Existing state sales and use tax laws impose a tax on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, state or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state. The Sales and Use Tax Law provides various exemptions from those taxes.

This bill would, until January 1, 2024, provide an exemption from those taxes with respect to the sale in this state of, and the storage and use of, storage, use, or other consumption in this state of, specified zero-emission technology transit buses sold to specified public agencies. The bill would provide that this exemption does not apply to specified state sales and use taxes from which the proceeds are deposited into the Local Revenue Fund, the Local Revenue Fund 2011, or the Local Public Safety Fund.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing laws authorize districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Exemptions from state sales and use taxes are automatically incorporated into the local tax laws.

This bill would specify that this exemption does not apply to local sales and use taxes or transactions and use taxes.

This bill would take effect immediately as a tax levy.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 784

Author:(Mullin)

As Amended Ver:August 30, 2019

Majority vote

SUMMARY:

Enacts a partial sales and use tax exemption for zero-emission transit buses sold to local public agencies eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Program

The Senate Amendments:

1. Limit the partial sales and use tax exemption to public agencies; and,
2. Define a "transit bus" as an articulated bus, bus, cutaway bus, double-decker bus, over-the-road bus, shuttle bus, or trolley bus, and provide additional definitions for all of the mentioned terms.

COMMENTS:

Although this bill intends to encourage the purchase of specified vehicles, the voucher program that is currently administered by HVIP already provides such an incentive. According to the California Air Resources Board, HVIP is intended to encourage and accelerate the deployment of zero-emission trucks and buses using engines that meet the optional low NOx standard, and hybrid trucks and buses in California. The vouchers are provided to the dealership/manufacturer, but the purchaser receives a benefit because the price paid for the vehicle includes a reduction equal to the voucher amount. Since the HVIP program already provides a voucher toward the purchase of vehicles that this bill targets, instead of providing a partial SUT exemption one could simply increase the amount of funds available in the HVIP program or increase the amount of money provided for each voucher. The revenue loss should be the same, but the administration would be simplified.

Additionally, on December 14, 2019, the California Air Resources Board adopted the Innovate Clean Transit regulation, which sets out regulations requiring transit agencies to transition their fleets to zero-emission technologies. The regulations set a statewide goal for public transit agencies to gradually transition to 100% zero-emission bus fleets by 2040. Each transit agency will submit a rollout plan under the regulation demonstrating how it plans to purchase clean buses, build out necessary infrastructure, and train the required workforce. The rollout plans are due in 2020 for large transit agencies and in 2023 for small agencies. Agencies will then follow a phase-in schedule from 2023 until 2029, by which date 100% of annual new bus purchases will be zero-emission.  To encourage early action, the zero-emission purchase requirement would not start until 2025 if a minimum number of zero-emission bus purchases are made by the end of 2021.

As a general rule, tax expenditures are typically implemented so as to encourage new behavior deemed necessary for the public good. To the extent that existing regulations require transit agencies to replace older vehicles with zero-emission vehicles, this bill may potentially be providing a windfall for behavior that would have occurred irrespective of the goals of this bill. However, if the goal of this bill is to help local transit agencies comply with costly new requirements, increasing incentives for the purchase of qualifying vehicles may be appropriate.

According to the Author:

Diesel engines, found in almost half of the state's bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs.

This bill will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4 million over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovation Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.

Arguments in Support:

None received for current version of this bill

Arguments in Opposition:

None received for current version of this bill

FISCAL COMMENTS:

According to the Senate Committee on Appropriations, "[t]his bill would likely result in an annual General Fund revenue loss of $1 million to $2 million. The California Department of Tax and Fee Administration would incur annual administrative costs of up to $250,000."

VOTES:

ASM REVENUE AND TAXATION: 9-1-1

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

NO: Gray

ABS, ABST OR NV: Quirk

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: 77-1-2

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, 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

NO: Gray

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: August 30, 2019

CONSULTANT: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0001872

 THIRD READING  

Bill No: AB 784

Author: Mullin (D), et al.

Amended: 8/30/19 in Senate

Vote: 21

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

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: 77-1, 5/23/19 - See last page for vote

SUBJECT: Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit bus vehicles

SOURCE: Author

DIGEST:

This bill enacts a state-only sales and use tax exemption for zero-emission transit buses sold to local public agencies eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Program.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect and remit appropriate tax at purchase and remit the amount to CDTFA.
2. Applies the sales tax whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business.
3. Provides that unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state, and requires the purchaser to remit use tax to CDTFA.
4. Sets the state sales and use tax rate at 7.25% of the sales price of the property sold or used, of which 3.9375% flows to the state General Fund.
5. Allows cities, counties, and specified special districts to increase the sales and use tax, also known as district or transactions and use taxes, up to a 2% countywide cap, with some exceptions.
6. Does not provide public agencies, such as cities, counties, and transit and transportation agencies with a blanket exemption from the sales and use tax.
7. Exempts some items from the state and local sales and use tax (prescription drugs, food, poultry litter), while others are exempt from the state sales tax, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, and racehorse breeding stock, among others.
8. Directs the California Air Resources Board (CARB) to administer the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) created by the California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007.

