The Personal Income Tax Law authorizes various credits against the taxes imposed by that law, including a credit for qualified renters in the amount of $120 for spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $50,000, as adjusted, or less, and in the amount of $60 for other individuals if adjusted gross income is $25,000, as adjusted, or less. Existing law requires the Franchise Tax Board to annually adjust for inflation these adjusted gross income amounts. For 2021, the adjusted gross income limit is $87,066 and $43,533, respectively.

Existing law establishes the continuously appropriated Tax Relief and Refund Account in the General Fund 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, for taxable years beginning on or after January 1 of the taxable year that includes the date on which funding is first authorized for purposes of this bill and for the succeeding 4 taxable years, and only when specified in a bill relating to the Budget Act, would extend the above-described renters credit to spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $150,000, as adjusted, or less, and for other individuals if adjusted gross income is $75,000, as adjusted, or less. The bill would also increase the credit amount for those years to $2,000 for spouses filing joint returns, heads of households, and surviving spouses and $1,000 for other individuals. In the event the increased credit amount is not specified in a bill relating to the Budget Act, the existing credit amounts and adjusted gross income limits, amounts, as described above, would be the credit amounts and adjusted gross income limits for that taxable year. The bill would require the Franchise Tax Board to annually recompute the credit amount and the increased adjusted gross income limits amounts for inflation for taxable years following the first year in which the increased credit is operative, except as provided.

The bill, for credits allowable for taxable years in which the above-described increased credit is operative, would provide that the credit amount in excess of the qualified renters liability would be refundable and paid from the Tax Relief and Refund Account to the qualified renter upon appropriation by the Legislature.

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

The bill would provide findings and declarations relating to the goals, purposes, and objectives of this credit.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law authorizes various credits against the taxes imposed by that law, including a credit for qualified renters in the amount of $120 for spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $50,000, as adjusted, or less, and in the amount of $60 for other individuals if adjusted gross income is $25,000, as adjusted, or less. Existing law requires the Franchise Tax Board to annually adjust for inflation these adjusted gross income amounts. For 2021, the adjusted gross income limit is $87,066 and $43,533, respectively. Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill, for taxable years beginning on or after January 1, 2022, and before January 1, 2027, 1 of the taxable year that includes the date on which funding is first authorized for purposes of this bill and for the succeeding 4 taxable years, and only when specified in a bill relating to the Budget Act, would extend the above-described renters credit to spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $150,000, as adjusted, or less, and for other individuals if adjusted gross income is $75,000, as adjusted, or less. The bill would, for taxable years beginning on or after January 1, 2023, and before January 1, 2027, require the Franchise Tax Board annually adjust these adjusted gross income amounts for inflation, as described. The bill would provide findings and declarations relating to the goals, purposes, and objectives of this credit. The bill would also increase the credit amount for those years to $2,000 for spouses filing joint returns, heads of households, and surviving spouses and $1,000 for other individuals. In the event the increased credit amount is not specified in a bill relating to the Budget Act, the existing credit amounts and adjusted gross income limits, as described above, would be the credit amounts and adjusted gross income limits for that taxable year. The bill would require the Franchise Tax Board to annually recompute the credit amount and the increased adjusted gross income limits for inflation for taxable years following the first year in which the increased credit is operative, except as provided.

This bill would take effect immediately as a tax levy.

The Personal Income Tax Law authorizes various credits against the taxes imposed by that law, including a credit for qualified renters in the amount of $120 for spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $50,000, as adjusted, or less, and in the amount of $60 for other individuals if adjusted gross income is $25,000, as adjusted, or less. Existing law requires the Franchise Tax Board to annually adjust for inflation these adjusted gross income amounts. For 2021, the adjusted gross income limit is $87,066 and $43,533, respectively. Existing law requires any bill authorizing a new tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements.

