AB 614 requires the qualified taxpayer to give additional information to the food bank regarding where the qualified donation items were grown, processed, or both grown and processed. The bill keeps the credit’s original sunset of December 1, 2022, but stipulates the amendments made by AB 614 apply for taxable years beginning on or after January 1, 2020. The bill also substitutes the word “food bank” for “nonprofit organization.”

State Revenue Impact

According to FTB, AB 614 would result in revenue losses of $600,000 in 2019-20, $450,000 in 2020-21, and $250,000 in 2021-22.

Comments

1. Purpose of the bill. According to the author, “California's agricultural industry is the leading producer of agricultural products in the United States with the San Joaquin Valley producing nearly half of our nation's fresh produce. And yet, California throws out nearly 6 million tons of food waste each year. At the same time, 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 614 would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families while simultaneously reducing the amount of food waste accumulating in our landfills.”

2. Tradeoffs. Existing tax law provides various credits, deductions, exclusions, and exemptions for taxpayers. Since the Legislature enacts these items to accomplish some governmental purpose and have a cost — in the form of foregone revenues — state law refers to them as "tax expenditures. "This bill would create a new tax expenditure, costing the General Fund thousands of dollars. Without General Fund moneys, the government has less funding to pay for important public services such as education and public safety. As a result, the state will have to reduce spending or increase taxes to match the foregone revenue. The Committee may wish to consider whether AB 614 is worth the spending cuts and/or tax increases.

3. Windfall. Tax expenditures produce two different outcomes. First, they reward behavior that would have occurred without the tax benefit, referred to as windfall benefit. Second, they generate certain activity (ex. more donations to an in-state food bank of meat, eggs, etc.) that would not have occurred but for the tax benefit. A successful tax expenditure would lead to more food bank donations consisting of meat, eggs, infant formula, among others, but it is unclear as to whether AB 618 will produce a windfall benefit or drive more donations to in-state food banks.

4. Food bank v. nonprofit organization. Currently, the law states that the tax credit applies when a “qualified taxpayer…donates fresh fruits or fresh vegetables to a food bank located in California under Chapter 5 (commencing with Section 58501 of Part 1 of Division 21 of the Food and Agricultural Code… ”The remainder of the code section then uses the term “nonprofit organization” and “food bank” interchangeably. However, the state’s Food and Agricultural Code provisions, which are specific to donations of agricultural products, define both "nonprofit charitable organization" and “food bank” Pursuant to these definitions, a food bank must be a nonprofit organization, but a nonprofit organization may not meet the definition of a “food bank.” AB 614 replaces all references to “nonprofit organization” with “food bank.” It is unclear whether this is a substantive change from existing operating practice. It is also unclear whether taxpayers are donating to nonprofit organizations that are not a “food bank” and are claiming the credit.

5. Section 41. In 2014, Governor Brown signed SB 1335 (Leno, 2014), which added Section 41 to the Revenue and Taxation Code.  In the hopes of applying  the same level of review used for government spending programs to tax expenditure programs, including tax credits, Section 41 requires any bill introduced on or after January 1, 2015, that allows a new income tax credit to contain specific goals, purposes, and objectives that the tax credit will achieve. Additionally, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets its goals, purposes, and objectives. This year, the Assembly Revenue and Taxation Committee adopted a new policy, which requires all new tax expenditure proposals including sales and use tax exemptions, comply with Section 41’s requirements. The existing credit already complies with Section 41’s requirements.

6. Let’s be clear. AB 614 expands the definition of “qualified taxpayer” to also mean 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 or a wholesaler. Since the bill does not define “retailer” and “wholesaler”, the terms may create confusion for taxpayers. The Committee may wish to amend AB 614 either to define the terms or to remove them.

Assembly Actions

Assembly Revenue and Taxation Committee: 11-0
Assembly Appropriations Committee: 18-0
Assembly Floor: 78-0

Support and Opposition

(6/7/19)

Support: California Association of Food Banks (Sponsor); Californians Against Waste (Sponsor); Community Action Agency of Butte County; Orange County Food Bank; Community Action Partnership of San Bernardino County; Alameda County Community Food Bank; California League of Food Producers; Food Bank for Humboldt County; Jacob and Cushman San Diego Food Bank; Second Harvest Food Bank of Orange County; Second Harvest Food Bank Santa Cruz County; California Chapter of the Solid Waste Association of North America’s Legislative Task Force; California Farm Bureau Federation; California Food Policy Advocates; California Food Producers; Central California Food Bank; Dignity Help Connected Living; Feeding San Diego Food Bank Coalition of San Luis Obispo County; Food Bank of Contra Costa and Solano; Kings Community Action Organization; Redwood Empire Food Bank; Sacramento Food Bank & Family Services; San Francisco-Marin Food Bank; Second Harvest Food Bank of Santa Clara & San Mateo Counties; Western Growers Association; Yolo Food Bank; Stopwaste; Northern California Recycling Association.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 614

Author:(Eggman)

As Introduced Ver:May 16, 2019

Majority vote. Tax Levy

SUMMARY:

Expands the existing tax credit program under the Personal Income Tax (PIT) and Corporation Tax (CT) Laws for contributions to food banks of fresh fruits or fresh vegetables by qualified taxpayers to include qualified donations of specified food items, raw agricultural products, and processed foods.