This bill:

1. Enacts a state-only (3.9375%) sales and use tax exemption for any zero-emission technology transit bus vehicles sold to a city, county, city and county, transportation and transit district, or other public agency that provides transit services to the public that is eligible for HVIP.
2. Defines “transit bus,” to include an articulated bus, bus, cutaway bus, double-decker, over-the-road bus, or shuttle bus, and further defines those terms.
3. Commences for purchases made on or after the enactment date of this bill, and ends on January 1, 2024.
4. Includes provisions indicating legislative intent to apply the requirements of Revenue and Taxation Code Section 41.

Background

HVIP provides vouchers on a first-come, first-served basis for any fleet owner or operator, including commercial operators, local governments, and non-profit agencies, to replace current vehicle fleets with hybrid and zero-emission vehicles in the hopes of providing clean air benefits. Under HVIP, manufacturers apply to CARB to determine that the vehicles they produce meet clean air targets. If CARB certifies the engine, CARB lists vehicles with those engines on its website as qualifying for vouchers. CARB calculates voucher amounts based on the “incremental amount,” or the price difference between an HVIP-eligible vehicle and one that runs on conventional fuel. Voucher amounts can vary between $6,000 for a Class 2 Hybrid Truck to $300,000 for a 40-foot bus, and are generally based on the kind of vehicle, its weight, the number of vehicles purchased, and whether the vehicle will be used in a disadvantaged community.

First, a potential purchaser contacts a vehicle dealer to purchase a vehicle eligible for a voucher. Second, the dealer verifies that HVIP funds are available, and that CARB has certified the vehicle as eligible for a voucher. The dealer then applies to a CARB-designated grantee (currently CALSTART) for a voucher. If approved, the purchaser then pays the dealer the purchase price of the vehicle minus the value of the voucher, and the dealer then arranges to build the vehicle to suit the purchaser’s order. Once the vehicle is placed in service, CALSTART reimburses the dealer upon presentation of the voucher. The purchaser must report to CARB regarding their usage of the vehicle for the next three years.

CARB allocates funds appropriated by the Legislature from the Greenhouse Gas Reduction Fund (GGRF) to CALSTART to pay vouchers, which is funded from auction proceeds under the state’s “Cap and Trade” program authorized by the Global Warming Solutions Act. Each year, the Legislature appropriates GGRF funds to various agencies, including CARB, for various purposes, including HVIP. However, transit agencies argue that GGRF funding levels for HVIP can be uncertain, and that current voucher amounts do not fully account for the difference between conventional fuels and cleaner ones. CARB indicates that they will soon need to create a waiting list for HVIP vouchers because funds will not be sufficient to meet demand.

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

According to the Senate Appropriations Committee, this bill will likely result in an annual General Fund revenue loss of $1 million to $2 million. The California CDTFA would incur annual administrative costs of up to $250,000.

SUPPORT: (Verified 8/30/19)

Advanced Energy Economy
Alameda-Contra Costa Transit District
Anaheim Resort Transportation
BYD America
BlueGreen Alliance
California Association for Coordinated Transportation
California Electric Transportation Coalition
California Manufacturers and Technology Association
California Transit Association
CALSTART
ChargePoint
City of Santa Rosa
Coalition for Clean Air
ENGIE
Electrical Vehicle Charging Association
Foothill Transit Executive Board
Golden Gate Bridge, Highway, and Transportation District
GreenPower
Lion Electric Co.
Marin County Board of Supervisors
Marin County Transit District
Monterey-Salinas Transit
Napa Valley Transportation Authority
Natural Resources Defense Council
North County Transit District
Orange County Transportation Authority
Pacific Gas and Electric Company
Proterra
San Diego Metropolitan Transportation System
San Francisco Municipal Transit Agency
San Mateo County Economic Development Association
San Mateo County Transit District
Silicon Valley Leadership Group
Southern California Edison
Union of Concerned Scientists
United Steelworkers, Local 675

OPPOSITION: (Verified 8/30/19)

None received

ARGUMENTS IN SUPPORT: According to the author, “Diesel engines, found in almost half of the state’s bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs. AB 784 will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4M over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovative Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.”

ASSEMBLY FLOOR: 77-1, 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, 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

NOES: Gray

NO VOTE RECORDED: Cooley, Eduardo Garcia

Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119

9/3/19 11:03:09

**** END ****

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 784 (Mullin) - Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit buses

Bill Summary:

AB 784 would enact a state-only sales and use tax exemption for zero-emission technology medium- and heavy-duty transit bus vehicles eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive under the Air Quality Improvement Program at the Air Resources Board.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 30, 2019

Fiscal Impact:

This bill would likely result in an annual General Fund revenue loss of $1 million to $2 million. The California Department of Tax and Fee Administration would incur annual administrative costs of up to $250,000.

Author Amendments:

Make technical changes and expand the exemption to include trolley buses.

-- END --

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 784 (Mullin) - Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit buses

Bill Summary:

AB 784 would enact a state-only sales and use tax exemption for zero-emission technology medium- and heavy-duty transit bus vehicles eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive under the Air Quality Improvement Program at the Air Resources Board.

Fiscal Impact:

The California Department of Tax and Fee Administration (CDTFA) estimates that the bill would result in an annual General Fund revenue loss of $914,000. The department indicates that it would incur annual administrative costs of up to $250,000 (see Staff Comments).

Background:

Except where a specific exemption or exclusion is provided, current law imposes SUT on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer. Unless purchasers pays the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax.