This bill, for taxable years beginning on or after January 1, 2022, and before January 1, 2027, would extend the above-described renters credit to spouses filing joint returns, heads of household, and surviving spouses if adjusted gross income is $150,000, as adjusted, or less, and for other individuals if adjusted gross income is $75,000, as adjusted, or less. The bill would, for taxable years beginning on or after January 1, 2023, and before January 1, 2027, require the Franchise Tax Board annually adjust these adjusted gross income amounts for inflation, as described. The bill would provide findings and declarations relating to the goals, purposes, and objectives of this credit.

This bill would take effect immediately as a tax levy.

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 59

Author:(Gallagher) – As Amended Ver:April 5, 2023

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

SUMMARY:

This bill increases, for five taxable years after the state budget appropriates funding for this purpose, the renters’ credit to $2,000 for spouses filing joint returns, heads of households, and surviving spouses and to $1,000 for other individuals.

This bill requires the Franchise Tax Board (FTB) to annually recalculate the credit amount for inflation and makes the credit refundable, contingent on a separate appropriation.

This bill declares the goals and performance measures for the expanded tax credit and requires FTB to report specified tax data to the Legislature.

FISCAL EFFECT:

1. General Fund (GF) cost pressures to appropriate approximately $4.4 billion in fiscal year (FY) 2023-24, $4.8 billion in FY 2024-25 and $5.0 billion in FY 2025-26 to increase the renters’ credit. To the extent an appropriation is made, the corresponding amount of GF revenue loss would occur.
2. Costs of an unknown, but definitely significant, amount to FTB to administer an expanded refundable renters’ credit recalculated annually for inflation. FTB must change existing tax forms and instructions, conduct robust education and outreach and update information systems to prevent improper payments. Additionally, making the credit contingent on a budget appropriation causes uncertainty for taxpayers and could result in an increased number of public contacts.

COMMENTS:

1. Purpose. According to the author:

A recent [Public Policy Institute of California] report found that 44% of Californians have considered moving out of state, with nearly half of those citing housing costs as the primary reason. Giving this context, it is important to take immediate action to address the issue of housing affordability in California, including measures to help renters cope with the high costs of housing. While the cost of increasing the renter’s tax credit may be significant, it is important to consider the potential consequences of inaction, such as continued out-migration from the state.

This bill is supported by apartment associations and Howard Jarvis Taxpayers Association.

1. Renters’ Credit. The renters’ credit is a state tax credit (with no parallel federal credit) that was first enacted in 1972, but was suspended through the 1993 to 1997 taxable years when California experienced severe economic pressures. The credit was reinstated effective January 1, 1998, but became non-refundable and subject to income caps. For the 2022 taxable year, spouses filing joint returns, heads of households and surviving spouses with an adjusted gross income (AGI) of $98,440 or less qualify for a non-refundable credit of $120 and individual filers with an AGI of $49,220 or less qualify for a non-refundable credit of $60. According to the U.S. Bureau of Labor Statistics Consumer Price Index Inflation Calculator, $120 in 1979, when the credit was last increased, would have the same buying power as $526 in 2023 and $60 would have the same buying power as $263. This bill increases the current credit amount to $2,000 and $1,000, respectively, requires the credit amount to be adjusted annually for inflation, and makes the credit refundable.
2. Prior Legislation. SB 843 (Glazer), of the 2021-22 Legislative Session, would have required FTB to prepare a report on the renters’ credit. Prior to amendments adopted by this committee, SB 843 was substantially similar to this bill, but would have increased the credit to $1,000 for spouses filing joint returns, heads of households, and surviving spouses and $500 for other individuals. SB 843 was ultimately ordered to the Assembly Inactive File.

SB 248 (Glazer), of the 2019-20 Legislative Session, was substantially similar to this bill, but would have would have increased the credit to $220 for taxpayers with no dependents and $434 for taxpayers with at least one dependent. SB 248 was held on this committee’s suspense file.

SB 1182 (Glazer), of the 2017-18 Legislative Session, would have phased in increased credit amounts based on the taxpayer’s AGI and whether the taxpayer had any dependents and required FTB to annually adjust the credit for inflation. SB 1182 was held on this committee’s suspense file.