Major Provisions

1. Adds nuts, meat product, poultry, eggs, fish, rice, beans, cheese, milk, yogurt, butter, dehydrated milk, infant formula, vegetable oil, olive oil, soup, pasta sauce, salsa, bread, pasta, canned meats and canned seafood to the list of qualified donation items.
2. Adds fruits, nuts, and vegetables in canned, frozen, dried, dehydrated, and 100% juice forms to the list of qualified donation items.
3. Adds a 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 or a wholesaler, to the list of qualified taxpayers that may claim this credit.
4. Specifies the "qualified value" of these items will be calculated using the same method as that used for fresh fruits and vegetables, which is:
   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.

COMMENTS:

What does this bill do? This bill expands the pre-existing 15% tax credit currently limited to fresh fruits and vegetables donated to food banks to donations of specified food items, processed foods, and raw agricultural products. In 2011, this tax credit was created for donating fresh fruits and vegetables to food banks located in California. In 2016, the tax credit percentage was increased from 10% to 15%. Additionally, the method of calculating the tax credit amount was simplified from an inventory cost basis to wholesale price basis. This credit sunsets on December 1, 2022.

How will value be determined? The existing definitions skew toward commodities that have wholesale prices based upon the same grade or like grade. This "qualified value" definition may be ill-suited for the new food items eligible for a tax credit.

Would these items be donated to food banks and other nonprofit organizations without the added incentive of a state tax credit? Tax credits are typically enacted to encourage specific taxpayer behavior that presumably would not take place without the credit. Existing federal law allows an enhanced deduction for contributions of food inventory. This bill's proposed state tax credit expansion could augment this federal tax incentive to increase food donation and prevent food waste. On the other hand, these donations may already occur without the added incentive of a state tax credit.

According to the Author:

California's agricultural industry is the leading producer of agricultural products in the United States with the 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. This bill would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families.

Arguments in Support:

The expansion of the tax credit to include other nutritious, California-grown and processed grains, proteins and dairy products would further encourage the donation of these items to food banks.

Arguments in Opposition:

No opposition

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, annual General Fund revenue losses of $600,000 in 2019-20, $450,000 in 2020-21 and $250,000 in 2021-22.

VOTES:

ASM REVENUE AND TAXATION: 11-0-0

YES: Burke, Brough, Chu, Gray, Mayes, Melendez, Mullin, Petrie-Norris, Quirk, Luz Rivas, Ting

ASM APPROPRIATIONS: 18-0-0

YES: Gonzalez, Bigelow, Bloom, Bonta, Brough, Calderon, Carrillo, Chau, Diep, Eggman, Fong, Gabriel, Eduardo Garcia, Maienschein, Obernolte, Petrie-Norris, Quirk, Robert Rivas

UPDATED:

VERSION: May 16, 2019

CONSULTANT: Rose Marie Kinnee / REV. & TAX. / (916) 319-2098 FN: 0000944

Date of Hearing: April 24, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 614

Author:(Eggman) – As Introduced Ver:February 14, 2019

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

SUMMARY:

This bill expands the list of items that can be donated to food banks in exchange for a tax credit under the Personal Income Tax Law (PITL) and Corporation Tax Law (CTL). Specifically, this bill:

1. Adds nuts, meat product, poultry, eggs, fish, rice, beans, cheese, milk, yogurt, butter, dehydrated milk, infant formula, vegetable oil, olive oil, soup, pasta sauce, bread, pasta, canned meats and canned seafood to the list of qualified donation items.
2. Adds a person responsible for growing or raising a qualified donation item or harvesting, packing or processing a qualified donation item to the list of qualified taxpayers that may claim the credit.

FISCAL EFFECT:

Annual General Fund revenue losses of $600,000 in 2019-20, $450,000 in 2020-21 and $250,000 in 2021-22.

COMMENTS:

1. Background and purpose. The Donated Fresh Fruits or Vegetables Credit allows agricultural producers to donate fresh fruits and vegetables to a qualified nonprofit (typically a food bank) in exchange for a credit worth 15% of the wholesale value of the items donated.