After CDTFA collects SUT revenue ($54 billion in 2015-16), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—an approximately 1.1 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of January 1, 2018, the average statewide SUT rate was 8.50 percent.

Current law does not provide public agencies, including cities, counties, and transit and transportation agencies, with a blanket exemption from the SUT, but does contain exemptions and other provisions for specific groups. Consequently, public agencies pay SUT like any other entity (the federal government is exempt). However, state law fully exempts some items (such as prescription drugs and food) from the SUT, while others are exempt from the state portion, but not the local share. Specifically, California law contains partial state SUT exemptions for sales and purchases of manufacturing and research and development equipment (at a 3.9375 percnet rate), and five partial exemptions at a 5 percent rate, as follows: (1) farm equipment and machinery, (2) diesel fuel used for farming and food processing, (3) teleproduction and postproduction equipment, (4) timber harvesting equipment and machinery, and (5) racehorse breeding stock.

The California Air Resources Board (CARB) administers the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP), which provides vouchers on a first-come, first-served basis for any fleet owner or operator, including commercial operators, local governments, and non-profit agencies, to replace current vehicle fleets with hybrid and zero-emission vehicles in the hopes of providing clean air benefits.

Under HVIP, manufacturers apply to CARB to determine that the vehicles they produce meet clean air targets. If CARB certifies the engine, CARB lists vehicles with those engines on its website as qualifying for vouchers. CARB calculates voucher amounts based on the “incremental amount,” or the price difference between an HVIP-eligible vehicle and one that runs on conventional fuel. Voucher amounts can vary between $6,000 for a Class 2 Hybrid Truck to $300,000 for a 40-foot bus, and are generally based on the kind of vehicle, its weight, the number of vehicles purchased, and whether the vehicle will be used in a disadvantaged community.

First, a potential purchaser contacts a vehicle dealer to purchase a vehicle eligible for a voucher. Second, the dealer verifies that HVIP funds are available, and that CARB has certified the vehicle as eligible for a voucher. The dealer then applies to a CARB-designated grantee (currently CALSTART) for a voucher. If approved, the purchaser then pays the dealer the purchase price of the vehicle minus the value of the voucher, and the dealer then arranges to build the vehicle to suit the purchaser’s order. Once the vehicle is placed in service, CALSTART reimburses the dealer upon presentation of the voucher. The purchaser must report to CARB regarding their usage of the vehicle for the next three years.

CARB allocates funds appropriated by the Legislature from the Greenhouse Gas Reduction Fund (GGRF) to pay vouchers. Each year, the Legislature appropriates GGRF funds to various agencies, including CARB, for various purposes, including HVIP.

Proposed Law:

This bill would enact a state-only General Fund (3.9375 percent) SUT exemption for any zero-emission technology medium- and heavy-duty transit bus vehicles eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project funded under the Air Quality Improvement Program at the State Air Resources Board. The exemption would commence for purchases made on or after the enactment date of the bill, and end on January 1, 2024.

Staff Comments:

CARB indicates that (1) the estimated average delivered price of a transit bus participating in the zero-emission HVIP is approximately $725,000, and (2) about 32 vouchers are funded annually. Taking the product of these two numbers and applying the General Fund SUT rate of 3.9375 percent results in an annual revenue loss of $914,000, with minimal growth projection.

CDTFA indicates that it would incur administrative costs ranging from $50,000 to $250,000 to reprogram for the partial exemptions, modify and process returns, notify motor vehicle dealers, audit exclusions, revise the CDTFA’s regulations and publications, and answer public inquiries

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Mike McGuire, Chair

2019 - 2020 Regular

Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit bus vehicles

Enacts a state-only sales and use tax exemption for zero-emission technology medium- and heavy-duty transit bus vehicles eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive under the Air Quality Improvement Program at the Air Resources Board.

Background

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 (DOF) must annually publish a list of tax expenditures, currently totaling around $65.2 billion per year.

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property, and requires them to register with the California Department of Tax and Fee Administration (CDTFA), as well as collect the appropriate tax at purchase and remit the amount to CDFTA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The current rate is 7.25% as shown in the table below. Additionally, cities, counties, and specified special districts may increase the sales and use tax, also known as district or transactions and use taxes.

Unless the purchaser pays the sales tax to the retailer, he or she is liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and also like the sales tax, must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase.

State law does not provide public agencies, such as cities, counties, and transit and transportation agencies with a blanket exemption from the sales and use tax, but does contain exemptions and other provisions for specific groups. As a result, public agencies pay sales and use taxes like any other entity, except for the federal government. However, state law fully exempts some items from the sales and use tax in this state (prescription drugs, food, poultry litter), while others are exempt from the state sales tax, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, and racehorse breeding stock.

The Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project. The California Air Resources Board (CARB) administers the Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP) created by the California Alternative and Renewable Fuel, Vehicle Technology, Clean Air, and Carbon Reduction Act of 2007 (AB 118, Nunez). HVIP provides vouchers on a first-come, first-served basis for any fleet owner or operator, including commercial operators, local governments, and non-profit agencies, to replace current vehicle fleets with hybrid and zero-emission vehicles in the hopes of providing clean air benefits.

