Existing 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, 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. Those laws provide various exemptions from those taxes.

This bill, beginning January 1, 2025, and until January 1, 2030, would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, zero-emission public transportation ferries, as defined, sold to a public agency, as specified.

Existing law requires a bill that would authorize a new tax expenditure under the Sales and Use Tax Law to identify specific goals, purposes, and objectives that the tax expenditure will achieve, and detailed performance indicators and data collection requirements for determining whether the tax expenditure achieves these goals, purposes, and objectives.

The bill would provide findings and declarations relating to the goals of the exemption for zero-emission public transportation ferries.

Existing law imposes or dedicates certain state sales and use tax rates for local funding, including through the Local Revenue Fund 2011.

This bill would specify that this exemption does not apply to those state sales and use tax rates imposed or dedicated for local government funding, including those rates for which revenues are deposited into the Local Revenue Fund 2011.

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. Amendments to the Sales and Use Tax Law 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.

Existing 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, 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. Those laws provide various exemptions from those taxes.

This bill, beginning January 1, 2025, and until January 1, 2030, would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, zero-emission public transportation ferries, as defined, sold to a public agency, as specified.

Existing law requires a bill that would authorize a new tax expenditure under the Sales and Use Tax Law to identify specific goals, purposes, and objectives that the tax expenditure will achieve, and detailed performance indicators and data collection requirements for determining whether the tax expenditure achieves these goals, purposes, and objectives.

The bill would provide findings and declarations relating to the goals of the exemption for zero-emission public transportation ferries.

Existing law imposes or dedicates certain state sales and use tax rates for local funding, including through the Local Revenue Fund 2011.

This bill would specify that this exemption does not apply to those state sales and use tax rates imposed or dedicated for local government funding, including those rates for which revenues are deposited into the Local Revenue Fund 2011.

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. Amendments to the Sales and Use Tax Law 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.

Existing 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, 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. Those laws provide various exemptions from those taxes.

This bill, beginning January 1, 2025, and until January 1, 2030, would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, zero-emission public transportation ferries, as defined, sold to a public agency, as specified.

Existing law requires a bill that would authorize a new tax expenditure under the Sales and Use Tax Law to identify specific goals, purposes, and objectives that the tax expenditure will achieve, and detailed performance indicators and data collection requirements for determining whether the tax expenditure achieves these goals, purposes, and objectives.

The bill would provide findings and declarations relating to the goals of the exemption for zero-emission public transportation ferries.

Existing law imposes or dedicates certain state sales and use tax rates for local funding, including through the Local Revenue Fund 2011.

This bill would specify that this exemption does not apply to those state sales and use tax rates imposed or dedicated for local government funding, including those rates for which revenues are deposited into the Local Revenue Fund 2011.

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. Amendments to the Sales and Use Tax Law 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.

GOVERNOR'S VETO

GV Bill Id:AB 2061

Author:(Wilson)

As Enrolled Ver:August 28, 2024

2/3 vote

SUMMARY

Provides, for a period of five years, a partial exemption under the Sales and Use Tax (SUT) Law for a "zero-emission public transportation ferry

Major Provisions

1. Exempts, under the SUT Law, beginning on January 1, 2025, and until January 1, 2030, the purchase of a "zero-emission public transportation ferry" by a city, county, city and county, transportation district, transit district, or any other public agency that provides transit services to the public and that is subject to the California Air Resources Board's (CARB's) regulation on the airborne toxic control measure for commercial harbor craft (CHC).
2. Defines a "zero-emission public transportation ferry" as a ferryboat operated, sponsored, or subsidized by a "State Transit Assistance (STA)-eligible operator," as defined in existing law, that produces no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases (GHGs) when stationary or operating, as determined by the CARB.
3. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill's exemption does not apply to any tax levied by a county, city, county and city, or district pursuant to, or in accordance with, either of those laws
4. Makes findings and declarations in compliance with Revenue and Taxation Code Section 41, and requires the Legislative Analyst's Office (LAO) report certain information to the Legislature by a specified date.
5. Takes immediate effect as a tax levy
6. Repeals this bill's provisions on January 1, 2030.

Governor's Veto Message

This bill would enact a state sales and use tax exemption from July 1, 2025, until January 1, 2030, for a zero-emission public transportation ferry sold to a local public agency that provides transit services to the public.

I share the author's commitment to accelerating the adoption of zero-emission technologies within the public transit system by reducing upfront costs. The state has made unprecedented investments to support the clean transportation transition, dedicating billions of dollars to deliver cleaner mobility options for all Californians. Recent achievements include the electrification of Caltrain, the launch of the nation's first hydrogen hub, and the mobilization of a $1.9 billion investment plan to create the country's most extensive zero-emission charging network. This bill, while laudable, should be considered in the context of the annual budget process given the general fund implications of a tax exemption.

In partnership with the Legislature this year, my Administration has enacted a balanced budget that avoids deep program cuts to vital services and protected investments in education, health care, climate, public safety, housing, and social service programs that millions of Californians rely on. It is important to remain disciplined when considering bills with significant fiscal implications that are not included in the budget, such as this measure.

COMMENTS

Partial SUT exemptions complicate administration: Most exemptions are applied to the total state and local SUT. Existing law does, however, provide for a few partial SUT exemptions, including a partial SUT exemption for the purchase of any eligible zero-emission, medium- or heavy-duty transit bus. These types of partial exemptions are often difficult to process and frequently contain errors. A partial SUT exemption equal to 3.9375% may make the purchase of an eligible ferry unnecessarily complicated.

What does this bill do? This bill provides an exemption for the state portion of the SUT imposed on a zero-emission public transportation ferry until January 1, 2030. This bill intends to offset the cost to eligible public transportation providers associated with purchasing zero-emission public transportation ferries.

According to the Author

The author has submitted the following statement in support of this bill:

AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax through 2030. Exempting zero emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This bill will also help us reach California's greenhouse gas reduction goals while maintaining a strong economy and healthy communities.

Arguments in Support

The San Francisco Bay Area Water Emergency Transportation Authority (WETA), writing as sponsors of this bill, note, in part, the following:

There are currently three public transit ferry operators in the state with a total of 27 vessels: Long Beach Transit (4 vessels), WETA (16 vessels), and Golden Gate Ferry (7 vessels). As these agencies develop plans to comply with CARB's CHC regulations, exempting zero emission vessels from state sales tax will incentivize the transition to zero emission vessels and allow the state to realize additional emission reductions. Additionally, while state support has helped public transit ferry operators navigate near-term funding shortfalls, they face mid- to long-term funding shortfalls due to the pandemic's impact on ridership. This proposal would provide capital outlay cost savings, allowing limited transit funding to be further stretched and used to maintain critical service.

Arguments in Opposition

The California Teachers Association (CTA), writing in opposition to a number of bills considered by this Committee, including this bill, states, in part:

While we understand these bills are well intended, [the] CTA does not support this approach, as it would reduce overall funding for education. [The] CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.

FISCAL COMMENTS

The Senate Appropriations Committee, in its analysis of this bill, notes, "The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in a General Fund revenue loss of $4.6 million from 2025-56 through 2027-28. CDTFA's administrative costs would be minor and absorbable."