According to the author, AB 614 will help alleviate food insecurity by expanding the list of items eligible for donation to include core, shelf-stable products. The California Farm Bureau Federation, writing in support, notes that while effective, the current credit is narrow in scope and leaves out a significant amount of food items.

1. Will the credit be renamed? AB 614 expands the original credit’s scope by adding shelf-stable products to the list of qualified items. In fact, if this bill were to become law, the names used to describe the current version of the credit – the Donated Fresh Fruits or Vegetables Credit and the Farm to Food Bank Credit – would no longer be accurate.
2. Recent legislation. AB 1577 (Eggman), of the 2015-16 Legislative Session, included provisions similar to this bill. It also included provisions that were later part of SB 837 (Committee on Budget and Fiscal Review) Chapter 32, Statutes of 2016, which made the credit more generous and changed the calculation of the value of the donated item.

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

Date of Hearing: April 8, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 614 (

Author:Eggman) – As Introduced Ver:February 14, 2019

FOR VOTE ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income taxes: credits: food banks

SUMMARY: Expands the existing tax credit program under the Personal Income Tax (PIT) and Corporation Tax (CT) Laws for contributions of fresh fruits or fresh vegetables to include qualified donations of specified food items, raw agricultural products, and processed foods. Specifically, this bill:

1. States the Legislature's intent to expand the items that qualify for a tax credit when donated to a food bank.
2. Expands the definition of a "qualified taxpayer" (QT) to include the person responsible for growing or raising a qualified donation item, or harvesting, packing, or processing a qualified donation item.
3. Expands the definition of "qualified donation item" (QDI) to include the following specified raw agricultural products, processed foods, and food items:
   1. "Fruit, nuts, or vegetables" as defined in Food and Agricultural Code (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 Section 114094.5 of the H≻
      6. Vegetable oil and olive oil;
      7. Soup, pasta sauce, and salsa;
      8. Bread and pasta; and,
      9. Canned meats and canned seafood.
4. Extends the calculation of "qualified value" for donated fresh fruits and vegetables to the new QDI.
5. Substitutes the reference to the donee as a "food bank" rather than a "nonprofit organization" related to:
   1. The requirement that the donor provide to the donee the QDI's qualified value;
   2. The requirement that the donee provide to the donor a certificate upon receipt of the QDIs; and
   3. The requirement that the certificate to the donor contain a statement signed and dated by an authorized person of the donee and the address of the donee.
6. Requires donors to give information to the donee regarding where QDIs were grown, processed, or both grown and processed.
7. Takes immediate effect as a tax levy.
8. Sunsets the tax credit on December 1, 2022.

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 Laws, to "qualified taxpayers" in an amount equal to 15% of the "qualified value" of fresh fruits and vegetables donated to food banks located in California.
   1. Specifies the tax credit applies when the donation is under F&AC Sections 58501 through 58509.^[1]
   2. Defines a "qualified taxpayer" as the person responsible for planting a crop, managing the crop, and harvesting the crop from the land.
   3. 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.
   4. Reduces any deduction otherwise allowed under the PIT or CT Law for that amount of cost paid or incurred by the qualified taxpayer for the fresh fruits and vegetables by the credit amount provided.
3. Allows for the deduction of all ordinary and necessary expenses of a trade or business.
4. 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]
5. 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.
6. Allows a 50% tax credit for costs to transport donated agricultural products to nonprofit charitable organizations. ^[3]
7. Provides, pursuant to the F&AC provisions under which the fresh fruits and vegetable tax credit applies to food bank donations, the following:
   1. Allows a person or gleaner engaged in the business of processing, distributing, or selling an agricultural product to donate, free of charge, a product in useable condition as food for human consumption to a nonprofit charitable organization within the state. ^[4]
   2. Defines a "nonprofit charitable organization" as any organization that is organized and is operating for charitable purposes under R&TC Section 214. ^[5]
   3. Defines a "food bank" as a surplus food collection and distribution system operated and established to assist in bringing donated agricultural products to nonprofit charitable organizations and individuals for the purpose of reducing hunger and nutritional needs.^[6]
   4. Requires a nonprofit charitable organization to meet the following minimum standards to qualify as a "food bank":^[7]
      1. Incorporated as a nonprofit tax exempt organization and be eligible as a charitable organization under Internal Revenue Code (IRC) Section 501(c)(3) or be affiliated with such an organization;
      2. Access to storage facilities and refrigeration equipment for the purpose of collecting, receiving, handling, storing, and distributing donated agricultural products;
      3. Maintenance of proper inventory control records;
      4. Adequate liability insurance to cover the donation activities pursuant to F&AC Sections 58501 through 58509; and,
      5. Local support through funding sources, letters of endorsement, and a board of directors reflective of the community and population served.
8. Sunsets the tax credit on December 1, 2022.
9. 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 fresh fruits and vegetables donated;
      3. The county in which the fresh fruits and vegetables originated; and,
      4. The month the donation was made.