Under HVIP, manufacturers apply to CARB to determine that the vehicles they produce meet clean air targets. If CARB certifies the engine, CARB lists vehicles with those engines on its website as qualifying for vouchers. CARB calculates voucher amounts based on the “incremental amount,” or the price difference between an HVIP-eligible vehicle and one that runs on conventional fuel. Voucher amounts can vary between $6,000 for a Class 2 Hybrid Truck to $300,000 for a 40-foot bus, and are generally based on the kind of vehicle, its weight, the number of vehicles purchased, and whether the vehicle will be used in a disadvantaged community.

First, a potential purchaser contacts a vehicle dealer to purchase a vehicle eligible for a voucher. Second, the dealer verifies that HVIP funds are available, and that CARB has certified the vehicle as eligible for a voucher. The dealer then applies to a CARB-designated grantee (currently CALSTART) for a voucher. If approved, the purchaser then pays the dealer the purchase price of the vehicle minus the value of the voucher, and the dealer then arranges to build the vehicle to suit the purchaser’s order. Once the vehicle is placed in service, CALSTART reimburses the dealer upon presentation of the voucher. The purchaser must report to CARB regarding their usage of the vehicle for the next three years.

CARB allocates funds appropriated by the Legislature from the Greenhouse Gas Reduction Fund (GGRF) to CALSTART to pay vouchers, which is funded from auction proceeds under the state’s “Cap and Trade” program authorized by the Global Warming Solutions Act (AB 32, Nunez, 2006; extended by AB 398, E. Garcia, 2017). Each year, the Legislature appropriates GGRF funds to various agencies, including CARB, for various purposes, including HVIP. However, transit agencies argue that GGRF funding levels for HVIP can be uncertain, and that current voucher amounts do not fully account for the difference between conventional fuels and cleaner ones. CARB indicates that they will soon need to create a waiting list for HVIP vouchers because funds will not be sufficient to meet demand.

With CARB soon to create a waiting list, and transit agencies seeking to update their fleets with cleaner vehicles, the author wants to enact a state-only sales and use tax exemption for vehicles eligible for the HVIP program.

Proposed Law

Assembly Bill 784 enacts a state-only (3.9375%) sales and use tax exemption for any zero-emission technology medium- and heavy-duty transit bus vehicles eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project funded under the Air Quality Improvement Program at the State Air Resources Board. The exemption commences for purchases made on or after the enactment date of the bill, and ends on January 1, 2024. The bill also includes provisions indicating legislative intent to apply the requirements of Revenue and Taxation Code Section 41.

State Revenue Impact

CDTFA estimates that AB 784 results in annual revenue losses of $980,000 annually.

Comments

1. Purpose of the bill. According to the author, “Diesel engines, found in almost half of the state’s bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs. AB 784 will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4M over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovative Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.”

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 which 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, with potential costs to the state General Fund. 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 784 is worth the spending cuts 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, purchasers act on the incentive created by the tax expenditure to generate certain activity that would not have occurred but for the tax benefit. AB 784 seeks to encourage public agency purchasers of a subset of vehicles eligible for HVIP vouchers – zero-emission medium and heavy-duty transit buses - to choose those with low or zero emissions instead of those that need conventional fuels to operate by allowing a state sales and use tax exemption, equal to 3.9375% of the purchase price. The Committee may wish to consider whether AB 784 will be more of an incentive than a windfall.

4. State, not local. In recent years, most new sales and use tax exemptions have included only the state share of the sales tax, such as equipment used in research and manufacturing, and equipment and fuel used in agriculture. AB 784 continues this trend by allowing its exemption only against the State General Fund portion of the Sales and Use Tax. As a result, AB 784 should not affect local revenues.

5. Which pocket? HVIP is funded by GGRF, so its overall funding level is determined based on the overall proceeds of “Cap and Trade” auctions, as well as the share of those proceeds appropriated to HVIP. If GGRF had infinitely continuously appropriated funds, it could repay the General Fund for the sales tax exempted by the bill. However, CARB and transit agencies indicate this is not the case, and demand for zero-emission transit buses is growing. By enacting a tax expenditure resulting in foregone revenue, AB 784 instead provides General Fund support for transit agencies seeking to purchase zero-emission transit buses to supplement GGRF-funded HVIP vouchers.

6. 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. 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. As a result, AB 784:

• States that its goal is:
  • To assist transit agencies in transitioning bus fleets to zero-emission by reducing upfront capital costs and incremental costs between technologies.
  • To overcome an important upfront funding shortfall that currently impedes procurement of zero-emission transit buses and is critically needed to help public transit agencies ramp up to the Innovative Clean Transit initiative.
  • To eliminate mobile criteria pollutant emissions and clean the air in disadvantaged communities.
  • To substantially reduce greenhouse gas emissions.
• Says that its performance indicators are:
  • The annual number of zero-emission transit bus purchases by transit authorities and agencies statewide.
  • The annual number of zero-emission transit buses purchased in advance of the Innovative Clean Transit initiative timelines.
• Directs the Legislative Analyst’s Office (LAO) to review the effectiveness of the tax exemption, and allows LAO to request information from CDTFA and any state governmental entity with authority relating to the purchasing of transit buses.
• Requires CDFTA and any state governmental entity with authority relating to the purchasing of transit buses to provide to LAO any data it requests.

