The Personal Income Tax Law allows various credits against the taxes imposed by that law. Existing law establishes the continuously appropriated Tax Relief and Refund Account and provides that payments required to be made to taxpayers or other persons from the Personal Income Tax Fund are to be paid from that account.

This bill would, for taxable years beginning on or after January 1, 2025, and before January 1, 2030, allow a credit against the tax imposed by that law in an amount equal to $1,500 to a taxpayer for the adoption of a retired law enforcement dog, as provided. The bill would require the amount of the credit exceeding the taxpayers liability to be credited against other amounts due, if any, and would require the balance, upon appropriation, to be paid from the Tax Relief and Refund Account and refunded to the taxpayer.

Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would include additional information required for any bill authorizing a new tax expenditure.

This bill would take effect immediately as a tax levy.

Date of Hearing: May 1, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 514 (

Author:Joe Patterson) – As Introduced Ver:February 7, 2023

SUSPENSE

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal Income Tax Law: retired police dogs: tax credit

SUMMARY: Allows, under the Personal Income Tax (PIT) Law, a refundable credit of $1,500 for a taxpayer that has adopted one or more "qualified dogs", as specified. Specifically, this bill:

1. Allows a tax credit of $1,500 for taxable years beginning on or after January 1, 2025, and before January 1, 2030, to a taxpayer that has adopted one or more "qualified dogs" during the taxable year.
2. Defines a "qualified dog" as a dog that either:
   1. Was in the service of a California law enforcement agency for at least five years prior to retirement; or,
   2. Was in the service of a California law enforcement agency for at least three years, and was injured in the line of service.
3. Provides that, upon appropriation, the amount of the credit in excess of the taxpayer's PIT liability shall be refunded.
4. Deletes the credit's statutory provisions on December 1, 2030.
5. Finds and declares the following for the purposes of satisfying the requirements of Revenue and Taxation Code (R&TC) Section 41:
   1. The specific goals, purposes, and objectives of this bill are to provide an additional incentive for individuals to adopt long-serving law enforcement dogs and provide financial assistance to individuals who do so based on the presumed additional training and veterinary costs that they will incur.
   2. To measure whether this bill achieves its intended purpose, the Franchise Tax Board (FTB) shall prepare a written report on the following:
      1. The number of taxpayers claiming the credit; and,
      2. The average credit amount on tax returns claiming the credit.
6. Requires the FTB to provide the written report required under this bill to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation no later than January 15 of the year following the year relevant to the report.
7. Provides that the disclosure requirements of this bill shall be treated as an exception to R&TC Section 19542.
8. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows various tax credits under the PIT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
2. Requires any bill authorizing a new credit to contain all of the following:
   1. Specific goals, purposes, and objectives that the tax credit will achieve;
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
   3. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. The requirements shall include the specific data and baseline measurements to be collected and remitted in each year the credit is in effect, for the Legislature to measure the change in performance indicators, and the specific taxpayers, state agencies, or other entities required to collect and remit data. (R&TC Section 41.)

FISCAL EFFECT: The FTB estimates General Fund revenue losses of $1.6 million in fiscal year (FY) 2024-25 and $2.7 million in FY 2025-26.

COMMENTS:

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

AB 514 recognizes the above-average medical expenses that retired police dogs often have, the need for retraining or ongoing training following their service, and the financial burden incurred by individuals who wish to adopt such dogs. A tax credit creates the incentive for individuals to adopt retired K-9's as the measure provides further financial assistance for the additional presumed costs.

1. In support of this bill, the California State Sheriffs' Association notes, in part:

Law enforcement agencies across California witness the training and duties that their police canines endure on a daily basis and appreciate the vital support that they provide in the field. Years of working in law enforcement can take a toll on a canine's health and result in necessary medical treatment years after retirement. This additional veterinary medical care or training can sometimes cost their adopters thousands of dollars.

1. In opposition to this bill, the California Teachers Association (CTA) notes, in part:

According to the Department of Finance, the state provided over $87 billion in General Fund tax expenditures in 2022-23 (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 40 percent would have gone toward Proposition 98 for K-14 education. This means that approximately $33 billion is redirected away from schools and community colleges each year. While we understand these bills are 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 faces a budget deficit.

1. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. 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 (in the form of foregone revenues).

As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are typically reviewed less frequently than direct expenditures. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.