FISCAL EFFECT: The FTB estimates annual General Fund revenue losses of $600,000 in fiscal year (FY) 2019-20, $450,000 in FY 2020-21, and $250,000 in FY 2021-22.

COMMENTS:

1. The author in support of this measure states:

California's agricultural industry is the leading producer of agricultural products in the United States with the 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 614 would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families.

1. In support of this bill, the California Farm Bureau Federation states:

[AB 614] would expand the Farm to Food Bank Tax Credit from only fresh produce, to other nutritious, California-grown and processed grains, proteins and dairy products. As the leading agricultural producer in the Nation, it's 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 to be effective, further encouraging our members and others in agricultural production to make donations to those in need. In its narrow scope, however, there are still a significant amount of food items that are essential to adult and child health and welfare that are precluded from eligibility. One example of note is dairy products—while California produces most of the United States' fruits, nuts and vegetables, it also ranks as the highest milk-producing state. As milk and milk products are essential components of every meal, and especially important for child nutrition and development, it and other items are critical for donation.

1. Committee Staff Comments:
   1. What does this bill do? This bill expands the pre-existing 15% tax credit currently limited to fresh fruits and vegetables donated to food banks to donations of specified food items, processed foods, and raw agricultural products.
   2. Existing tax credit: In 2011, a state tax credit program was created for donating fresh fruits and vegetables to food banks located in California. In 2016, the tax credit percentage was increased from 10% to 15%. Additionally, the method of calculating the tax credit amount was simplified from an inventory cost basis to wholesale price basis.
   3. What is a food bank? The California Association of Food Banks (CAFB), which has 41 member food banks, explains that food banks' primary role is to solicit, store, and distribute donated food to smaller agencies, such as a food pantry or soup kitchen, that in turn directly serve those in need. For example, CAFB's 41 member food banks provide food to over 6,000 nonprofit agencies.
   4. Would QTs donate food to food banks and other nonprofit organizations without the added incentive of a state tax credit? Tax credits are typically enacted to encourage specific taxpayer behavior that presumably would not take place without the credit. This bill proposes a 15% tax credit for the donation of wide range of items. Existing federal law allows an enhanced deduction for contributions of food inventory. The proposed state tax credit expansion could augment this federal tax incentive to increase food donation and prevent food waste. On the other hand, these donations may already occur without the added incentive of a state tax credit. And it is unclear that QTs that harvest, pack, and process QFIs would not donate the food without the benefit of the tax credit.
   5. How will value be determined? The existing definitions skew toward commodities that have wholesale prices based upon the same grade or like grade. The "qualified value" definition may be ill-suited for the new food items eligible for a tax credit.
   6. Tax credit vs. grant program: Each year, interest groups seek new ways to support their mission or increase funds by advancing tax credits. Although well intentioned, the use of the tax code to accomplish a public policy objective, such as ending food insecurity, may be more efficiently addressed through a direct outlay of state funds. The tax credit this bill proposes has no statewide cap to limit its potential impact on state revenue.
   7. Qualified taxpayers outside California: This bill provides that a credit equal to 15% of the qualified value be given to qualified taxpayers that donate QDIs to food banks in California. However, whereas the foodbank must be in California, qualified taxpayers outside of California would be able to claim the credit so long as they meet the applicable requirements. This bill, as currently drafted, does not require that the QDI be grown or raised in California. Therefore, it is possible that General Fund money may be used to subsidize a QT with most of their operations outside of California. The Committee may wish to consider whether the benefits of potentially increased food donations outweighs the costs of subsidizing producers located, and economic activities performed outside of California. As such, the Committee could consider limiting the tax credit to QDIs harvested, packed, or processed in California.
   8. The law of unintended consequences: This bill expands the definition of a qualified taxpayer to include those harvesting, packing, or processing a qualified donation item; this may have unintended consequences. What constitutes packing or processing a QDI? For example, is a retailer that "packs" or "processes" an online grocery order a QT? Is a brick-and-mortar grocery store that refills self-service bulk bins of rice or beans or bakes bread in-house a "processer" of QDIs? Broad interpretations of these terms could expand the credit beyond what is envisioned.
   9. Certification contents: food bank vs. nonprofit organization: The tax credit applies if a QT donates QDIs to a food bank located in California. The law requires a "certification" be provided to the donor and details the information the certification must include. Under existing law, these certification provisions use the broad term "nonprofit organization" rather than the more specific term "food bank". This bill substitutes the term "food bank" for "nonprofit organization" with regard to the required certification to be issued to the donor that is signed and dated by an authorized person and provides an address.