VOTES

ASM REVENUE AND TAXATION: 7-0-0

YES: Irwin, Ta, Bains, Gipson, Grayson, Jim Patterson, Luz Rivas

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

ASSEMBLY FLOOR: 71-0-9

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Muratsuchi, Luz Rivas, Weber

SENATE FLOOR: 40-0-0

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

UPDATED

VERSION: August 28, 2024

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0005194

 THIRD READING  

Bill No: AB 2061

Author: Wilson (D)

Amended: 5/1/24 in Assembly

Vote: 21- Urgency

SENATE REVENUE AND TAXATION COMMITTEE: 7-0, 6/26/24

AYES: Glazer, Dahle, Ashby, Bradford, Dodd, Padilla, Skinner

SENATE APPROPRIATIONS COMMITTEE: 6-0, 8/15/24

AYES: Caballero, Jones, Ashby, Becker, Seyarto, Wahab

NO VOTE RECORDED: Bradford

ASSEMBLY FLOOR: 71-0, 5/21/24 - See last page for vote

SUBJECT: Sales and Use Tax: exemptions: zero-emission public transportation ferries

SOURCE: Bay Area Council
Golden Gate Bridge, Highway & Transportation District
San Francisco Bay Area Water Emergency Transportation Authority

DIGEST:

This bill enacts a state General Fund-only sales and use tax exemption for a zero-emission public transportation ferry purchased by a local agency on or after January 1, 2025, and before January 1, 2030.

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 remit taxes collected from purchasers 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, they are liable for the use tax, which is imposed 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, while others are exempt from the state sales tax, but not the local share.
   
8. Authorizes a state General Fund-only sales and use tax exemption for specified zero-emission technology transit buses sold to a city, county, city and county, transportation or transit district, or other public agency providing transit services to the public until January 1, 2024 (AB 784, Mullin, Chapter 684, Statues of 2019) which the Legislature extended to January 1, 2026 (AB 2622, Mullin, Chapter 353, Statues of 2022).
9. Requires under California Air Resources Board (CARB) regulations new and in-use short-run ferries operating in regulated California waters to be upgraded to full zero-emission vessels by December 31, 2025, with possible extensions until 2027.

This bill:

1. Enacts a state General Fund-only (3.9375%) sales and use tax exemption for any zero-emission public transportation ferry sold to a city, county, city and county, transportation or transit district, or other public agency that provides transit services to the public and that is subject to the CARB regulations on airborne toxic control measures for Commercial Harbor Craft.
2. Defines a “zero-emission public transportation ferry” as “ferryboats operated, sponsored, funded, or subsidized by an STA-eligible operator that produce no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases when stationary or operating.”
3. Authorizes the exemption to purchases made after January 1, 2025, and before January 1, 2030.
4. Includes legislative findings and declarations to comply with Section 41 of the Revenue and Taxation Code.

Background

CARB Regulations. CARB has regulated Commercial Harbor Craft (CHC) emissions since 2009. This includes emissions from fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges. Ferries transport passengers or vehicles between two points over the most direct water route. According to CARB, ferries are one of the largest categories of CHC vessels emitting harmful pollutants into the environment. Although ferries only represent 2% of the harbor craft population, they emit 11% of total CHC PM2.5 emissions and 15% of total CHC nitrogen oxide emissions. According to CARB, these regulations will ensure that PM2.5 emissions from ferry vessels decrease by 85% and nitrogen oxide emissions decrease by 68% by 2031.

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

According to the Senate Appropriations Committee, CDTFA estimates that this bill would result in a General Fund revenue loss of $4.6 million from 2025-56 through 2027-28. CDTFA’s administrative costs would be minor and absorbable.

SUPPORT: (Verified 8/14/24)

Bay Area Council (co-source)
Golden Gate Bridge, Highway & Transportation District (co-source)
San Francisco Bay Area Water Emergency Transportation Authority (co-source)
Alameda Chamber & Economic Alliance
Bay Planning Coalition
Bay Ship & Yacht Co.
California Electric Transportation Coalition
California State Association of Counties
California Transit Association
Calstart INC.
City of Alameda
East Bay Leadership Council
Inlandboatman's Union of The Pacific, Marine Division of The International Longshore & Warehouse Union
International Organization of Masters, Mates, and Pilots
League of California Cities
Long Beach Transit
Mavrik Marine INC.
One Treasure Island
Port of Redwood City

OPPOSITION: (Verified 8/14/24)

California Federation of Teachers AFL-CIO
California Teachers Association

ARGUMENTS IN SUPPORT: According to the author, “Among California’s ambitious climate goals, the California Air Resource Board’s Commercial Harbor Craft Regulation will require all short-run ferries to achieve zero emission by January 1, 2026. This transition is an important piece of California’s overall climate plan, but it also comes at a considerable price for public agencies operating ferries that are still struggling to recover from the pandemic’s impact on ridership. AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax (SUT) through 2030, aligning publicly-operated ferries with a similar exemption provided by legislation for the purchase of zero-emission buses purchased by public transit agencies. This bill will help us reach California’s greenhouse gas reduction goals while maintaining a strong economy and healthy communities. Exempting zero-emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This assistance will help public transit agencies overcome a critical upfront funding shortfall and will accelerate the deployment of zero-emission ferries.”

ARGUMENTS IN OPPOSITION: According to the California Teachers Association, “according to the Department of Finance, the state provided over $87.5 billion in General Fund tax expenditures in 2023-24 (including income, sales and use, corporate, and other taxes). This number continues to grow each year. This revenue would have otherwise gone to the General Fund, of which approximately 39 percent would have gone toward Proposition 98 for K-14 education. This means approximately $34 billion is redirected away from schools and community colleges each year due to existing tax expenditures. While we understand this bill is well intended, CTA does not support this approach as it would reduce overall funding for education. CTA believes Proposition 98 should be protected from reductions through the creation of new, or expanding existing, tax expenditures, especially as the state is facing a budget deficit.”

ASSEMBLY FLOOR: 71-0, 5/21/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Stephanie Nguyen, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Cervantes, Megan Dahle, Friedman, Gabriel, Holden, Mathis, Muratsuchi, Luz Rivas, Weber

Prepared by: Haley Summers / REV. & TAX. / (916) 651-4117

8/18/24 8:51:19

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anna Caballero, Chair

2023 - 2024 Regular Session

AB 2061 (Wilson) - Sales and Use Tax: exemptions: zero-emission public transportation ferries

Bill Summary:

AB 2061 would enact a state General Fund-only sales and use tax (SUT) exemption for the purchase of a zero-emission public transportation ferry, as specified.

Fiscal Impact:

The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in a General Fund revenue loss of $4.6 million from 2025-56 through 2027-28. CDTFA’s administrative costs would be minor and absorbable.

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 pay 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 ($78 billion in 2021-22), 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—a 1.0625 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 December 31, 2023, the average statewide SUT rate was 8.70 percent.

Under current law, many items, such as prescription drugs, food, and poultry litter, are fully exempted from the SUT. Other items are exempted only 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, timber harvesting equipment and machinery, and racehorse breeding stock. Further, while the United States government is exempt from paying the state SUT, state law does not provide a blanket exemption from the SUT for other public agencies such as cities, counties, special districts, or state agencies. Consequently, these public agencies generally pay tax when purchasing tangible personal property or using it in the State.

State law also provides SUT exemptions for specific vehicles purchased by certain buyers. In 2019, the Legislature enacted AB 784 (Mullin), authorizing a state General Fund-only SUT exemption for specified zero-emission technology transit buses sold to specified local agencies providing transit services to the public. In 2022, the Legislature extended the exemption from January 1, 2024, to January 1, 2026 (AB 2622, Mullin). Additionally, in 2022, the Legislature enacted a state General Fund-only SUT exemption on qualifying zero or near-zero emission motor vehicles purchased or leased by qualified buyers under the Clean Cars 4 All program (SB 1382, Gonzalez). Eligibility for the Clean Cars 4 All program depends on the buyer’s household income level, where they reside, and whether the vehicle is leased or purchased. The SUT exemption under SB 1382 applies to purchases made between January 1, 2023, and December 31, 2027.