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

Date of Hearing: May 1, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 59 (

Author:Gallagher) – As Amended Ver:April 5, 2023

SUSPENSE

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Taxation: renter's credit

SUMMARY: Increases, contingent upon an appropriation in the Budget Act for this purpose, the Renter's Credit amount for a qualified renter, and makes that credit refundable upon appropriation. Specifically, this bill:

1. Increases, for taxable years beginning on or after January 1 of the taxable year that includes the date on which an appropriation is first made in any bill relating to the Budget Act for this purpose, the Renter's Credit amount for a qualified renter to $2,000 for spouses filing joint returns, heads of households, and surviving spouses and $1,000 for single filers.
2. Provides that if the increased credit amount is not specified in a bill providing for appropriations of the costs of this bill, the existing Renter's Credit amounts, which are $120 and $60, would be the credit amounts for that taxable year.
3. Requires the Franchise Tax Board (FTB) to annually recompute for inflation the increased Renter's Credit amounts for four taxable years following the first year in which the increased credit is operative, except as provided in this bill.
4. Provides, contingent upon appropriation, that the amount of Renter's Credit in excess of the qualified renter's tax liability shall be refunded.
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 expand availability of the existing Renter's Credit to compensate low- and middle-income renters for the increasing rates of rent throughout the State of California;
   2. To measure whether this bill achieves its intended purpose, the 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.
   3. 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.
6. Provides that the disclosure requirements of this bill shall be treated as an exception to R&TC Section 19542.
7. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows, under the Personal Income Tax (PIT) Law, a nonrefundable California Renter's Credit of $120 or $60 for "qualified renters," based on filing status and subject to AGI limitations. For the 2022 tax year, these AGI limitations are $49,220 or less for single filers and $98,440 for spouses filing joint returns, heads of households, and surviving spouses. (R&TC Section 17053.5).
2. Defines a "qualified renter" as an individual who is a California resident for all or part of the taxable year and rented and occupied California premises constituting their principal place of residence for at least 50% of the taxable year.
3. Provides that a "qualified renter" does not include individuals:
   1. Who, for more than 50% of the taxable year, rented and occupied premises that, with certain exceptions, were exempt from property taxes;
   2. Whose principal place of residence, for more than 50% of the taxable year, is with any other person who claimed that individual as a dependent for income tax purposes; and,
   3. Who have been granted (or whose spouse was granted) the homeowner's property tax exemption during the taxable year, as specified.
4. Provides that any "qualified renter" who is a nonresident for a portion of the taxable year is allowed 1/12 of the Renter's Credit for each full month that the individual resided in this state for the taxable year, once the requirement of renting in California for more than 50% of the taxable year has been met.

FISCAL EFFECT: The FTB estimates revenue losses of $4.4 billion in fiscal year (FY) 2023-24, $4.8 billion in FY 2024-25, and $5 billion in FY 2025-26.

COMMENTS:

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

Families in California are facing significant financial hardship with record inflation and surging rental prices.  Renters are also disproportionately affected by the economic impacts of the COVID-19 pandemic.  While increasing the supply of housing is an essential long-term solution to address California's housing crisis, it will take some time for the State to catch up to meet demand.  In the meantime, we must provide immediate relief to the millions of renters who are struggling to make ends meet.

A recent PPIC report found that 44% of Californians have considered moving out of state, with nearly half of those citing housing costs as the primary reason. Given this context, it is important to take immediate action to address the issue of housing affordability in California, including measures to help renters cope with the high costs of housing. While the cost of increasing the renter’s tax credit may be significant, it is important to consider the potential consequences of inaction, such as continued out-migration from the state.

Additionally, when households are rent-burdened, paying more than 30% of household income in rent, rent often takes precedence over other essential spending for basic necessities such as child care, food, health care, and long-term investments and savings. Unfortunately, the current credit amount provides minimal relief and has only been raised once, more than four decades ago. By increasing and restructuring the Renters' Tax Credit to make it refundable, we can help alleviate the financial burden on struggling families and individuals while ensuring the credit is accessible to those who need it the most.