• 1. What problem is this bill attempting to solve? According to the author, enforcement dogs are exposed to injuries at much higher rates than the average house pet due to the nature of their duties while in service. The Highway Patrol K-9 Association reports that retired German shepherds often need surgeries for issues such as hip dysplasia. Such surgeries can cost roughly $3,500 per hip, depending on the dog's condition, size, age, and other factors specific to the dog.^[1]
     
  2. An incentive or a reward? Typically, tax credits are provided as a matter of legislative grace to encourage taxpayers to behave in ways they might not absent a financial incentive. This credit, in turn, is intended to encourage taxpayers to adopt dogs who have previously been in the service of a law enforcement agency. While this is an admirable goal, Committee staff questions the degree to which this credit would actually serve as an incentive, versus a reward, for taxpayer behavior, given the majority of dogs in the service of law enforcement agencies are adopted by their handlers employed by the law enforcement agency.^[2]
     
  3. Appropriately targeted? The term "taxpayer" includes individuals, fiduciaries, estates, or and partnerships. If the author intends that the credit will only apply to individuals, the term "taxpayer" could be replaced with the term "individual". Additionally, as currently drafted, the credit would be allowed for qualified dogs adopted from states outside of California. If the intent is to incentivize the adoption of former law enforcement dogs in California, the author may wish to amend this bill to narrow the definition of a "qualified dog".
  4. Refundable tax credits: Refundable tax credits allow a taxpayer to receive money from the state by claiming the full cash value of the credit amount that is in excess of their tax liability. This design enables taxpayers with little to no tax liability to benefit from the credit and has historically been used to target state resources to individuals in deep poverty.

The California Earned Income Tax Credit, Young Child Tax Credit, and Foster Youth Tax Credit are the major refundable tax credits allowed under the PIT Law and all have a maximum income limitation of $30,000. As currently drafted, this bill has no maximum income limitation. The Committee may wish to consider if this approach is consistent with California's existing refundable tax credits.

• 1. Committee's tax expenditure policy: Both R&TC Section 41 and Committee policy require any tax expenditure bill to 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.  A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. 

In its current form, this bill states that the credit is designed to provide an additional incentive for individuals to adopt long-serving law enforcement dogs and provide financial assistance to individuals who do so based on the presumed additional training and veterinary costs that they will incur. In addition, this bill provides that the credit's effectiveness shall be measured by the number of taxpayers claiming the credit. The Committee may wish to consider whether credit utilization, in and of itself, is a sufficient rubric by which to measure this credit's effectiveness.

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.  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 ten years.  This bill, as currently drafted, complies with the Committee's policy on sunset dates.

• 1. Prior legislation:
     1. AB 3128 (Chen) of the 2017-18 Legislative Session, would have allowed a credit under the PIT Law for up to 50% of the qualified costs of ownership and maintenance of a service dog, not to exceed $1,500 per taxable year, for qualifying disabled veterans. AB 3128 was held on the Assembly Appropriations Committee's suspense file.
        
     2. AB 2472 (Linder) of the 2015-16 Legislative Session, would have allowed a credit under the PIT Law for up to 50% of the qualified costs of ownership and maintenance of a service dog, not to exceed $1,500 per taxable year, for qualifying disabled veterans. AB 2472 was held on the Assembly Appropriations Committee's suspense file.

REGISTERED SUPPORT / OPPOSITION:

Support

California State Sheriffs' Association
Social Compassion in Legislation

Opposition

California Teachers Association

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. Highway Patrol K-9 Association of California. https://www.hpk9association.org/ ↑

2. Hart, Zasloff, Bryson, & Christensen, Psychological Reports, The Role of Police Dogs as Companions and Working Partners, (2000) 86(1), pp. 190–202. https://doi.org/10.2466/
   pr0.2000.86.1.190 ↑

Date of Hearing: March 13, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 514 (

Author:Joe Patterson) – As Introduced Ver:February 7, 2023

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Personal Income Tax Law: retired police dogs: tax credit

SUMMARY: Allows, under the Personal Income Tax (PIT) Law, a refundable credit of $1,500 for a taxpayer that has adopted one or more "qualified dogs", as specified. Specifically, this bill:

1. Allows a tax credit of $1,500 for taxable years beginning on or after January 1, 2025, and before January 1, 2030, to a taxpayer that has adopted one or more "qualified dogs" during the taxable year.
2. Defines a "qualified dog" as a dog that either:
   1. Was in the service of a California law enforcement agency for at least five years prior to retirement; or,
   2. Was in the service of a California law enforcement agency for at least three years, and was injured in the line of service.
3. Provides that, upon appropriation, the amount of the credit in excess of the taxpayer's PIT liability shall be refunded.
4. Deletes the credit's statutory provisions on December 1, 2030.
5. Finds and declares the following for the purposes of satisfying the requirements of Revenue and Taxation Code (R&TC) Section 41:
   1. The specific goals, purposes, and objectives of this bill are to provide an additional incentive for individuals to adopt long-serving law enforcement dogs and provide financial assistance to individuals who do so based on the presumed additional training and veterinary costs that they will incur.
   2. To measure whether this bill achieves its intended purpose, the Franchise Tax Board (FTB) shall prepare a written report on the following:
      1. The number of taxpayers claiming the credit; and,
      2. The average credit amount on tax returns claiming the credit.
6. Requires the FTB to provide the written report required under this bill to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation no later than January 15 of the year following the year relevant to the report.
7. Provides that the disclosure requirements of this bill shall be treated as an exception to R&TC Section 19542.
8. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows various tax credits under the PIT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
2. Requires any bill authorizing a new credit to contain all of the following:
   1. Specific goals, purposes, and objectives that the tax credit will achieve;
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
   3. Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. The requirements shall include the specific data and baseline measurements to be collected and remitted in each year the credit is in effect, for the Legislature to measure the change in performance indicators, and the specific taxpayers, state agencies, or other entities required to collect and remit data. (R&TC Section 41.)