The California Air Resources Board (CARB) has regulated Commercial Harbor Craft (CHC) emissions since 2009, including those from fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges. CARB data indicate that ferries are one of the largest categories of CHC vessels emitting harmful pollutants into the environment. Although ferries only represent two percent of the harbor craft population, they emit 11 percent of total CHC PM2.5 emissions, and 15 percent of total CHC nitrogen oxide emissions. Current CARB regulations require new and in-use short-run ferries operating in regulated California waters (i.e., 24 nautical miles from the coast) to be upgraded to full zero-emission vessels by December 31, 2025, with possible extensions until 2027.

CARB has identified 71 ferry vessels statewide, with 250 engines, spread across five different air basins. Only 16 of these vessels are short-run ferries subject to the zero-emission upgrade requirement. As of February 2023, no zero-emission ferries were operating in California.

Proposed Law:

This bill would enact a state General Fund-only SUT exemption for any zero-emission public transportation ferry (as defined) sold to a city, county, city and county, transportation or transit district, or other public agency that provides transit services to the public and that is subject to the CARB regulations on airborne toxic control measures for CHC. The exemption would apply to purchases made after July 1, 2025, and before January 1, 2030.

Related Legislation:

AB 321 (Wilson) was similar to this bill, and was help under submission on the Suspense File of the Assembly Appropriations Committee.

Staff Comments:

Based on discussions with transit agencies, CDTFA assumes that six small-passenger zero-emission ferries would be purchased in 2025-26 at an average cost of $6.5 million. Additionally, the estimate assumes that one small passenger zero-emission ferry and two large-passenger zero-emission ferries (average cost of $36 million each) would be purchased in 2027-28.

-- END --

SENATE COMMITTEE ON REVENUE AND TAXATION

Senator Steven Glazer, Chair

2023 - 2024 Regular

Sales and Use Tax: exemptions: zero-emission public transportation ferries

Enacts a state General Fund-only sales and use tax exemption for the purchase of a zero-emission public transportation ferry, as defined, by local agencies, from July 1, 2025 to January 1, 2030.

Background

Tax expenditures. California law allows various tax incentives, such as credits, deductions, exemptions, and exclusions. When a tax law is determined to have a cost in the form of foregone revenues, such as a sales and use tax exemption, state law refers to them as "tax expenditures." The Legislature enacts such tax incentives to compensate taxpayers for incurring certain expenses, such as costs related to child adoption, or to influence certain behaviors, such as participating in charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something they would not otherwise do but for the tax incentive. The Department of Finance must annually publish a list of tax expenditures, which currently totals around $87 billion per year.

Sales and use tax (SUT). State law imposes the sales tax on every retailer selling tangible personal property in this state. Retailers must register with the California Department of Tax and Fee Administration (CDTFA) and remit sales tax amounts collected at sale to CDFTA. If the purchaser does not pay the sales tax to the retailer, the purchaser is liable for paying use tax to the CDTFA. The use tax is imposed on any person consuming tangible personal property in the state. The use tax must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase. The use tax rate is the same as the sales tax rate. The table below shows that the current statewide SUT rate is 7.25%. Additionally, cities and counties may increase the sales and use tax rate up to 2% with voter approval for specific or general purposes pursuant to the California Constitution’s vote requirements.

Tax exemptions. Many items, such as prescription drugs, food, and poultry litter, are fully exempted from the SUT in California. Other items are exempted only from the state sales tax of 3.9375%, but not the local share, such as 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. Further, while the United States government is exempt from paying the state SUT, state law does not provide a blanket exemption from the SUT for other public agencies such as cities, counties, special districts, or state agencies. As a result, these public agencies generally pay tax when purchasing tangible personal property or using it in the state.

Taxation of documented vessels. Unless an exemption applies, the sales or use tax must be reported on documented vessels purchased for use in California. State law allows for several exemptions to this general rule. For example, SUT may not apply if the vessel was purchased for use outside California, will be used in interstate or foreign commerce, will be used for commercial deep-sea fishing outside the territorial waters of California, was purchased from a qualified family member, or if the vessel was received as a gift.

Zero emission vehicle exemptions. State law also provides SUT exemptions for specific vehicles purchased by certain buyers. In 2019, the Legislature enacted AB 784 (Mullin), authorizing a state General Fund-only SUT exemption for specified zero-emission technology transit buses sold to a city, county, city and county, transportation or transit district, or other public agency providing transit services to the public. In 2022, the Legislature extended the exemption from January 1, 2024, to January 1, 2026 (AB 2622, Mullin). Additionally, in 2022, the Legislature enacted a state General Fund-only SUT exemption on qualifying zero or near-zero emission motor vehicles purchased or leased by qualified buyers under the Clean Cars 4 All program (SB 1382, Gonzalez). Eligibility for the Clean Cars 4 All program depends on the buyer’s household income level, where they reside, and whether the vehicle is leased or purchased. The SUT exemption under SB 1382 applies to purchases made between January 1, 2023, and December 31, 2027.

California Air Resources Board (CARB). CARB has regulated Commercial Harbor Craft (CHC) emissions since 2009. This includes emissions from fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges. Ferries transport passengers or vehicles between two points over the most direct water route. According to CARB, ferries are one of the largest categories of CHC vessels emitting harmful pollutants into the environment. Although ferries only represent 2% of the harbor craft population, they emit 11% of total CHC PM2.5 emissions and 15% of total CHC nitrogen oxide emissions. Current CARB regulations require new and in-use short-run ferries operating in regulated California waters (i.e., 24 nautical miles from the coast) to be upgraded to full zero-emission vessels by December 31, 2025, with possible extensions until 2027. According to CARB, these regulations will ensure that PM2.5 emissions from ferry vessels decrease by 85% and nitrogen oxide emissions decrease by 68% by 2031.

CARB has identified 71 ferry vessels statewide, with 250 engines, spread across five different air basins. Only 16 of these vessels are short-run ferries subject to the zero-emission upgrade requirement. As of February 2023, no zero-emission ferries were operating in California.

Grants for ferry services. The Transit and Intercity Rail Capital Program was created by SB 862 (Committee on Budget and Fiscal Review 2014) and modified by SB 9 (Beall 2015) to provide grants from the Greenhouse Gas Reduction Fund to fund transformative capital improvements, including ferry transit systems. Additionally, the Federal Transit Agency awards money through its Ferry Grant Programs. The Water Emergency Transportation Authority (WETA), the agency providing the San Francisco Bay ferry service, has received grants from both programs. According to WETA, the average estimated cost for a new small-passenger zero-emission vessel is $6,500,000, and $35,966,401 for a new large-passenger vessel.

The author wants to assist local public agencies in transitioning public transportation ferry fleets to zero-emission by exempting the purchase of zero-emission public transportation ferries from the state General Fund SUT.

Proposed Law

Assembly Bill 2061 enacts a state General Fund-only (3.9375%) SUT exemption for any zero-emission public transportation ferry sold to a city, county, city and county, transportation or transit district, or other public agency that provides transit services to the public and that is subject to the CARB regulations on airborne toxic control measures for CHC.

The bill:

• Defines a “zero-emission public transportation ferry” as “ferryboats operated, sponsored, funded, or subsidized by an STA-eligible operator that produce no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases when stationary or operating.”
• Applies the exemption to purchases made after July 1, 2025, and before January 1, 2030.
• Includes legislative findings and declarations to comply with Section 41 of the Revenue and Taxation Code.