6. Technical. Committee staff recommends the following technical amendments:

• Currently, AB 784 allows a state sales and use tax exemption for any vehicle that is “eligible” for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project funded under the Air Quality Improvement Program at the State Air Resources Board. As a result, any purchaser, not only a public agency, could make an exempt purchase so long as CARB certified the transit bus as eligible for the program. AB 784 would benefit from clarifying that it applies solely to public agencies.
• AB 784 would also benefit for a clear definition of “transit bus.”

Assembly Actions

Assembly Revenue and Taxation Committee: 9-1
Assembly Appropriations Committee: 18-0
Assembly Floor: 77-1

Support and Opposition

(6/14/19)

Support: Advanced Energy Economy; BYD America; Alameda-Contra Costa Transit District; California Electric Transportation Coalition; California Manufacturers and Technology Association; California Transit Association; CALSTART; ChargePoint; Coalition for Clean Air; Electric Vehicle Charging Association; County of Marin; ENGIE; Electrical Vehicle Charging Association; Foothill Transit Executive Board; Golden Gate Bridge, Highway, and Transportation District; GreenPower; Lion Electric Co.; Marin County Transit District; Natural Resources Defense Council; Orange County Transportation Authority; Pacific Gas and Electric Company; Proterra; San Diego Metropolitan Transportation System; San Mateo County Economic Development Association; San Mateo County Transit District; Silicon Valley Leadership Group; Southern California Edison; Union of Concerned Scientists.

Opposition: Unknown.

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 784

Author:(Mullin)

As Amended Ver:April 9, 2019

Majority vote. Tax Levy

SUMMARY:

Provides a partial Sales and Use Tax (SUT) exemption for the purchase of any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP).

Major Provisions

1. Exempts, from the state portion of the SUT, the gross receipts from the sale of, and the storage and use of, or other consumption in this state of, any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California HVIP.
2. Provides that the exemption shall become inoperative on January 1, 2024, and as of that date is repealed.
3. Takes effect immediately as a tax levy.

COMMENTS:

Although this bill intends to encourage the purchase of specified vehicles, the voucher program that is currently administered by HVIP already provides such an incentive. According to the California Air Resources Board, HVIP is intended to encourage and accelerate the deployment of zero-emission trucks and buses using engines that meet the optional low NOx standard, and hybrid trucks and buses in California. The vouchers are provided to the dealership/manufacturer, but the purchaser receives a benefit because the price paid for the vehicle includes a reduction equal to the voucher amount. Since the HVIP program already provides a voucher toward the purchase of vehicles that this bill targets, instead of providing a partial SUT exemption one could simply increase the amount of funds available in the HVIP program or increase the amount of money provided for each voucher. The revenue loss should be the same, but the administration would be simplified.

According to the Author:

Diesel engines, found in almost half of the state's bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs.

This bill will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4 million over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovation Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.

Arguments in Support:

Supporters state that "[b]attery electric and fuel cell buses provide zero-emission miles to all Californians and eliminate exposure to contaminants, often disproportionately benefitting disadvantaged communities that utilize transit at higher rates. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs. California is one of the only states that charges sales tax on public transit agencies. By removing the State portion of the sales tax for zero-emission transit bus purchases, AB 784 will reduce the upfront capital costs and incremental costs between technologies, decreasing the burden on transit agencies and encouraging early compliance with the Innovative Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians."

Arguments in Opposition:

None on file

FISCAL COMMENTS:

According to the Assembly Appropriations Committee

1. Annual General Fund revenue loss of approximately $980,000.
2. Likely modest costs for the Legislative Analyst's Office to review the affectedness of the bill. This bill only requires summary-level metrics and this data will be easy to collect.
3. Modest administrative costs to the California Department of Fee and Tax Administration, likely in excess of $50,000, to administer the partial exemption.

VOTES:

ASM REVENUE AND TAXATION: 9-1-1

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

NO: Gray

ABS, ABST OR NV: Quirk

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: April 9, 2019

CONSULTANT: Carlos Anguiano / REV. & TAX. / (916) 319-2098 FN: 0000595

Date of Hearing: May 16, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 784

Author:(Mullin) – As Amended Ver:April 9, 2019

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

SUMMARY:

This bill provides, from January 1, 2020 until January 1, 2024, a partial sales and use tax (SUT) exemption for the purchase of a zero-emission technology medium- or heavy-duty transit bus eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP). This bill also requires the Legislative Analyst’s Office to review the effectiveness of the SUT exemption.

FISCAL EFFECT:

1. Annual General Fund revenue loss of approximately $980,000.
2. Likely modest costs for LAO to review the affectedness of the bill. This bill only requires summary-level metrics and this data will be easy to collect.
3. Modest administrative costs to the California Department of Fee and Tax Administration (CDTFA), likely in excess of $50,000, to administer the partial exemption.

