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AB-545 University of California: major tax expenditures: research.(2021-2022)

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Date Published: 05/04/2021 09:00 PM

Amended  IN  Assembly  May 04, 2021
Amended  IN  Assembly  April 19, 2021


Assembly Bill
No. 545

Introduced by Assembly Member Quirk

February 10, 2021

An act to add and repeal Section 42 of the Revenue and Taxation Code, relating to taxation.


AB 545, as amended, Quirk. University of California: major tax expenditures: research.
Existing law imposes various taxes, including income taxes and sales and use taxes, and allows specified tax expenditures, as defined, including credits, deductions, exclusions, and exemptions in computing those taxes. Existing law establishes the University of California, and provides for its administration, and the provision of instruction at its various campuses, by the Regents of the University of California.
This bill would request the Regents of the University of California to perform a comprehensive assessment of major tax expenditures, as defined, to study, among other things, the legislative intent, the beneficiaries, the number of effected affected returns or business entities, the cost to the General Fund, the effectiveness of those tax expenditures, and options to modify the tax expenditures to improve their effectiveness or reduce their cost. The bill would request the Regents of the University of California to provide a report to the Legislature by January 1, 2024. The bill would require the Senate Committee on Governance and Finance and the Assembly Committee on Revenue and Taxation, upon receipt of the report from the university, to hold a joint public hearing on the report by August 15, 2024.
This bill would repeal these provisions on February 15, 2025.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


 The Legislature finds and declares all of the following:
(a) California’s publicly funded services and systems, including the K–14 education system, are dependent on state revenues, including personal, corporate, sales, and use taxes.
(b) The Legislature has historically and consistently advanced tax expenditures, including credits and sales and use tax exemptions, to accomplish market and policy goals. While these expenditures have been enacted with the goal of achieving certain policy objectives, they have the effect of reducing revenue to the General Fund which, in turn, reduces Proposition 98 funding by approximately $0.40 cents on each $1.
(c) Given the fact that Proposition 98 was suspended twice during the past economic downturn and recession, more than 30,000 teachers lost their jobs, and millions of California’s students faced significant reductions in services through the closure of programs and increases in class sizes, it is imperative for the Legislature to ensure that California’s dollars are spent efficiently, with transparency and oversight to ensure decisions are intentionally created to provide long-term benefits to California.
(d) The California State Auditor released an audit in 2016 on six of the largest tax expenditures in California and found a lack of oversight or evaluation has resulted in insufficient evidence to determine if some tax credits and exemptions are fulfilling their purpose to provide economic benefits to California.
(e) In 2016, the California State Auditor questioned whether some of California’s revenue going toward some tax expenditures is being well spent, whether these funds could be better allocated to fulfill the same policy objectives, and whether improvements could be made to make them more effective.
(f) Many tax expenditures were intended to provide an economic benefit to California as well as to create incentives to achieve particular goals and outcomes. It is imperative for California to ensure that the billions of dollars allocated to these outcomes are well spent to justify the reductions in critical education and public policy programs.

SEC. 2.

 Section 42 is added to the Revenue and Taxation Code, to read:

 (a) (1) The Legislature requests that the Regents of the University of California, through a new or existing research center, perform a comprehensive assessment of major tax expenditures, as that term is defined in Section 41, subdivision (c), consistent with the terms of this section.
(2) This section shall apply to the University of California only to the extent that the Regents of the University of California, by resolution, make any of these provisions applicable to the university.
(b) By July 1, 2023, the The center identified pursuant to subdivision (a) shall present a comprehensive, peer-reviewed assessment of major tax expenditures to the Legislature pursuant to subdivision (e).
(c) For purposes of this section, “major tax expenditure” means a tax expenditure as defined in subdivision (b) of Section 41 that meets all of the following criteria:
(1) The amount of foregone revenue resulting from the tax expenditure is equal to or greater than one billion dollars ($1,000,000,000) in total over the previous 10 fiscal years and does not contain any of the following, as of January 1, 2021:
(A) A sunset provision, or a date upon which the expenditure is repealed or inoperative.
(B) A requirement to report any metrics of efficacy.
(2) Is not a sales and use tax exemption pursuant to Section 6353, 6359, 6369, or 6369.1.
(3) Is not allowed only against the taxes imposed by the Personal Income Tax Law (Part 10 (commencing with Section 17001) of Division 2).
(4) Is not authorized by Chapter 4 (commencing with Section 23701) of Part 11 of Division 2, relating to exempt corporations.
(5) Is not authorized pursuant to Section 17087.5, Chapter 4.5 (commencing with Section 23800) of Part 11 of Division 2, or any other provision relating to treatment of S corporations and their shareholders in conformity with Subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code.


(6) Is not allowed as a deduction under Section 17201 by conformity to Section 170 of the Internal Revenue Code, relating to charitable contributions.


(7) Is not allowed by Section 24357 relating to charitable contributions.


(8) Is not excluded from income under any of the following provisions:
(A) Section 17131 by conformity to Section 101 of the Internal Revenue Code, relating to certain death benefits, as modified by Section 17132.5.
(B) Section 17081 by conformity to Section 72 of the Internal Revenue Code, relating to annuities and certain proceeds of endowment and life insurance contracts, as modified by Section 17085.
(C) Section 24302.
(D) Section 24305.
(d) Notwithstanding Section 19542, or any other law, the Franchise Tax Board and the California Department of Tax and Fee Administration shall provide taxpayer information to the University of California to the extent the university needs access to such information to perform the research authorized by this section. Any individually identifiable information submitted pursuant to this subdivision that is provided to the university shall be compiled in an aggregate or anonymized manner to preserve confidentiality.
(e) The scope of the comprehensive assessment shall include, but is not limited to, the following, to the extent possible and reasonably related to the major tax expenditure:
(1) A description of the legislative intent for each tax expenditure, if the act adding or amending the expenditure contains legislative findings and declarations of that intent or that legislative intent is otherwise expressed or specified by that act.
(2) A brief description of the beneficiaries of the tax expenditure, but the description shall not include personal identifying information.
(3) The number of returns filed or business entities affected, as applicable, for the most recent tax year for which full year data is available.
(4) A listing of any comparable federal tax benefit.
(5) A description of any recent prior tax expenditure evaluation or compilation of information completed by any state agency.
(6) Total loss to the General Fund dollars as a result of tax expenditures allowed to taxpayers.
(7) The economic, social, environmental, or any other impact of the tax expenditure to the State of California using metrics that the University of California deems appropriate for the tax expenditure.
(8) Options for modifying the tax expenditure to improve its effectiveness or to reduce its costs to the General Fund.
(9) A comparison of other states’ related tax incentives and the estimated change in employment and state and local revenue if the California tax incentive is eliminated or reduced.
(10) Estimated General Fund revenue increases as a result of the tax expenditure.
(f) By January 1, 2024, the University of California shall provide a report to the Legislature that compiles all of its recommendations regarding its assessments of major tax expenditures. The University of California shall also submit the report to the Senate Committee on Budget and Fiscal Review, the Senate Committee on Governance and Finance, the Assembly Committee on Budget, and the Assembly Committee on Revenue and Taxation. The report to the Legislature shall be submitted in compliance with Section 9795 of the Government Code.
(g) Upon receipt of the report required by subdivision (f), the Senate Committee on Governance and Finance and the Assembly Committee on Revenue and Taxation shall hold a joint public hearing on the report by August 15, 2024.
(h) This section shall remain in effect only until February 15, 2025, and as of that date is repealed.