State Revenue Impact

According to CDTFA, the estimated revenue loss from this bill is $4.63 million for fiscal years 2025-26 through 2027-28.

Comments

1. Purpose of the bill. According to the author, “Among California’s ambitious climate goals, the California Air Resource Board’s Commercial Harbor Craft Regulation will require all short-run ferries to achieve zero emission by January 1, 2026. This transition is an important piece of California’s overall climate plan, but it also comes at a considerable price for public agencies operating ferries that are still struggling to recover from the pandemic’s impact on ridership. AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax (SUT) through 2030, aligning publicly-operated ferries with a similar exemption provided by legislation for the purchase of zero-emission buses purchased by public transit agencies. This bill will help us reach California’s greenhouse gas reduction goals while maintaining a strong economy and healthy communities. Exempting zero-emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This assistance will help public transit agencies overcome a critical upfront funding shortfall and will accelerate the deployment of zero-emission ferries.”
   
2. “Windfall” or “but for” tax benefit? Tax expenditures produce two different outcomes. The first outcome is a “windfall,” where the tax expenditure rewards behavior that would have occurred without the tax benefit. The second outcome is a “but for tax benefit,” where a certain activity would not have occurred without the incentive created by the tax expenditure. Current CARB regulations require new and in-use short-run ferries to be upgraded to full zero-emission vessels by December 31, 2025. Therefore, this SUT exemption serves as a general state subsidy for local agencies already required to purchase short-run ferries by this date under CARB regulations. However, the exemption may also serve as a “but for” incentive when catamaran or monohull ferries are upgraded to zero-emission, which are currently not required to be upgraded to zero-emission by CARB regulations. The Committee may wish to consider whether subsidizing local agencies for complying with CARB regulations is worth the revenue loss.
   
3. Regarding equity. By creating a state General Fund-only tax exemption, AB 2061 will likely reduce state General Fund revenues in exchange for providing a benefit to communities that provide ferries as a form of public transportation. However, ferries have become an increasingly critical part of the overburdened transportation systems in some regions, and the Legislature has already enacted a similar exemption for zero-emission transit buses purchased by local agencies. This bill expands this precedent by allowing a similar exemption for zero-emission public transportation ferries, thus bringing parity between ferry and bus public transportation for zero-emission transit.
   
4. State, not local. In recent years, most new sales and use tax exemptions have been limited to the state share of the sales tax, such as equipment used in research and manufacturing, and equipment and fuel used in agriculture. AB 2061 continues this trend by extending an existing exemption that only applies against the State General Fund portion of the Sales and Use Tax. As a result, the bill should not negatively affect local revenues.
   
5. Best way? Local agencies that purchase new zero-emission ferries after July 1, 2025, but before the January 1, 2030, repeal date will directly benefit from AB 2061. The bill would not exempt the SUT for equipment used to convert a ferry to zero-emission. Further, for some local public agencies, grant funds and available cash may be enough for the agency to purchase a new zero-emission. Therefore, this exemption may be a windfall for agencies that have the ability to pay.
   
6. Will a ferry exemption fare better than the bus exemption? On April 15, 2024, the Legislative Analyst Office (LAO) published its review on the effectiveness of the Zero Emission Bus (ZEB) exemption. LAO concluded the ZEB exemption likely accelerated transit agencies’ ZEB purchases, but could not quantify the exemption’s contribution to this outcome with available data. LAO notes that ZEB adoption is influenced by transit agency policy goals, ongoing costs for maintenance, the availability of state and federal funding, and the costs of capital investments, such as charging infrastructure. LAO also stated the ZEB exemption is ill-suited to provide fiscal relief to transit agencies, first, because it exemption is available to all transit agencies, not just those who have experienced a severe decline in ridership or are in financial distress, and second because rail ridership declined more than bus ridership, the ZEB exemption directs little relief to the transit agencies hit the hardest by pandemic-era ridership declines. Finally, the LAO recommends allowing the ZEB exemption to expire. The LAO cited the state’s large budget shortfall as setting a “very high bar of need” for any ongoing fiscal commitment and that they doubt the ZEB exemption clears that bar.
   
7. Revenue loss. Existing tax law provides various credits, deductions, exclusions, and exemptions for certain taxpayers. By authorizing an exemption for the State General fund portion of the SUT, AB 2061 will result in the State General fund receiving less revenue. As a result, the state will have to reduce spending or increase taxes to account for the loss. The Committee may wish to consider whether subsidizing zero-emission ferry public transportation warrants the reduction of revenue going to the state’s General Fund, thereby reducing the state’s ability to provide other core services.
   
8. Section 41. Section 41 of the Revenue and Taxation Code requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection and reporting requirements (SB 1335, Leno, 2014).

AB 2061 states its specific goals to be:

• To assist transit agencies in transitioning public transportation ferry fleets to zero-emission technologies by reducing upfront capital costs and incremental costs.
• To overcome an important upfront funding shortfall that currently impedes procurement of zero-emission public transportation ferries and is critically needed help public transit agencies comply with CARB’s CHC regulations.
• To eliminate mobile criteria pollutant emissions and clean the air in disadvantaged communities.
• To substantially reduce greenhouse gas emissions.

The performance indicators for the stated goals are:

• The annual number of zero-emission public transit ferry vessel purchases made by transit authorities and agencies statewide.
• The annual number of zero-emission public transportation ferries purchased during the implementation of the amendments to CARB’s CHC regulations.

The measure directs the LAO to review the effectiveness of the tax exemption and publish a report by May 1, 2028. To comply with this requirement, the LAO may request information from the CDTFA and any state governmental entity with authority relating to the purchasing of public transportation ferries.

Assembly Actions

Assembly Revenue & Taxation Committee: 7-0
Assembly Appropriations Committee: 15-0
Assembly Floor: 71-0

Support and Opposition

(6/21/24)

Support: Bay Area Council (Sponsor)
Golden Gate Bridge, Highway & Transportation District (Sponsor)
San Francisco Bay Area Water Emergency Transportation Authority (Sponsor)
Alameda Chamber & Economic Alliance
Bay Planning Coalition
California State Association of Counties (CSAC)
Calstart INC.
City of Alameda
Inlandboatman's Union of The Pacific, Marine Division of The International Longshore & Warehouse Union
International Organization of Masters, Mates, and Pilots
League of California Cities
One Treasure Island
Port of Redwood City

Opposition: California Federation of Teachers Afl-cio
California Teachers Association

-- END --

1. The numbers from this fact sheet are estimates of vessel populations made in 2021, projecting ferry population in 2023. Additionally, this chart includes projections for ferries owned by both public agencies and private companies. ↑

2. This data is from CARB’s Initial Statement of Reasons Appendix E Table E-31for the Proposed Amendments to Commercial Harbor Craft Regulation, Date of Release: September 21, 2021. ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 2061

Author:(Wilson)

As Amended Ver:May 1, 2024

Majority vote. Tax Levy

SUMMARY

Provides, for a period of five years, a partial exemption under the Sales and Use Tax (SUT) Law for a "zero-emission public transportation ferry".

Major Provisions

1. Exempts, under the SUT Law, beginning on January 1, 2025, and until January 1, 2030, the purchase of a "zero-emission public transportation ferry" by a city, county, city and county, transportation district, transit district, or any other public agency that provides transit services to the public and that is subject to the California Air Resources Board's (CARB's) regulation on the airborne toxic control measure for commercial harbor craft (CHC).
2. Defines a "zero-emission public transportation ferry" as a ferryboat operated, sponsored, or subsidized by a "State Transit Assistance (STA)-eligible operator," as defined in existing law, that produces no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases (GHGs) when stationary or operating, as determined by the CARB.
3. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill's exemption does not apply to any tax levied by a county, city, county and city, or district pursuant to, or in accordance with, either of those laws
4. Makes findings and declarations in compliance with Revenue and Taxation Code Section 41, and requires the Legislative Analyst's Office (LAO) report certain information to the Legislature by a specified date.
5. Takes immediate effect as a tax levy
6. Repeals this bill's provisions on January 1, 2030.