COMMENTS:

1. HVIP. HVIP provides vouchers to purchasers and lessees of hybrid and zero-emission trucks. Typically a manufacturer will apply to the California Air Resources Board (CARB) for approval of their vehicle or engine, and more than 1,400 fleets have participated in HVIP. One case study cited on the HVIP website is $23,000 in incentives to Redwood Products for a Hino Motors electrical vehicle.
2. Purpose. According to the author, this bill will save California transit agencies money and help them meet state standards around zero-emission public transit fleets. Supporters argue reducing the upfront capital costs of battery electric and fuel cell buses will encourage early compliance with the Innovative Clean Transit Regulation.
3. Partial exemption. This bill provides a partial SUT exemption, which means it only exempts the portion of the SUT goes into the state’s General Fund. The current 7.25% statewide SUT rate consists of different tax rates stacked on top of each other: (a) a 3.975% General Fund portion; (b) a 1.5625% portion to fund local public safety services; (c) 0.50% portion to fund local government health and welfare programs; and (d) a 1.25% local portion for general city and county operations.
4. Recent legislation. AB 945 (Ting), of the 2015-16 Legislative Session, a contained similar provision to the provisions of this bill. AB 945 was held on this committee’s Suspense File.
5. Related legislation. Other tax-related ZEV bills to be heard in this committee on May 16, 2019, include AB 745 (Petrie-Norris), which exempts retail hydrogen fuel from the SUT, and AB 938 (R. Rivas), which provides a partial SUT exemption for a portion of a clean air vehicle purchase based on the trade-in value of an existing car.

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

Date of Hearing: May 6, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 784 (

Author:Mullin) – As Amended Ver:April 9, 2019

FOR VOTE ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit bus vehicles

SUMMARY: Provides a partial Sales and Use Tax (SUT) exemption for the purchase of any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP). Specifically, this bill:

1. Exempts, from the state portion of the SUT, the gross receipts from the sale of, and the storage and use of, or other consumption in this state of, any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California HVIP.
2. Provides that the exemption shall become inoperative on January 1, 2024, and as of that date is repealed.
3. Provides that the tax exemption shall not apply with respect to any tax levied by a county, city, or district pursuant to the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax (TUT) Law.
4. Provides that the tax exclusion shall not apply with respect to any tax levied pursuant to Revenue and Taxation Code (R&TC) Section 6051.2 or 6201.2, Section 35 of Article XIII of the California Constitution, or any tax levied pursuant to Section 6051 or 6201 that is deposited into the State Treasury to the credit of the Local Revenue Fund 2011 pursuant to Section 6051.15 or 6201.15.
5. States that the goal of this bill is to assist transit agencies in transitioning bus fleets to zero-emission by reducing upfront capital costs and incremental costs between technologies, eliminate pollutants, reduce greenhouse gasses, and to overcome a funding shortfall. A record of the number of zero-emission purchases shall be kept and used by the Legislative Analyst's Office to review the effectiveness of the exemption.
6. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Imposes a SUT on the sale of, or storage, use, or other consumption of, tangible personal property (TPP), unless specifically exempt.
2. Provides that the SUT must be computed on the sales price or gross receipts of TPP, unless specifically excluded.
3. Authorizes cities and counties to impose TUTs for general or special purposes if approved by the requisite threshold of voters. The TUT Law is administered in conformity with the SUT Law.

FISCAL EFFECT: Pending

COMMENTS:

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

Diesel engines, found in almost half of the state's bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs.

AB 784 will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4 million over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovation Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.

1. Supporters state that "[b]attery electric and fuel cell buses provide zero-emission miles to all Californians and eliminate exposure to contaminants, often disproportionately benefitting disadvantaged communities that utilize transit at higher rates. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs. California is one of the only states that charges sales tax on public transit agencies. By removing the State portion of the sales tax for zero-emission transit bus purchases, AB 784 will reduce the upfront capital costs and incremental costs between technologies, decreasing the burden on transit agencies and encouraging early compliance with the Innovative Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians."
2. Committee Staff Comments:
   1. California's eroding SUT base: The SUT represents the state's second largest source of General Fund (GF) revenues. Nevertheless, the past 70 years have seen a dramatic reduction in the state's reliance on the SUT and a corresponding increase in its reliance on personal income tax revenues. In FY 2019-20, SUT revenues are estimated to comprise only 19% of the state's GF revenues, down from nearly 60% in FY 1950-51.

The SUT Law was enacted in a very different era. In the 1930s, California's economy was largely dominated by manufacturing, and residents mostly bought and sold tangible goods. Thus, in establishing the base for a new consumption tax, it made sense to impose the tax on sales of TPP, defined as personal property that may be "seen, weighed, measured, felt, or touched." Over the past 80 years, however, California's economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base. For example, the Commission on the 21^st Century Economy noted that spending on taxable goods represented 34.6% of personal income in 2008, down from 55.4% in 1980. As a result, tax experts and economists from across the political spectrum argue that California should expand its SUT base.