The certification language in existing law is the same as used in the prior tax credit^[8] for donated fresh fruits and vegetables available from 2012 through 2017. Additionally, the "Donated Agricultural Products Transportation Credit"^[9], available since 1996, includes similar certification language. The transportation-related tax credit applies to donations to nonprofit organizations under these same F&AC provisions, but unlike the fresh fruit and vegetable tax credit, does not reference food banks.

• 1. Does this bill's certification language modification result in a potential redirection of food donations? The law states that the tax credit applies when the donation is "under" Chapter 5 of Part 1 of Division 21 of the F&AC. These F&AC provisions, which are specific to donations of agricultural products, define both "nonprofit charitable organization" and "food bank". Pursuant to these definitions, a food bank must be a nonprofit organization, but a nonprofit organization may not meet the definition of a "food bank." The F&AC details the minimum requirements for an organization to be a "food bank". This bill modifies the certification language to use the term "food bank" for internal consistency and precision with the remainder of the text. However, the certification language changes highlight the issue of whether this is a substantive change from existing operating practice. It appears existing law limits the tax credit to donations to nonprofit organizations that meet the food bank definition. Committee staff is unaware of whether or not tax credits are currently claimed by taxpayers donating to a nonprofit organization that is not a "food bank" and for which the taxpayer receives the necessary certification from a "non-food bank" nonprofit organization.

If this bill's refinements to the certification provisions result in prohibiting non-food bank nonprofit organizations from issuing these certifications, this could result in a change in practice and perhaps redirect food donations to ensure tax credit availability. To the extent a non-food bank nonprofit organization assists in acquiring donations for a food bank, the author may wish consider a provision that allows a food bank to authorize a nonprofit organization to receive QDIs and issue the certificate on the food bank's behalf, in which case the certificate could also include the name and address of the assisting nonprofit organization.

• 1. R&TC Section 41: The existing tax credit this bill expands complies with R&TC Section 41. The tax credit's stated purpose is to increase donations to food banks. The FTB is required to collect specified information and prepare an annual report to the Legislature. The first report, which would be limited to fresh fruit and vegetable donations, is due December 1, 2019.
  2. Sunset provisions: The existing tax credit this bill expands will sunset on December 1, 2022.
  3. 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 in 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 1577 (Eggman) of the 2015-16 Legislative Session, would have, in part, expanded the tax credit to include other food items substantially similar to this bill.
     3. AB 515 (Eggman), of the 2015-16 Legislative Session, would have, in part, expanded the tax credit to include other food items substantially similar to this bill. 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."
     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 Committee 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 fresh vegetables for taxable years beginning on January 1, 2012, and before January 1, 2017. This credit sunset on December 1, 2017.
     7. AB 727 (Correa), of the 2001-02 Legislative Session, would have established a tax credit equal to 10% of the normal inventory costs for the donation of agricultural products to a food bank located in Fresno, Orange, or Santa Cruz Counties. AB 727 failed to pass out of the Senate Committee on Revenue and Taxation.
     8. AB 287 (Strickland), of the 1999-2000 Legislative Session, would have established a credit equal to 10% of the wholesale value of agricultural products donated by a taxpayer to a nonprofit charitable organization or food bank. AB 287 was held by the Assembly Committee on Appropriations.
     9. AB 196 (Thomson), of the 1997-98 Legislative Session, would have established a tax credit equal to 20% of the cost of agricultural products donated to a nonprofit charitable organization. AB 196 was held by the Senate Committee on Appropriations.
     10. AB 364 (Cannella), of the 1995-96 Legislative Session, would have, among other things, established a tax credit equal to 10% of the cost of food donated to nonprofit charitable organizations. AB 364 was held by the Senate Committee on Appropriations.
     11. AB 2346 (Kelley), Chapter 1248, Statutes of 1989, established a very similar tax credit for the donation of agricultural products to certain nonprofit charitable organizations. This credit sunset on December 1, 1992.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Food Banks

California Farm Bureau Federation
California Food Policy Advocates
California Food Producers

Californians Against Waste

Central California Food Bank

Dignity Help Connected Living

Feeding San Diego
Food Bank Coalition of San Luis Obispo County

Food Bank of Contra Costa and Solano

Kings Community Action Organization

Redwood Empire Food Bank

Sacramento Food Bank & Family Services

San Francisco-Marin Food Bank
Second Harvest Food Bank of Santa Clara & San Mateo Counties