COMMENTS

• 1. Partial SUT exemptions complicate administration: Most exemptions are applied to the total state and local SUT. Existing law does, however, provide for a few partial SUT exemptions, including a partial SUT exemption for the purchase of any eligible zero-emission, medium- or heavy-duty transit bus. These types of partial exemptions are often difficult to process and frequently contain errors. A partial SUT exemption equal to 3.9375% may make the purchase of an eligible ferry unnecessarily complicated.
  2. What does this bill do? This bill provides an exemption for the state portion of the SUT imposed on a zero-emission public transportation ferry until January 1, 2030. This bill intends to offset the cost to eligible public transportation providers associated with purchasing zero-emission public transportation ferries.
  3. Conversions ineligible for exemption: As currently drafted, this bill only applies to the purchase of a qualifying zero-emission public transportation ferry. The CHC Regulation, however, applies to new, newly acquired, and in-use, short-run ferries. Should an STA-eligible operator choose to convert a ferry already in service into a qualifying zero-emission public transportation ferry, the components used to make the conversion would be ineligible for this exemption. If this is not the intent, the author may wish to amend this bill.

According to the Author

The author has submitted the following statement in support of this bill:

AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax through 2030. Exempting zero emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This bill will also help us reach California's greenhouse gas reduction goals while maintaining a strong economy and healthy communities.

Arguments in Support

The San Francisco Bay Area Water Emergency Transportation Authority (WETA), writing as sponsors of this bill, note, in part, the following:

There are currently three public transit ferry operators in the state with a total of 27 vessels: Long Beach Transit (4 vessels), WETA (16 vessels), and Golden Gate Ferry (7 vessels). As these agencies develop plans to comply with CARB's CHC regulations, exempting zero emission vessels from state sales tax will incentivize the transition to zero emission vessels and allow the state to realize additional emission reductions. Additionally, while state support has helped public transit ferry operators navigate near-term funding shortfalls, they face mid- to long-term funding shortfalls due to the pandemic's impact on ridership. This proposal would provide capital outlay cost savings, allowing limited transit funding to be further stretched and used to maintain critical service.

Arguments in Opposition

The California Teachers Association (CTA), writing in opposition to a number of bills considered by this Committee, including this bill, states, in part:

While we understand these bills are well intended, [the] CTA does not support this approach, as it would reduce overall funding for education. [The] CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.

FISCAL COMMENTS

1. General Fund (GF) revenue loss of approximately $4.6 million by exempting zero-emission public transportation ferries from the state-portion of the SUT for five years. The California Department of Tax and Fee Administration (CDTFA) notes there are three STA-eligible public transit agencies currently running ferry operations in California, but no zero-emission ferries currently operate in California, as the market is still in its infancy. Thus, it is difficult to estimate costs. However, CDTFA assumes seven small-passenger ferries and two large-passenger ferries will be purchased between fiscal year (FY) 2025-26 and FY 2027-28. By decreasing SUT revenue, this bill also likely decreases Proposition 98 GF spending by approximately 40% of the GF revenue loss (the exact amount depends on the specific amount of the annual Proposition 98 guarantee).
2. Minor and absorbable costs to CDTFA to administer the exemption, including notifying affected retailers and revising regulations and applicable publications, and share requested data with the LAO.
3. Costs of an unknown, but likely absorbable, amount to the LAO to prepare the report reviewing the exemption's effectiveness. However, this committee sees a wide array of bills that require the LAO to measure different tax expenditures. Generally, a request to prepare an individual report would not generate significant new workload for the LAO. But, taken together, these proposals strain the ability of the LAO fulfill other existing or future legislative mandates and requests, as the LAO's budget is subject to the Legislature's constitutional spending cap.

According to the LAO, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

VOTES

ASM REVENUE AND TAXATION: 7-0-0

YES: Irwin, Ta, Bains, Gipson, Grayson, Jim Patterson, Luz Rivas

ASM APPROPRIATIONS: 15-0-0

YES: Wicks, Sanchez, Arambula, Bryan, Calderon, Wendy Carrillo, Dixon, Mike Fong, Grayson, Haney, Hart, Jim Patterson, Pellerin, Ta, Villapudua

UPDATED

VERSION: May 1, 2024

CONSULTANT: Harrison Bowlby / REV. & TAX. / (916) 319-2098 FN: 0003162

Date of Hearing: May 15, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2061

Author:(Wilson) – As Amended Ver:May 1, 2024

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

SUMMARY:

This bill creates a partial exemption under the Sales and Use Tax (SUT) Law for a zero-emission public transportation ferry sold to a public agency providing transit services.

Specifically, this bill:

1. Exempts, beginning January 1, 2025, and before January 1, 2030, from SUT a zero-emission public transportation ferry sold to a public agency that provides transit services to the public and is subject to the Air Resources Board (ARB) regulation on airborne toxic control measures for commercial harbor craft (CHC).
2. Defines “zero-emission public transportation ferry” as a ferryboat operated, sponsored, funded, or subsidized by a State Transit Assistance (STA)-eligible operator that produces no emissions, as determined by ARB.
3. Applies the SUT exemption to the state-portion of the SUT rate only.
4. Declares the goals and performance indicators for the partial exemption and requires the Legislative Analyst’s Office (LAO) to review the effectiveness of the exemption and submit, by May 1, 2028, a report to the Legislature. The California Department of Tax and Fee Administration (CDTFA) and any state agency involved in purchasing public transportation ferries must provide the LAO with any requested data.

FISCAL EFFECT:

1. General Fund (GF) revenue loss of approximately $4.6 million by exempting zero-emission public transportation ferries from the state-portion of the SUT for five years. CDTFA notes there are three STA-eligible public transit agencies currently running ferry operations in California, but no zero-emission ferries currently operate in California, as the market is still in its infancy. Thus, it is difficult to estimate costs. However, CDTFA assumes seven small-passenger ferries and two large-passenger ferries will be purchased between fiscal year (FY) 2025-26 and FY 2027-28. By decreasing SUT revenue, this bill also likely decreases Proposition 98 GF spending by approximately 40% of the GF revenue loss (the exact amount depends on the specific amount of the annual Proposition 98 guarantee).
2. Minor and absorbable costs to CDTFA to administer the exemption, including notifying affected retailers and revising regulations and applicable publications, and share requested data with the LAO.
3. Costs of an unknown, but likely absorbable, amount to the LAO to prepare the report reviewing the exemption’s effectiveness. However, this committee sees a wide array of bills that require the LAO to measure different tax expenditures. Generally, a request to prepare an individual report would not generate significant new workload for the LAO. But, taken together, these proposals strain the ability of the LAO fulfill other existing or future legislative mandates and requests, as the LAO’s budget is subject to the Legislature’s constitutional spending cap.

According to the LAO, the GF faces a structural deficit in the tens of billions of dollars over the next several fiscal years.

COMMENTS:

1. Purpose. According to the author:

Exempting zero emission ferries purchased by public agencies from state [SUT] is estimated to save California public transit ferry operators millions of dollars. This bill will also help us reach California’s greenhouse gas reduction goals while maintaining a strong economy and healthy communities.