It could be argued that, while well-intentioned, additional SUT exemptions further erode an already shrinking SUT base. This, in turn, increases fiscal pressures to maintain or even increase California's relatively high SUT rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. What does this bill do? This bill provides a partial state SUT exemption for any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for HVIP. Although this bill intends to encourage the purchase of specified vehicles, the voucher program that is currently administered by HVIP already provides such an incentive. According to the California Air Resources Board, HVIP is intended to encourage and accelerate the deployment of zero-emission trucks and buses using engines that meet the optional low NOx standard, and hybrid trucks and buses in California. The vouchers are provided to the dealership/manufacturer, but the purchaser receives a benefit because the price paid for the vehicle includes a reduction equal to the voucher amount. Since the HVIP program already provides a voucher toward the purchase of vehicles that this bill targets, instead of providing a partial SUT exemption one could simply increase the amount of funds available in the HVIP program or increase the amount of money provided for each voucher. The revenue loss should be the same, but the administration would be simplified.
  2. State-only SUT exemptions are complicated to administer: Most exemptions are applied to the total applicable state and local SUT. However, California does maintain a few partial SUT exemptions: specifically, those for manufacturing and research and development equipment, farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock. These partial exemptions are difficult to process and frequently contain errors. Providing an additional incentive, in the form of a partial SUT exemption equal to 3.9375%, may make the purchase of a qualifying vehicle unnecessarily complicated.
  3. Subsidizing compliance: On December 14, 2019, CARB adopted the Innovate Clean Transit regulation, which sets out regulations requiring transit agencies to transition their fleets to zero-emission technologies. The regulations set a statewide goal for public transit agencies to gradually transition to 100% zero-emission bus fleets by 2040. Each transit agency will submit a rollout plan under the regulation demonstrating how it plans to purchase clean buses, build out necessary infrastructure, and train the required workforce. The rollout plans are due in 2020 for large transit agencies and in 2023 for small agencies. Agencies will then follow a phase-in schedule from 2023 until 2029, by which date 100% of annual new bus purchases will be zero-emission.  To encourage early action, the zero-emission purchase requirement would not start until 2025 if a minimum number of zero-emission bus purchases are made by the end of 2021.

As a general rule, tax expenditures are typically implemented so as to encourage new behavior deemed necessary for the public good. To the extent that existing regulations require transit agencies to replace older vehicles with zero-emission vehicles, this bill may potentially be providing a windfall for behavior that would have occurred irrespective of the goals of this bill. However, if the goal of this bill is to help local transit agencies comply with costly new requirements, increasing incentives for the purchase of qualifying vehicles may be appropriate.

• 1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This bill would enact a new tax expenditure program in the form of a partial SUT exemption for the purchase of specified vehicles.
  2. 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 that all new tax expenditure proposals 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. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote^[1]. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with all of these requirements. This bill, as currently drafted, outlines specific goals and objectives, along with performance indicators to measure the success of providing a partial SUT exemption for the purchase of specified vehicles. This bill also contains a five-year sunset.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda-Contra Costa Transit District

BYD America

California Electric Transportation Coalition

California Manufacturers & Technology Association

California Transit Association

CALSTART

ChargePoint

Coalition for Clean Air

Electric Vehicle Charging Association

Foothill Transit Executive Board

Lion Electric Co.

Marin County Board of Supervisors

Marin Transit Board of Directors

Proterra

San Mateo County Economic Development Association

San Mateo County Transit District

Silicon Valley Leadership Group

Southern California Edison

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098

1. According to the new policy, an "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean 10 years. ↑

Date of Hearing: April 22, 2019

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Autumn R. Burke, Chairwoman

ABPCA Bill Id:AB 784 (

Author:Mullin) – As Amended Ver:April 9, 2019

FOR TESTIMONY ONLY

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and use taxes: exemption: California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project: transit bus vehicles

SUMMARY: Provides a partial Sales and Use Tax (SUT) exemption for the purchase of any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project (HVIP). Specifically, this bill:

1. Exempts, from the state portion of the SUT, the gross receipts from the sale of, and the storage and use of, or other consumption in this state of, any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for the California HVIP.
2. Provides that the exemption shall become inoperative on January 1, 2024, and as of that date is repealed.
3. Provides that the tax exemption shall not apply with respect to any tax levied by a county, city, or district pursuant to the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax (TUT) Law.
4. Provides that the tax exclusion shall not apply with respect to any tax levied pursuant to Revenue and Taxation Code (R&TC) Section 6051.2 or 6201.2, Section 35 of Article XIII of the California Constitution, or any tax levied pursuant to Section 6051 or 6201 that is deposited into the State Treasury to the credit of the Local Revenue Fund 2011 pursuant to Section 6051.15 or 6201.15.
5. States that the goal of this bill is to assist transit agencies in transitioning bus fleets to zero-emission by reducing upfront capital costs and incremental costs between technologies, eliminate pollutants, reduce greenhouse gasses, and to overcome a funding shortfall. A record of the number of zero-emission purchases shall be kept and used by the Legislative Analyst's Office to review the effectiveness of the exemption.
6. Takes effect immediately as a tax levy.

EXISTING LAW:

1. Imposes a SUT on the sale of, or storage, use, or other consumption of, tangible personal property (TPP), unless specifically exempt.
2. Provides that the SUT must be computed on the sales price or gross receipts of TPP, unless specifically excluded.
3. Authorizes cities and counties to impose TUTs for general or special purposes if approved by the requisite threshold of voters. The TUT Law is administered in conformity with the SUT Law.

FISCAL EFFECT: Pending

COMMENTS:

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

Diesel engines, found in almost half of the state's bus population, emit a complex mixture of air pollutants that are top contributors to climate change and cause cancer, premature death, and other serious health problems. In an effort to tackle this problem, which often disproportionately affects disadvantaged communities that utilize transit at higher rates, the California Air Resources Board (CARB) recently passed the Innovative Clean Transit Regulation. This regulation requires the state's 200 public transit agencies to transition their fleets to fully zero-emission by 2040. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs.

AB 784 will exempt zero-emission transit buses from the state portion of the sales tax until January 1, 2024, saving California transit agencies approximately $17.4 million over this four-year time span and reducing the upfront capital costs and incremental costs between technologies. This exemption will decrease the burden on transit agencies and encourage early compliance with the Innovation Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians.