1. The Howard Jarvis Taxpayers Association (HJTA) supports this bill, and it notes, in part:

Since its implementation in 1972, the Renters' Tax Credit has only been increased once – in 1979. Rents have increased dramatically since then and surging rental prices have only been exacerbated by skyrocketing housing prices. Rents are straining family budgets and raising the Renters’ Tax Credit will bring much-needed relief to those struggling to make ends meet. It’s the right thing to do.

1. Committee Staff Comments:
   1. What would this bill do? This bill, if specified in a budget bill, increases the Renter's Credit for taxable years beginning on or after January 1st of the taxable year that includes the date on which funding is first authorized for purposes of this bill, to:
      1. $2,000 for taxpayers with a filing status of married filing jointly, head of household, or surviving spouse; and,
         
      2. $1,000 for taxpayers with a filing status of single or married filing separately.

This bill also makes the Renter's Credit refundable upon appropriation, meaning that taxpayers who do not tax liability or whose liability is less than the amount of the credit would still receive the full value of the credit.

• 1. What is the Renter's Credit? The Legislature created the Renter's Credit in 1972. There is no similar credit in federal law. In the first 20 years following its inception, both the value of the credit and the income eligibility rules varied, but the credit was always available. However, the Renter's Credit was suspended when California experienced severe economic pressures for the 1993 through 1997 taxable years. The Legislature reinstated the Renter's Credit effective January 1, 1998.^[1]

Historically, the Renter's Credit was also refundable. However, the Legislature made the Renter's Credit nonrefundable when it reinstated the credit and subjected it to income phase-outs.^[2]

According to FTB's database, the number of tax returns claiming the Renter's Credit has increased since 1998 and had an unusual increase in the 2009 taxable year. The chart below, created by Committee staff, illustrates this trend. Despite a slight decrease in the number of taxpayers claiming the credit in 2020 likely attributable to state and Federal spending during the onset of the COVID-19 pandemic, the overall upward trend will likely persist if the population of renters keeps increasing due to housing affordability issues.

• 1. Who would potentially benefit from this bill? By increasing the Renter's Credit amount, this bill would benefit taxpayers who qualify for the existing Renter's Credit. By making the credit refundable, this bill also benefits lower income taxpayers who have little to no state income tax liability because they would receive any amount of the credit in excess of their taxes owed in the form of a check or direct deposit.

Under current law, for the 2022 taxable year, taxpayers who are married filing jointly, heads of household, or qualified widow or widower filers with an AGI of $98,440 or less qualify for a nonrefundable Renter's Credit of $120, and single or married filing separately filers with an AGI of $49,220 or less qualify for a nonrefundable Renter's Credit of $60. Under this bill, for taxable years beginning on or after January 1st of the taxable year that includes the date on which funding is first authorized for purposes of this bill, taxpayers who are married filing jointly, heads of household, or qualified widow or widower filers qualify for a refundable Renter's Credit of $2,000, and single or married filing separately filers qualify for a refundable Renter's Credit of $1,000.