1. Support and Opposition. This bill is sponsored by the San Francisco Bay Area Water Emergency Transportation Authority (WETA), which argues this bill “would provide capital outlay cost savings, allowing limited transit funding to be further stretched and used to maintain critical service” at a time when public transit ferry operators “face mid-to-long-term funding shortfalls due to the pandemic’s impact on ridership.” This bill is also supported by local government entities and clean energy groups.

This bill is opposed by the California Teachers Association (CTA) and California Federation of Teachers, with the former arguing that while this bill is well intended, “CTA does not support this approach, as it would reduce overall funding for education. CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.”

1. Background.

Erosion of the SUT Base. Despite being the state’s third largest source of GF revenues, the past several decades have seen a dramatic reduction in the state’s reliance on SUT and a corresponding increase in reliance on personal income tax revenues. California’s economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base that further shrinks with any additional SUT exemption. The SUT is also widely criticized as a regressive tax that disproportionately impacts the wallets of lower-income individuals.

CHC Regulations. ARB has regulated CHC emissions since 2009, including emissions from fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges. Recently adopted amendments to ARB’s CHC regulation require new, newly acquired, and in-use short-run ferries be zero-emission by December 31, 2025. The regulation intends to significantly improve the air quality in areas surrounding port operations, which are often disadvantaged communities. This bill creates a partial SUT exemption for zero-emission public transit ferries purchased by public agencies to help comply with this regulation.

Generally, tax incentives are conferred to encourage voluntary behavior deemed beneficial for the public good. To the extent existing regulations require public agencies to upgrade ferries to become zero-emission, this bill potentially creates a windfall for legally mandated behavior, on top of other existing incentives provided to support the transition to clean energy. If the state wants to help public agencies offset the costs of compliance, a direct appropriation of funds would be a simpler way to achieve this outcome. For example, in November 2023, WETA announced receiving a $16 million grant from the Federal Transit Administration to fund the electrification of four ferry floats at the Alameda Seaplane, Downtown San Francisco, and Main Street Alameda ferry terminals. WETA has secured roughly $117 million from local, state, and federal agencies to implement its Rapid Electric Emission-Free Ferry Program.

1. Related Legislation. AB 321 (Wilson) was substantively identical to this bill. AB 321 was held on this committee’s suspense file.
2. Prior Legislation. AB 2622 (Mullin), Chapter 353, Statutes of 2022, extended the existing partial SUT exemption for zero-emission transit bus vehicles to January 1, 2026.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 29, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2061 (

Author:Wilson) – As Introduced Ver:February 1, 2024

SUSPENSE

Majority vote. Tax levy. Fiscal Committee.

SUBJECT: Sales and Use Tax: exemptions: zero-emission public transportation ferries

SUMMARY: Provides, for a period of five years, a partial exemption under the Sales and Use Tax (SUT) Law for a "zero-emission public transportation ferry". Specifically, this bill:

1. Exempts, under the SUT Law, beginning on January 1, 2025, and until January 1, 2030, the purchase of a "zero-emission public transportation ferry" by a city, county, city and county, transportation district, transit district, or any other public agency that provides transit services to the public and that is subject to the California Air Resources Board's (CARB's) regulation on the airborne toxic control measure for commercial harbor craft (CHC).
2. Defines a "zero-emission public transportation ferry" as a ferryboat operated, sponsored, or subsidized by a "State Transit Assistance (STA)-eligible operator," as defined in existing law, that produces no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases (GHGs) when stationary or operating, as determined by the CARB.
3. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax (TUT) Law, this bill's exemption does not apply to any tax levied by a county, city, county and city, or district pursuant to, or in accordance with, either of those laws.
4. Provides that this bill's exemption 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 R&TC Sections 6051 or 6201 that is deposited in the State Treasury to the credit of the Local Revenue Fund 2011.
5. Finds and declares, for the purposes of complying with R&TC Section 41, that the stated goals, purposes, and objectives of this bill's exemption are to:
   1. Assist transit agencies in transitioning public transportation ferry fleets to zero-emission by reducing upfront capital costs and incremental costs between technologies;
   2. Overcome an important upfront funding shortfall that currently impedes procurement of zero-emission public transportation ferries and is critically needed to help public transit agencies comply with the CARB's CHC regulations;
   3. Eliminate mobile criteria pollutant emissions and clean the air in disadvantaged communities; and,
   4. Substantially reduce GHGs.
6. Finds and declares that the performance indicators to determine whether this bill's exemption is meeting its stated goals, purposes, and objectives are the annual number of zero-emission public transit ferry vessel purchases by transit authorities and agencies statewide, and the annual number of zero-emission public transportation ferries purchased during implementation of the amendments to the CARB's CHC regulations.
7. Requires the Legislative Analyst's Office (LAO) to report the above performance indicators no later than May 1, 2028, and authorizes the LAO to request information from the California Department of Tax and Fee Administration (CDTFA), or any state governmental authority relating to the purchase of public transportation ferries.
8. Requires the CDTFA, or any state governmental entity with authority relating to the purchase of public transportation ferries, to provide any data requested by the LAO pursuant to this bill, and treats the disclosure of that data as an exception to existing law related to the unauthorized disclosure of identifying taxpayer information.
9. Takes immediate effect as a tax levy.
10. Repeals this bill's provisions on January 1, 2030.

EXISTING LAW:

1. Imposes a SUT on the sale of, or storage, use, or other consumption of, tangible personal property (TPP), unless specifically exempt. (R&TC Section 6001 et seq.)
2. Provides that the SUT must be computed on the gross receipts or sales price of TPP, unless specifically excluded. (R&TC Section 6051 et seq.)
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. (R&TC Section 7251 et seq.)
4. Enacts the Mills-Alquist-Deddeh Act (Act), which prescribes the funding allocation for transit and non-transit related purposes that comply with regional transportation plans. Funding allocated through the Act may only be used for transportation planning and mass transportation purposes. The Act defines a "STA-eligible operator" as a public transportation operator eligible to receive funds under the STA Program. (Public Utilities Code Section 99200 et seq.)

FISCAL EFFECT: The partial SUT exemption from this bill would produce a cumulative estimated revenue loss of $4.63 million in fiscal years 2025-26 and 2027-28.

COMMENTS:

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

AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax through 2030. Exempting zero emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This bill will also help us reach California's greenhouse gas reduction goals while maintaining a strong economy and healthy communities.

1. The San Francisco Bay Area Water Emergency Transportation Authority (WETA), writing as sponsors of this bill, note, in part, the following:

There are currently three public transit ferry operators in the state with a total of 27 vessels: Long Beach Transit (4 vessels), WETA (16 vessels), and Golden Gate Ferry (7 vessels). As these agencies develop plans to comply with CARB's CHC regulations, exempting zero emission vessels from state sales tax will incentivize the transition to zero emission vessels and allow the state to realize additional emission reductions. Additionally, while state support has helped public transit ferry operators navigate near-term funding shortfalls, they face mid- to long-term funding shortfalls due to the pandemic's impact on ridership. This proposal would provide capital outlay cost savings, allowing limited transit funding to be further stretched and used to maintain critical service.

1. The California Teachers Association (CTA), writing in opposition to a number of bills considered by this Committee, including this bill, states, in part:

While we understand these bills are well intended, [the] CTA does not support this approach, as it would reduce overall funding for education. [The] CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.

1. Committee Staff Comments:
   1. Erosion of the SUT Base: The past 80 years have seen a dramatic reduction in the amount of General Fund (GF) revenue attributable to the SUT. Governor Newsom's proposed budget for fiscal year 2024-25 estimates the SUT will be the third largest source of revenue, representing 17.3% of GF revenues. By comparison, the SUT accounted for nearly 60% of GF revenues in FY 1950-51.