Western Growers Association

Yolo Food Bank

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. ↑

4. F&AC Section 58502. ↑

5. F&AC Section 58501. ↑

6. F&AC Section 58501. ↑

7. F&AC Section 58503.1. ↑

8. See former R&TC Sections 17053.88 and 23688, added and repealed by AB 152 (Fuentes), Chapter 503, Statutes of 2011. ↑

9. R&TC Sections 17053.12 and 23608. ↑

Date of Hearing: March 18, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 614 (

Author:Eggman) – As Introduced Ver:February 14, 2019

FOR TESTIMONY ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Income taxes: credits: food banks

SUMMARY: Expands the existing tax credit program under the Personal Income Tax (PIT) and Corporation Tax (CT) Laws for contributions of fresh fruits or fresh vegetables to include qualified donations of specified food items, raw agricultural products, and processed foods. Specifically, this bill:

1. States the Legislature's intent to expand the items that qualify for a tax credit when donated to a food bank.
2. Expands the definition of a "qualified taxpayer" (QT) to include the person responsible for growing or raising a qualified donation item, or harvesting, packing, or processing a qualified donation item.
3. Expands the definition of "qualified donation item" (QDI) to include the following specified raw agricultural products, processed foods, and food items:
   1. "Fruit, nuts, or vegetables" as defined in Food and Agricultural Code (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 Section 114094.5 of the H≻
      6. Vegetable oil and olive oil;
      7. Soup, pasta sauce, and salsa;
      8. Bread and pasta; and,
      9. Canned meats and canned seafood.
4. Extends the calculation of "qualified value" for donated fresh fruits and vegetables to the new QDI.
5. Substitutes the reference to the donee as a "food bank" rather than a "nonprofit organization" related to:
   1. The requirement that the donor provide to the donee the QDI's qualified value;
   2. The requirement that the donee provide to the donor a certificate upon receipt of the QDIs; and
   3. The requirement that the certificate to the donor contain a statement signed and dated by an authorized person of the donee and the address of the donee.
6. Requires donors to give information to the donee regarding where QDIs were grown, processed, or both grown and processed.
7. Takes immediate effect as a tax levy.
8. Sunsets the tax credit on December 1, 2022.

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 Laws, to "qualified taxpayers" in an amount equal to 15% of the "qualified value" of fresh fruits and vegetables donated to food banks located in California.
   1. Specifies the tax credit applies when the donation is under F&AC Sections 58501 through 58509.^[1]
   2. Defines a "qualified taxpayer" as the person responsible for planting a crop, managing the crop, and harvesting the crop from the land.
   3. 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.
   4. Reduces any deduction otherwise allowed under the PIT or CT Law for that amount of cost paid or incurred by the qualified taxpayer for the fresh fruits and vegetables by the credit amount provided.
3. Allows for the deduction of all ordinary and necessary expenses of a trade or business.
4. 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]
5. 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.
6. Allows a 50% tax credit for costs to transport donated agricultural products to nonprofit charitable organizations. ^[3]
7. Provides, pursuant to the F&AC provisions under which the fresh fruits and vegetable tax credit applies to food bank donations, the following:
   1. Allows a person or gleaner engaged in the business of processing, distributing, or selling an agricultural product to donate, free of charge, a product in useable condition as food for human consumption to a nonprofit charitable organization within the state. ^[4]
   2. Defines a "nonprofit charitable organization" as any organization that is organized and is operating for charitable purposes under R&TC Section 214. ^[5]
   3. Defines a "food bank" as a surplus food collection and distribution system operated and established to assist in bringing donated agricultural products to nonprofit charitable organizations and individuals for the purpose of reducing hunger and nutritional needs.^[6]
   4. Requires a nonprofit charitable organization to meet the following minimum standards to qualify as a "food bank":^[7]
      1. Incorporated as a nonprofit tax exempt organization and be eligible as a charitable organization under Internal Revenue Code (IRC) Section 501(c)(3) or be affiliated with such an organization;
      2. Access to storage facilities and refrigeration equipment for the purpose of collecting, receiving, handling, storing, and distributing donated agricultural products;
      3. Maintenance of proper inventory control records;
      4. Adequate liability insurance to cover the donation activities pursuant to F&AC Sections 58501 through 58509; and,
      5. Local support through funding sources, letters of endorsement, and a board of directors reflective of the community and population served.
8. Sunsets the tax credit on December 1, 2022.
9. 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 fresh fruits and vegetables donated;
      3. The county in which the fresh fruits and vegetables originated; and,
      4. The month the donation was made.

FISCAL EFFECT: The FTB estimates annual General Fund revenue losses of $600,000 in fiscal year (FY) 2019-20, $450,000 in FY 2020-21, and $250,000 in FY 2021-22.