1. Supporters state that "[b]attery electric and fuel cell buses provide zero-emission miles to all Californians and eliminate exposure to contaminants, often disproportionately benefitting disadvantaged communities that utilize transit at higher rates. However, public transit agencies are often cash strapped, losing money at the fare box and relying on federal, state and local subsidies to cover capital costs. California is one of the only states that charges sales tax on public transit agencies. By removing the State portion of the sales tax for zero-emission transit bus purchases, AB 784 will reduce the upfront capital costs and incremental costs between technologies, decreasing the burden on transit agencies and encouraging early compliance with the Innovative Clean Transit Regulation, leading to immediate emissions reductions and accelerating the deployment of zero-emission vehicles for all Californians."
2. Committee Staff Comments:
   1. California's eroding SUT base: The SUT represents the state's second largest source of General Fund (GF) revenues. Nevertheless, the past 70 years have seen a dramatic reduction in the state's reliance on the SUT and a corresponding increase in its reliance on personal income tax revenues. In FY 2019-20, SUT revenues are estimated to comprise only 19% of the state's GF revenues, down from nearly 60% in FY 1950-51.

The SUT Law was enacted in a very different era. In the 1930s, California's economy was largely dominated by manufacturing, and residents mostly bought and sold tangible goods. Thus, in establishing the base for a new consumption tax, it made sense to impose the tax on sales of TPP, defined as personal property that may be "seen, weighed, measured, felt, or touched." Over the past 80 years, however, California's economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base. For example, the Commission on the 21^st Century Economy noted that spending on taxable goods represented 34.6% of personal income in 2008, down from 55.4% in 1980. As a result, tax experts and economists from across the political spectrum argue that California should expand its SUT base.

It could be argued that, while well-intentioned, additional SUT exemptions further erode an already shrinking SUT base. This, in turn, increases fiscal pressures to maintain or even increase California's relatively high SUT rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. What does this bill do? This bill provides a partial state SUT exemption for any zero-emission technology medium- and heavy-duty transit bus vehicle that is eligible for HVIP. Although this bill intends to encourage the purchase of specified vehicles, the voucher program that is currently administered by HVIP already provides such an incentive. According to the California Air Resources Board, HVIP is intended to encourage and accelerate the deployment of zero-emission trucks and buses using engines that meet the optional low NOx standard, and hybrid trucks and buses in California. The vouchers are provided to the dealership/manufacturer, but the purchaser receives a benefit because the price paid for the vehicle includes a reduction equal to the voucher amount. Since the HVIP program already provides a voucher toward the purchase of vehicles that this bill targets, instead of providing a partial SUT exemption one could simply increase the amount of funds available in the HVIP program or increase the amount of money provided for each voucher. The revenue loss should be the same, but the administration would be simplified.
  2. State-only SUT exemptions are complicated to administer: Most exemptions are applied to the total applicable state and local SUT. However, California does maintain a few partial SUT exemptions: specifically, those for manufacturing and research and development equipment, farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock. These partial exemptions are difficult to process and frequently contain errors. Providing an additional incentive, in the form of a partial SUT exemption equal to 3.9375%, may make the purchase of a qualifying vehicle unnecessarily complicated.
  3. Subsidizing compliance: On December 14, 2019, CARB adopted the Innovate Clean Transit regulation, which sets out regulations requiring transit agencies to transition their fleets to zero-emission technologies. The regulations set a statewide goal for public transit agencies to gradually transition to 100% zero-emission bus fleets by 2040. Each transit agency will submit a rollout plan under the regulation demonstrating how it plans to purchase clean buses, build out necessary infrastructure, and train the required workforce. The rollout plans are due in 2020 for large transit agencies and in 2023 for small agencies. Agencies will then follow a phase-in schedule from 2023 until 2029, by which date 100% of annual new bus purchases will be zero-emission.  To encourage early action, the zero-emission purchase requirement would not start until 2025 if a minimum number of zero-emission bus purchases are made by the end of 2021.

As a general rule, tax expenditures are typically implemented so as to encourage new behavior deemed necessary for the public good. To the extent that existing regulations require transit agencies to replace older vehicles with zero-emission vehicles, this bill may potentially be providing a windfall for behavior that would have occurred irrespective of the goals of this bill. However, if the goal of this bill is to help local transit agencies comply with costly new requirements, increasing incentives for the purchase of qualifying vehicles may be appropriate.

• 1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each of them (in the form of forgone revenues). This bill would enact a new tax expenditure program in the form of a partial SUT exemption for the purchase of specified vehicles.
  2. 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 that all new tax expenditure proposals 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. In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote^[1]. A tax expenditure bill will not be eligible for a Committee vote unless it has complied with all of these requirements. This bill, as currently drafted, outlines specific goals and objectives, along with performance indicators to measure the success of providing a partial SUT exemption for the purchase of specified vehicles. This bill also contains a five-year sunset.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda-Contra Costa Transit District

BYD America

California Electric Transportation Coalition

California Manufacturers & Technology Association

California Transit Association

CALSTART

Electric Vehicle Charging Association

Lion Electric Co.

Marin County Board of Supervisors

Proterra

San Mateo County Transit District

Silicon Valley Leadership Group

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098

1. According to the new policy, an "appropriate sunset provision" shall mean five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" shall mean 10 years. ↑