The SUT Law was enacted in a very different era. California's economy in the 1930s was predominately centered on manufacturing, with residents mostly buying and selling tangible goods. Thus, when considering the base for a new consumption tax, imposing the tax on sales of TPP, which can be "seen, weighed, measured, felt, or touched," was logical. California's economy, however, has drastically changed in the intervening period as significant growth in the service and information sectors contributed to erosion of the SUT base. This transformation has led tax experts and economists from across the political spectrum to argue that California should expand its SUT base.

While well intentioned, additional SUT exemptions can arguably erode an already contracting SUT base. This increases fiscal pressures to maintain, or even increase, California's relatively high SUT rate. High rates can promote non-compliance and distort consumer decision-making, both of which counter widely accepted principles of sound tax policy.

• 1. Partial SUT exemptions complicate administration: Most exemptions are applied to the total state and local SUT. Existing law does, however, provide for a few partial SUT exemptions, including a partial SUT exemption for the purchase of any eligible zero-emission, medium- or heavy-duty transit bus. These types of partial exemptions are often difficult to process and frequently contain errors. A partial SUT exemption equal to 3.9375% may make the purchase of an eligible ferry unnecessarily complicated.
  2. What does this bill do? This bill provides an exemption for the state portion of the SUT imposed on a zero-emission public transportation ferry until January 1, 2030. This bill intends to offset the cost to eligible public transportation providers associated with purchasing zero-emission public transportation ferries.
  3. Subsidy or incentive? Since 2009, the CARB has regulated emissions from CHC. These type of craft include fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges, among others. According to the CARB, 21% of particulate matter emissions in the Ports of Los Angeles and Long Beach are attributed to harbor craft, approximately one-half of the 45% attributed to ocean-going vessels. Adopted amendments to the CARB's CHC Regulation require that new, newly acquired, and in-use, short-run ferries be zero emission by December 31, 2025. The CARB predicts that these amendments to the CHC Regulation would significantly increase the air quality in areas surrounding port operations, which are often in proximity to disadvantaged communities.

Generally, tax expenditures are enacted to encourage publicly beneficial behavior that would otherwise not occur. Existing regulations require that any new, newly acquired, or in-use short-run ferries be zero-emission by December 31, 2025. Thus, this bill may provide a windfall for behavior that would have occurred independent of this bill's expenditure. As the stated goal is to help local transportation providers comply with the cost of new requirements, providing a SUT exemption for the purchase of a qualifying ferry may be appropriate.

• 1. Conversions ineligible for exemption: As currently drafted, this bill only applies to the purchase of a qualifying zero-emission public transportation ferry. The CHC Regulation, however, applies to new, newly acquired, and in-use, short-run ferries. Should an STA-eligible operator choose to convert a ferry already in service into a qualifying zero-emission public transportation ferry, the components used to make the conversion would be ineligible for this exemption. If this is not the intent, the author may wish to amend this bill.
  2. Data unavailable: This bill requires that the CDTFA provide certain information upon request by the LAO for purposes of the LAO's report. If the requested information is unavailable, the CDTFA may not be able to provide the information. The author and Committee may wish to consider qualifying this provision to instead require the CDTFA to provide the requested information, as feasible.
  3. 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 provide a partial SUT exemption on the purchase of an eligible zero-emission public transportation ferry.
  4. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the Personal Income Tax Law, the Corporation Tax Law, and the SUT Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. 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]. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote, whereas enacting a tax expenditure requires a simple majority vote. These reporting and sunset requirements must be satisfied before a bill can receive a vote in this Committee. This bill complies with R&TC Section 41 and includes an appropriate five-year sunset.
  5. Prior legislation:
     1. AB 321 (Wilson), of the 2023-24 Legislative Session, was substantively similar to this bill. AB 321 was held on the Assembly Appropriations Committee's Suspense File.
     2. AB 2622 (Mullin), Chapter 353, Statutes of 2022, extended by two years the existing SUT exemption for eligible zero-emission transit bus vehicles.
     3. AB 784 (Mullin), Chapter 684, Statutes of 2019, authorized a partial SUT exemption for the purchase of a zero-emission medium- and heavy-duty transit bus vehicle that is eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project.

REGISTERED SUPPORT / OPPOSITION:

Support

Bay Area Council

Bay Planning Coalition

California Electric Transportation Coalition

California State Association of Counties

CALSTART, Inc.

City of Alameda

Golden Gate Bridge, Highway, and Transportation District

League of California Cities

Long Beach Transit

WETA

Opposition

California Federation of Teachers, AFL-CIO

California Teachers Association

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098

1. 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: March 11, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2061 (

Author:Wilson) – As Introduced Ver:February 1, 2024

Majority vote. Tax levy. Fiscal Committee.

SUBJECT: Sales and Use Tax: exemptions: zero-emission public transportation ferries

SUMMARY: Provides, for a period of five years, a partial exemption under the Sales and Use Tax (SUT) Law for a "zero-emission public transportation ferry". Specifically, this bill:

1. Exempts, under the SUT Law, beginning on January 1, 2025, and until January 1, 2030, the purchase of a "zero-emission public transportation ferry" by a city, county, city and county, transportation district, transit district, or any other public agency that provides transit services to the public and that is subject to the California Air Resources Board's (CARB's) regulation on the airborne toxic control measure for commercial harbor craft (CHC).
2. Defines a "zero-emission public transportation ferry" as a ferryboat operated, sponsored, or subsidized by a "State Transit Assistance (STA)-eligible operator," as defined in existing law, that produces no emissions of criteria pollutants, toxic air contaminants, and greenhouse gases (GHGs) when stationary or operating, as determined by the CARB.
3. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax (TUT) Law, this bill's exemption does not apply to any tax levied by a county, city, county and city, or district pursuant to, or in accordance with, either of those laws.
4. Provides that this bill's exemption 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 R&TC Sections 6051 or 6201 that is deposited in the State Treasury to the credit of the Local Revenue Fund 2011.
5. Finds and declares, for the purposes of complying with R&TC Section 41, that the stated goals, purposes, and objectives of this bill's exemption are to:
   1. Assist transit agencies in transitioning public transportation ferry fleets to zero-emission by reducing upfront capital costs and incremental costs between technologies;
   2. Overcome an important upfront funding shortfall that currently impedes procurement of zero-emission public transportation ferries and is critically needed to help public transit agencies comply with the CARB's CHC regulations;
   3. Eliminate mobile criteria pollutant emissions and clean the air in disadvantaged communities; and,
   4. Substantially reduce GHGs.
6. Finds and declares that the performance indicators to determine whether this bill's exemption is meeting its stated goals, purposes, and objectives are the annual number of zero-emission public transit ferry vessel purchases by transit authorities and agencies statewide, and the annual number of zero-emission public transportation ferries purchased during implementation of the amendments to the CARB's CHC regulations.
7. Requires the Legislative Analyst's Office (LAO) to report the above performance indicators no later than May 1, 2028, and authorizes the LAO to request information from the California Department of Tax and Fee Administration (CDTFA), or any state governmental authority relating to the purchase of public transportation ferries.
8. Requires the CDTFA, or any state governmental entity with authority relating to the purchase of public transportation ferries, to provide any data requested by the LAO pursuant to this bill, and treats the disclosure of that data as an exception to existing law related to the unauthorized disclosure of identifying taxpayer information.
9. Takes immediate effect as a tax levy.
10. Repeals this bill's provisions on January 1, 2030.