COMMENTS:

1. The author in support of this measure states:

California's agricultural industry is the leading producer of agricultural products in the United States with the 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 614 would expand the list of items that agricultural producers can donate to Food Banks in order to qualify for an existing tax credit. By expanding this list of food items beyond fresh fruits and vegetables to include core, shelf-stable products, AB 614 will help alleviate food insecurity for California families.

1. In support of this bill, the California Farm Bureau Federation states:

[AB 614] would expand the Farm to Food Bank Tax Credit from only fresh produce, to other nutritious, California-grown and processed grains, proteins and dairy products. As the leading agricultural producer in the Nation, it's 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 to be effective, further encouraging our members and others in agricultural production to make donations to those in need. In its narrow scope, however, there are still a significant amount of food items that are essential to adult and child health and welfare that are precluded from eligibility. One example of note is dairy products—while California produces most of the United States' fruits, nuts and vegetables, it also ranks as the highest milk-producing state. As milk and milk products are essential components of every meal, and especially important for child nutrition and development, it and other items are critical for donation.

1. Committee Staff Comments:
   1. What does this bill do? This bill expands the pre-existing 15% tax credit currently limited to fresh fruits and vegetables donated to food banks to donations of specified food items, processed foods, and raw agricultural products.
   2. Existing tax credit: In 2011, a state tax credit program was created for donating fresh fruits and vegetables to food banks located in California. In 2016, the tax credit percentage was increased from 10% to 15%. Additionally, the method of calculating the tax credit amount was simplified from an inventory cost basis to wholesale price basis.
   3. What is a food bank? The California Association of Food Banks (CAFB), which has 41 member food banks, explains that food banks' primary role is to solicit, store, and distribute donated food to smaller agencies, such as a food pantry or soup kitchen, that in turn directly serve those in need. For example, CAFB's 41 member food banks provide food to over 6,000 nonprofit agencies.
   4. Would QTs donate food to food banks and other nonprofit organizations without the added incentive of a state tax credit? Tax credits are typically enacted to encourage specific taxpayer behavior that presumably would not take place without the credit. This bill proposes a 15% tax credit for the donation of wide range of items. Existing federal law allows an enhanced deduction for contributions of food inventory. The proposed state tax credit expansion could augment this federal tax incentive to increase food donation and prevent food waste. On the other hand, these donations may already occur without the added incentive of a state tax credit. And it is unclear that QTs that harvest, pack, and process QFIs would not donate the food without the benefit of the tax credit.
   5. How will value be determined? The existing definitions skew toward commodities that have wholesale prices based upon the same grade or like grade. The "qualified value" definition may be ill-suited for the new food items eligible for a tax credit.
   6. Tax credit vs. grant program: Each year, interest groups seek new ways to support their mission or increase funds by advancing tax credits. Although well intentioned, the use of the tax code to accomplish a public policy objective, such as ending food insecurity, may be more efficiently addressed through a direct outlay of state funds. The tax credit this bill proposes has no statewide cap to limit its potential impact on state revenue.
   7. Qualified taxpayers outside California: This bill provides that a credit equal to 15% of the qualified value be given to qualified taxpayers that donate QDIs to food banks in California. However, whereas the foodbank must be in California, qualified taxpayers outside of California would be able to claim the credit so long as they meet the applicable requirements. This bill, as currently drafted, does not require that the QDI be grown or raised in California. Therefore, it is possible that General Fund money may be used to subsidize a QT with most of their operations outside of California. The Committee may wish to consider whether the benefits of potentially increased food donations outweighs the costs of subsidizing producers located, and economic activities performed outside of California. As such, the Committee could consider limiting the tax credit to QDIs harvested, packed, or processed in California.
   8. The law of unintended consequences: This bill expands the definition of a qualified taxpayer to include those harvesting, packing, or processing a qualified donation item; this may have unintended consequences. What constitutes packing or processing a QDI? For example, is a retailer that "packs" or "processes" an online grocery order a QT? Is a brick-and-mortar grocery store that refills self-service bulk bins of rice or beans or bakes bread in-house a "processer" of QDIs? Broad interpretations of these terms could expand the credit beyond what is envisioned.
   9. Certification contents: food bank vs. nonprofit organization: The tax credit applies if a QT donates QDIs to a food bank located in California. The law requires a "certification" be provided to the donor and details the information the certification must include. Under existing law, these certification provisions use the broad term "nonprofit organization" rather than the more specific term "food bank". This bill substitutes the term "food bank" for "nonprofit organization" with regard to the required certification to be issued to the donor that is signed and dated by an authorized person and provides an address.