FISCAL EFFECT: The FTB estimates General Fund revenue losses of $1.6 million in fiscal year (FY) 2024-25 and $2.7 million in FY 2025-26.

COMMENTS:

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

AB 514 recognizes the above-average medical expenses that retired police dogs often have, the need for retraining or ongoing training following their service, and the financial burden incurred by individuals who wish to adopt such dogs. A tax credit creates the incentive for individuals to adopt retired K-9's as the measure provides further financial assistance for the additional presumed costs.

1. In support of this bill, the California State Sheriffs' Association notes, in part:

Law enforcement agencies across California witness the training and duties that their police canines endure on a daily basis and appreciate the vital support that they provide in the field. Years of working in law enforcement can take a toll on a canine's health and result in necessary medical treatment years after retirement. This additional veterinary medical care or training can sometimes cost their adopters thousands of dollars.

1. Committee Staff Comments:
   1. What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. 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 (in the form of foregone revenues).

As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are typically reviewed less frequently than direct expenditures. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.

• 1. What problem is this bill attempting to solve? According to the author, enforcement dogs are exposed to injuries at much higher rates than the average house pet due to the nature of their duties while in service. The Highway Patrol K-9 Association reports that retired German shepherds often need surgeries for issues such as hip dysplasia. Such surgeries can cost roughly $3,500 per hip, depending on the dog's condition, size, age, and other factors specific to the dog.^[1]
     
  2. An incentive or a reward? Typically, tax credits are provided as a matter of legislative grace to encourage taxpayers to behave in ways they might not absent a financial incentive. This credit, in turn, is intended to encourage taxpayers to adopt dogs who have previously been in the service of a law enforcement agency. While this is an admirable goal, Committee staff questions the degree to which this credit would actually serve as an incentive, versus a reward, for taxpayer behavior, given the majority of dogs in the service of law enforcement agencies are adopted by their handlers employed by the law enforcement agency.^[2]
     
  3. Appropriately targeted? The term "taxpayer" includes individuals, fiduciaries, estates, or and partnerships. If the author intends that the credit will only apply to individuals, the term "taxpayer" could be replaced with the term "individual". Additionally, as currently drafted, the credit would be allowed for qualified dogs adopted from states outside of California. If the intent is to incentivize the adoption of former law enforcement dogs in California, the author may wish to amend this bill to narrow the definition of a "qualified dog".
  4. Refundable tax credits: Refundable tax credits allow a taxpayer to receive money from the state by claiming the full cash value of the credit amount that is in excess of their tax liability. This design enables taxpayers with little to no tax liability to benefit from the credit and has historically been used to target state resources to individuals in deep poverty.

The California Earned Income Tax Credit, Young Child Tax Credit, and Foster Youth Tax Credit are the major refundable tax credits allowed under the PIT Law and all have a maximum income limitation of $30,000. As currently drafted, this bill has no maximum income limitation. The Committee may wish to consider if this approach is consistent with California's existing refundable tax credits.

• 1. Committee's tax expenditure policy: Both R&TC Section 41 and Committee policy require any tax expenditure bill to 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.  A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements. 

In its current form, this bill states that the credit is designed to provide an additional incentive for individuals to adopt long-serving law enforcement dogs and provide financial assistance to individuals who do so based on the presumed additional training and veterinary costs that they will incur. In addition, this bill provides that the credit's effectiveness shall be measured by the number of taxpayers claiming the credit. The Committee may wish to consider whether credit utilization, in and of itself, is a sufficient rubric by which to measure this credit's effectiveness.

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.  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 ten years.  This bill, as currently drafted, complies with the Committee's policy on sunset dates.

• 1. Prior legislation:
     1. AB 3128 (Chen) of the 2017-18 Legislative Session, would have allowed a credit under the PIT Law for up to 50% of the qualified costs of ownership and maintenance of a service dog, not to exceed $1,500 per taxable year, for qualifying disabled veterans. AB 3128 was held on the Assembly Appropriations Committee's suspense file.
        
     2. AB 2472 (Linder) of the 2015-16 Legislative Session, would have allowed a credit under the PIT Law for up to 50% of the qualified costs of ownership and maintenance of a service dog, not to exceed $1,500 per taxable year, for qualifying disabled veterans. AB 2472 was held on the Assembly Appropriations Committee's suspense file.

REGISTERED SUPPORT / OPPOSITION:

Support

California State Sheriffs' Association
Social Compassion in Legislation

Opposition

None on file

Analysis Prepared by: Wesley Whitaker / REV. & TAX. / (916) 319-2098

1. Highway Patrol K-9 Association of California. https://www.hpk9association.org/ ↑

2. Hart, Zasloff, Bryson, & Christensen, Psychological Reports, The Role of Police Dogs as Companions and Working Partners, (2000) 86(1), pp. 190–202. https://doi.org/10.2466/
   pr0.2000.86.1.190 ↑