EXISTING LAW:

1. Imposes a SUT on the sale of, or storage, use, or other consumption of, tangible personal property (TPP), unless specifically exempt. (R&TC Section 6001 et seq.)
2. Provides that the SUT must be computed on the gross receipts or sales price of TPP, unless specifically excluded. (R&TC Section 6051 et seq.)
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. (R&TC Section 7251 et seq.)
4. Enacts the Mills-Alquist-Deddeh Act (Act), which prescribes the funding allocation for transit and non-transit related purposes that comply with regional transportation plans. Funding allocated through the Act may only be used for transportation planning and mass transportation purposes. The Act defines a "STA-eligible operator" as a public transportation operator eligible to receive funds under the STA Program. (Public Utilities Code Section 99200 et seq.)

FISCAL EFFECT: The partial SUT exemption from this bill would produce a cumulative estimated revenue loss of $4.63 million in fiscal years 2025-26 and 2027-28.

COMMENTS:

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

AB 2061 will exempt zero-emission ferries from the state portion of the sales and use tax through 2030. Exempting zero emission ferries purchased by public agencies from state sales and use tax is estimated to save California public transit ferry operators millions of dollars. This bill will also help us reach California's greenhouse gas reduction goals while maintaining a strong economy and healthy communities.

1. The San Francisco Bay Area Water Emergency Management Authority, writing as sponsors of this bill, note, in part, the following:

There are currently three public transit ferry operators in the state with a total of 27 vessels: Long Beach Transit (4 vessels), WETA (16 vessels), and Golden Gate Ferry (7 vessels). As these agencies develop plans to comply with CARB's CHC regulations, exempting zero emission vessels from state sales tax will incentivize the transition to zero emission vessels and allow the state to realize additional emission reductions. Additionally, while state support has helped public transit ferry operators navigate near-term funding shortfalls, they face mid- to long-term funding shortfalls due to the pandemic's impact on ridership. This proposal would provide capital outlay cost savings, allowing limited transit funding to be further stretched and used to maintain critical service.

1. Committee Staff Comments:
   1. Erosion of the SUT Base: The past 80 years have seen a dramatic reduction in the amount of General Fund (GF) revenue attributable to the SUT. Governor Newsom's proposed budget for fiscal year 2024-25 estimates the SUT will be the third largest source of revenue, representing 17.3% of GF revenues. By comparison, the SUT accounted for nearly 60% of GF revenues in FY 1950-51.

The SUT Law was enacted in a very different era. California's economy in the 1930s was predominately centered on manufacturing, with residents mostly buying and selling tangible goods. Thus, when considering the base for a new consumption tax, imposing the tax on sales of TPP, which can be "seen, weighed, measured, felt, or touched," was logical. California's economy, however, has drastically changed in the intervening period as significant growth in the service and information sectors contributed to erosion of the SUT base. This transformation has led tax experts and economists from across the political spectrum to argue that California should expand its SUT base.

While well intentioned, additional SUT exemptions can arguably erode an already contracting SUT base. This increases fiscal pressures to maintain, or even increase, California's relatively high SUT rate. High rates can promote non-compliance and distort consumer decision-making, both of which counter widely accepted principles of sound tax policy.

• 1. Partial SUT exemptions complicate administration: Most exemptions are applied to the total state and local SUT. Existing law does, however, provide for a few partial SUT exemptions, including a partial SUT exemption for the purchase of any eligible zero-emission, medium- or heavy-duty transit bus. These types of partial exemptions are often difficult to process and frequently contain errors. A partial SUT exemption equal to 3.9375% may make the purchase of an eligible ferry unnecessarily complicated.
  2. What does this bill do? This bill provides an exemption for the state portion of the SUT imposed on a zero-emission public transportation ferry until January 1, 2030. This bill intends to offset the cost to eligible public transportation providers associated with purchasing zero-emission public transportation ferries.
  3. Subsidy or incentive? Since 2009, the CARB has regulated emissions from CHC. These type of craft include fishing vessels, ferries, excursion vessels, tug boats, tow boats, crew and supply boats, barges, and dredges, among others. According to the CARB, 21% of particulate matter emissions in the Ports of Los Angeles and Long Beach are attributed to harbor craft, approximately one-half of the 45% attributed to ocean-going vessels. Adopted amendments to the CARB's CHC Regulation require that new, newly acquired, and in-use, short-run ferries be zero emission by December 31, 2025. The CARB predicts that these amendments to the CHC Regulation would significantly increase the air quality in areas surrounding port operations, which are often in proximity to disadvantaged communities.

Generally, tax expenditures are enacted to encourage publicly beneficial behavior that would otherwise not occur. Existing regulations require that any new, newly acquired, or in-use short-run ferries be zero-emission by December 31, 2025. Thus, this bill may provide a windfall for behavior that would have occurred independent of this bill's expenditure. As the stated goal is to help local transportation providers comply with the cost of new requirements, providing a SUT exemption for the purchase of a qualifying ferry may be appropriate.

• 1. Conversions ineligible for exemption: As currently drafted, this bill only applies to the purchase of a qualifying zero-emission public transportation ferry. The CHC Regulation, however, applies to new, newly acquired, and in-use, short-run ferries. Should an STA-eligible operator choose to convert a ferry already in service into a qualifying zero-emission public transportation ferry, the components used to make the conversion would be ineligible for this exemption. If this is not the intent, the author may wish to amend this bill.
  2. Data unavailable: This bill requires that the CDTFA provide certain information upon request by the LAO for purposes of the LAO's report. If the requested information is unavailable, the CDTFA may not be able to provide the information. The author and Committee may wish to consider qualifying this provision to instead require the CDTFA to provide the requested information, as feasible.
  3. 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 provide a partial SUT exemption on the purchase of an eligible zero-emission public transportation ferry.
  4. Committee's tax expenditure policy: SB 1335 (Leno), Chapter 845, Statutes of 2014, added R&TC Section 41, which recognized that the Legislature should apply the same level of review used for government spending programs to tax credits introduced on or after January 1, 2015. AB 263 (Burke), Chapter 743, Statutes of 2019, extended the requirements in R&TC Section 41 to all tax expenditure measures under the Personal Income Tax Law, the Corporation Tax Law, and the SUT Law introduced on or after January 1, 2020. A tax expenditure proposal must outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives. 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]. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote, whereas enacting a tax expenditure requires a simple majority vote. These reporting and sunset requirements must be satisfied before a bill can receive a vote in this Committee. This bill complies with R&TC Section 41 and includes an appropriate five-year sunset.
  5. Prior legislation:
     1. AB 321 (Wilson), of the 2023-24 Legislative Session, was substantively similar to this bill. AB 321 was held on the Assembly Appropriations Committee's Suspense File.
     2. AB 2622 (Mullin), Chapter 353, Statutes of 2022, extended by two years the existing SUT exemption for eligible zero-emission transit bus vehicles.
     3. AB 784 (Mullin), Chapter 684, Statutes of 2019, authorized a partial SUT exemption for the purchase of a zero-emission medium- and heavy-duty transit bus vehicle that is eligible for the California Hybrid and Zero-Emission Truck and Bus Voucher Incentive Project.

REGISTERED SUPPORT / OPPOSITION:

Support

Bay Area Council

Bay Planning Coalition

California State Association of Counties

City of Alameda

Golden Gate Bridge, Highway, and Transportation District

League of California Cities

Long Beach Transit

WETA

Opposition

None on file

Analysis Prepared by: Harrison Bowlby / REV. & TAX. / (916) 319-2098

1. 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. ↑