The certification language in existing law is the same as used in the prior tax credit^[8] for donated fresh fruits and vegetables available from 2012 through 2017. Additionally, the "Donated Agricultural Products Transportation Credit"^[9], available since 1996, includes similar certification language. The transportation-related tax credit applies to donations to nonprofit organizations under these same F&AC provisions, but unlike the fresh fruit and vegetable tax credit, does not reference food banks.

• 1. Does this bill's certification language modification result in a potential redirection of food donations? The law states that the tax credit applies when the donation is "under" Chapter 5 of Part 1 of Division 21 of the F&AC. These F&AC provisions, which are specific to donations of agricultural products, define both "nonprofit charitable organization" and "food bank". Pursuant to these definitions, a food bank must be a nonprofit organization, but a nonprofit organization may not meet the definition of a "food bank." The F&AC details the minimum requirements for an organization to be a "food bank". This bill modifies the certification language to use the term "food bank" for internal consistency and precision with the remainder of the text. However, the certification language changes highlight the issue of whether this is a substantive change from existing operating practice. It appears existing law limits the tax credit to donations to nonprofit organizations that meet the food bank definition. Committee staff is unaware of whether or not tax credits are currently claimed by taxpayers donating to a nonprofit organization that is not a "food bank" and for which the taxpayer receives the necessary certification from a "non-food bank" nonprofit organization.

If this bill's refinements to the certification provisions result in prohibiting non-food bank nonprofit organizations from issuing these certifications, this could result in a change in practice and perhaps redirect food donations to ensure tax credit availability. To the extent a non-food bank nonprofit organization assists in acquiring donations for a food bank, the author may wish consider a provision that allows a food bank to authorize a nonprofit organization to receive QDIs and issue the certificate on the food bank's behalf, in which case the certificate could also include the name and address of the assisting nonprofit organization.

• 1. R&TC Section 41: The existing tax credit this bill expands complies with R&TC Section 41. The tax credit's stated purpose is to increase donations to food banks. The FTB is required to collect specified information and prepare an annual report to the Legislature. The first report, which would be limited to fresh fruit and vegetable donations, is due December 1, 2019.
  2. Sunset provisions: The existing tax credit this bill expands will sunset on December 1, 2022.
  3. 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 in 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 1577 (Eggman) of the 2015-16 Legislative Session, would have, in part, expanded the tax credit to include other food items substantially similar to this bill.
     3. AB 515 (Eggman), of the 2015-16 Legislative Session, would have, in part, expanded the tax credit to include other food items substantially similar to this bill. 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."
     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 Committee 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 fresh vegetables for taxable years beginning on January 1, 2012, and before January 1, 2017. This credit sunset on December 1, 2017.
     7. AB 727 (Correa), of the 2001-02 Legislative Session, would have established a tax credit equal to 10% of the normal inventory costs for the donation of agricultural products to a food bank located in Fresno, Orange, or Santa Cruz Counties. AB 727 failed to pass out of the Senate Committee on Revenue and Taxation.
     8. AB 287 (Strickland), of the 1999-2000 Legislative Session, would have established a credit equal to 10% of the wholesale value of agricultural products donated by a taxpayer to a nonprofit charitable organization or food bank. AB 287 was held by the Assembly Committee on Appropriations.
     9. AB 196 (Thomson), of the 1997-98 Legislative Session, would have established a tax credit equal to 20% of the cost of agricultural products donated to a nonprofit charitable organization. AB 196 was held by the Senate Committee on Appropriations.
     10. AB 364 (Cannella), of the 1995-96 Legislative Session, would have, among other things, established a tax credit equal to 10% of the cost of food donated to nonprofit charitable organizations. AB 364 was held by the Senate Committee on Appropriations.
     11. AB 2346 (Kelley), Chapter 1248, Statutes of 1989, established a very similar tax credit for the donation of agricultural products to certain nonprofit charitable organizations. This credit sunset on December 1, 1992.

REGISTERED SUPPORT / OPPOSITION:

Support

California Association of Food Banks

California Farm Bureau Federation
California Food Policy Advocates
California Food Producers

Central Valley Food Bank

Dignity Help Connected Living

Feeding San Diego
Food Bank Coalition of San Luis Obispo County

Food Bank of Contra Costa and Solano

Kings Community Action Organization

Sacramento Food Bank & Family Services

San Francisco-Marin Food Bank
Western Growers Association

Yolo Food Bank

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. ↑

4. F&AC Section 58502. ↑

5. F&AC Section 58501. ↑

6. F&AC Section 58501. ↑

7. F&AC Section 58503.1. ↑

8. See former R&TC Sections 17053.88 and 23688, added and repealed by AB 152 (Fuentes), Chapter 503, Statutes of 2011. ↑

9. R&TC Sections 17053.12 and 23608. ↑