• 1. What is the problem this bill is seeking to solve? According to the author, this bill is trying to address the surging cost of rental housing in California, which impacts low- and moderate-income households. The author highlights that the Legislature has not increased the Renter's Credit since 1979 and the credit has not been increased to account for inflation. According to the United States Bureau of Labor Statistics CPI Inflation Calculator, $120 in 1979 would have the same buying power as $526 in 2023, and $60 in 1979 would have the same buying power as $263 in 2023.^[3]
  2. Refundable tax credits: As described above, 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.
  3. Committee's Tax Expenditure Policy: This bill complies with R&TC Section 41 because it outlines 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 have an appropriate sunset provision to be eligible for a vote. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote. Accordingly, this bill contains five-year sunset provisions.
  4. Prior Legislation:
     1. SB 843 (Glazer), of the 2021-22 Legislative Session, would have required the FTB to prepare a written report by April 1, 2023, on the number of taxpayers claiming the Renter's Tax Credit and the average credit amount on returns claiming the credit. SB 843 died on the Assembly Inactive File.
     2. AB 399 (Brough), of the 2019-20 Legislative Session, would have, contingent upon an appropriation, increased the amounts of the Renter's Credit. AB 339 was not heard by this Committee.
     3. SB 248 (Glazer), of the 2019-20 Legislative Session, would have increased the Renters' Credit amounts to $220 for certain taxpayers with no dependents and $434 for certain taxpayers with one or more dependents and make the credit refundable. SB 248 was held on the Assembly Appropriations Committee's Suspense File.
     4. SB 1182 (Glazer), of the 2017-18 Legislative Session, would have increased the credit amount for a qualified renter, as specified, and required the FTB to adjust the credit amount for inflation annually on and after January 1, 2023. SB 1182 was held on the Assembly Appropriations Committee's Suspense File.
     5. AB 1100 (Chen), of the 2017-18 Legislative Session, would have increased the homeowners' property tax exemption and the Renter's Credit. AB 1100 was held on the Assembly Appropriations Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

California Apartment Association

Howard Jarvis Taxpayers Association

Southern California Rental Housing Association (SCRHA)

Opposition

None on file

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

1. California State Assembly Committee on Revenue and Taxation, California State Assembly, Revenue and Taxation Reference Book (2015). ↑

2. Legislative Analyst's Office, California Spending Plan 1998-99 (1998). https://lao.ca.gov/1998/1098_spending_plan/1098_spending_plan_chapter_2.html ↑

3. United States Bureau of Labor Statistics, CPI Inflation Calculator (2023). https://www.bls.gov/data/inflation_calculator.htm ↑

Date of Hearing: March 13, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 59 (

Author:Gallagher) – As Amended Ver:February 13, 2023

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Taxation: renter's credit

SUMMARY: Increases, contingent upon appropriation in the Budget Act, the number of taxpayers that qualify for the Renter's Credit by expanding qualifying income limits, increases the Renter's Credit amount for a qualified renter, and makes that credit refundable upon appropriation. Specifically, this bill:

1. Increases, for taxable years beginning on or after January 1 of the taxable year that includes the date on which an appropriation is first made in any bill relating to the Budget Act for this purpose, the Renter's Credit amount for a qualified renter to $2,000 for spouses filing joint returns, heads of households, and surviving spouses with Adjusted Gross Income (AGI) of $150,000 or less, and $1,000 for other individuals with AGI of $75,000 or less.
2. Provides that if the increased credit amount is not specified in a bill providing for appropriations of the costs of this bill, the existing Renter's Credit amounts, which are $120 and $60, would be the credit amounts for that taxable year.
3. Requires the Franchise Tax Board (FTB) to annually recompute for inflation the increased Renter's Credit amounts and AGI limitations for four taxable years following the first year in which the increased credit is operative, except as provided in this bill.
4. Provides, contingent upon appropriation, that the amount of Renter's Credit in excess of the qualified renter's tax liability shall be refunded.
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 expand availability of the existing renter's credit to compensate low- and middle-income renters for the increasing rates of rent throughout the State of California;
   2. To measure whether this bill achieves its intended purpose, the 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.
   3. 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.
6. Provides that the disclosure requirements of this bill shall be treated as an exception to R&TC Section 19542.
7. Takes immediate effect as a tax levy.

EXISTING LAW:

1. Allows, under the Personal Income Tax (PIT) Law, a nonrefundable California Renter's Credit of $120 or $60 for "qualified renters," based on filing status and subject to AGI limitations. (R&TC Section 17053.5)
2. Defines a "qualified renter" as an individual who is a California resident for all or part of the taxable year and rented and occupied California premises constituting their principal place of residence for at least 50% of the taxable year.
3. Provides that a "qualified renter" does not include individuals:
   1. Who, for more than 50% of the taxable year, rented and occupied premises that, with certain exceptions, were exempt from property taxes;
   2. Whose principal place of residence, for more than 50% of the taxable year, is with any other person who claimed that individual as a dependent for income tax purposes; and,
   3. Who have been granted (or whose spouse was granted) the homeowner's property tax exemption during the taxable year, as specified.
4. Provides that any "qualified renter" who is a nonresident for a portion of the taxable year is allowed 1/12 of the Renter's Credit for each full month that the individual resided in the state for the taxable year, once the requirement of renting in California for more than 50% of the taxable year has been met.

FISCAL EFFECT: The FTB estimates revenue losses of $4.4 billion in fiscal year (FY) 2023-24, $4.7 billion in FY 2024-25, and $5 billion in FY 2025-26.

COMMENTS:

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

Families in California are facing significant financial hardship with record inflation and surging rental prices. Renters are also disproportionately affected by the economic impacts of the COVID-19 pandemic. While increasing the supply of housing is an essential long-term solution to address California's housing crisis, it will take some time for the State to catch up to meet demand. In the meantime, we must provide immediate relief to the millions of renters who are struggling to make ends meet.

The current credit amount provides minimal relief and has only been raised once, more than four decades ago. Additionally, studies show that while California's housing costs disproportionately impact low and very low income households, many low and moderate income households also have trouble making ends meet with rising rental costs. Moreover, the gap between renter costs and renter income continues to widen. When households are rent-burdened, paying more than 30% of household income in rent, rent often takes precedence over other essential spending for basic necessities such as child care, food, health care, and long-term investments and savings.

By increasing and restructuring the Renters' Tax Credit, we can help alleviate the financial burden on families and individuals, while ensuring the credit as fairer and more accessible to those who need it the most.

1. The California Apartment Association supports this bill, and it notes, in part:

"While current state law provides qualified renters a nonrefundable credit, California’s current credit is not keeping pace with inflation and needs to be updated. AB 59 would allow more taxpayers to receive the Renter’s Tax Credit by increasing the income thresholds."

1. Committee Staff Comments:
   1. What would this bill do? This bill, if specified in a budget bill, increases the Renter's Credit for taxable years beginning on or after January 1st of the taxable year that includes the date on which funding is first authorized for purposes of this bill, to:
      1. $2,000 for taxpayers with a filing status of married filing jointly, head of household, or surviving spouse, with AGI of $150,000 or less, and,
         
      2. $1,000 for taxpayers with a filing status of single or married filing separately, with AGI of $75,000, or less.

This bill also makes the Renter's Credit refundable upon appropriation. Additionally, for the four taxable years following the first year in which an appropriation is made to increase the credit amounts, this bill requires the FTB to recompute the Renter's Credit amounts and AGI limitations based on inflation.

• 1. What is the Renter's Credit? The Legislature created the Renter's Credit in 1972. There is no similar credit in federal law. In the first 20 years following its inception, both the value of the credit and the income eligibility rules varied, but the credit was always available. However, the Renter's Credit was suspended when California experienced severe economic pressures for the 1993 through 1997 taxable years. The Legislature reinstated the Renter's Credit effective January 1, 1998.^[1]

Historically, the Renter's Credit was also refundable. However, the Legislature made the Renter's Credit nonrefundable when it reinstated the credit and subjected it to income phase-outs.^[2]

According to FTB's database, the number of tax returns claiming the Renter's Credit has increased since 1998 and had an unusual increase in the 2009 taxable year. The chart below, created by Committee staff, illustrates this trend. Despite a slight decrease in the number of taxpayers claiming the credit in 2020 likely attributable to state and Federal spending during the onset of the COVID-19 pandemic, the overall upward trend will likely persist if the population of renters keeps increasing due to housing affordability issues.

• 1. Who would potentially benefit from this bill? In addition to benefitting renters who already qualify for the Renter's Credit under R&TC Section 17053.5 by increasing the credit amounts, this bill significantly expands the number of renters who would qualify for the credit by raising the maximum AGI limitations. Under current law, for the 2022 taxable year, taxpayers who are married filing jointly, heads of household, or qualified widow or widower filers with an AGI of $98,440 or less qualify for a nonrefundable Renter's Credit of $120, and single or married filing separately filers with an AGI of $49,220 or less qualify for a nonrefundable Renter's Credit of $60.

Under this bill, for taxable years beginning on or after January 1st of the taxable year that includes the date on which funding is first authorized for purposes of this bill, taxpayers who are married filing jointly, heads of household, or qualified widow or widower filers with an AGI of $150,000 or less qualify for a refundable Renter's Credit of $2,000, and single or married filing separately filers with an AGI of $75,000 or less qualify for a refundable Renter's Credit of $1,000.

By making the credit refundable, this bill also benefits lower income taxpayers who have little to no state income tax liability because they would receive any amount of the credit in excess of their taxes owed in the form of a check or direct deposit.

• 1. What is the problem this bill is seeking to solve? According to the author, this bill is trying to address the surging cost of rental housing in California, which impacts low- and moderate-income households. The author highlights that the Legislature has not increased the Renter's Credit since 1979 and the credit has not been increased to account for inflation. According to the United States Bureau of Labor Statistics CPI Inflation Calculator, $120 in 1979 would have the same buying power as $526 in 2023, and $60 in 1979 would have the same buying power as $263 in 2023.^[3]
  2. How did the author decide on the amount? As noted above, inflation-adjusted amounts for the current Renter's Credit would be approximately $525 and $260. How did the author decide that the Renter's Credit should be $2,000 and $1,000?
  3. Refundable tax credits: As described above, 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. The Committee may wish to consider if expanding eligibility by raising income limitations is congruent with making the Renter's Credit refundable.

• 1. Committee's Tax Expenditure Policy: This bill complies with R&TC Section 41 because it outlines 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 have an appropriate sunset provision to be eligible for a vote. Sunsets are required because eliminating a tax expenditure generally requires a two-thirds vote. Accordingly, this bill contains five-year sunset provisions.
  2. Prior Legislation:
     1. SB 843 (Glazer), of the 2021-22 Legislative Session, would have required the FTB to prepare a written report by April 1, 2023, on the number of taxpayers claiming the Renter's Tax Credit and the average credit amount on returns claiming the credit. SB 843 died on the Assembly Inactive File.
     2. AB 399 (Brough), of the 2019-20 Legislative Session, would have, contingent upon an appropriation, increased the amounts of the Renter's Credit. AB 339 was not heard by this Committee.
     3. SB 248 (Glazer), of the 2019-20 Legislative Session, would have increased the Renters' Credit amounts to $220 for certain taxpayers with no dependents and $434 for certain taxpayers with one or more dependents and make the credit refundable. SB 248 was held on the Assembly Appropriations Committee's Suspense File.
     4. SB 1182 (Glazer), of the 2017-18 Legislative Session, would have increased the credit amount for a qualified renter, as specified, and required the FTB to adjust the credit amount for inflation annually on and after January 1, 2023. SB 1182 was held on the Assembly Appropriations Committee's Suspense File.
     5. AB 1100 (Chen), of the 2017-18 Legislative Session, would have increased the homeowners' property tax exemption and the Renter's Credit. AB 1100 was held on the Assembly Appropriations Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

California Apartment Association

Howard Jarvis Taxpayers Association

Opposition

None on file

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

1. California State Assembly Committee on Revenue and Taxation, California State Assembly, Revenue and Taxation Reference Book (2015). ↑

2. Legislative Analyst's Office, California Spending Plan 1998-99 (1998). https://lao.ca.gov/1998/1098_spending_plan/1098_spending_plan_chapter_2.html ↑

3. United States Bureau of Labor Statistics, CPI Inflation Calculator (2023). https://www.bls.gov/data/inflation_calculator.htm ↑