SR-06-23-2015-13Dr
Council Meeting: June 23, 2015 Santa Monica, California
CITY CLERK'S OFFICE — MEMORANDUM
To: City Council
From: Mayor McKeown
Date: June 23. 2015
13 -D: Request of Mayor McKeown that the Council support AB428 (Nazarian), as
amended, to benefit Santa Monica property owners undertaking seismic
safety retrofits, which would allow a tax credit equal to 30% of qualified
costs, as specified in the bill; and direct staff to proceed with
communicating the City's support to state legislators and the Governor.
1
AMENDED IN ASSEMBLY MAY 21, 2015
AMENDED IN ASSEMBLY MAY 12, 2015
CALIFORNIA LEGISLATURE - 2015 -16 REGULAR SESSION
ASSEMBLY BILL No. 4'.
Introduced by Assembly Member Nazarian
February 19, 2015
An act to add and repeal Sections 17053.50 and 23650 of the Revenue
and Taxation Code, relating to taxation, to take effect immediately, tax
levy.
LEGISLATIVE COUNSEL'S DIGEST
AB 428, as amended, Nazarian. Income taxes credit: seismic retrofits.
The Personal Income Tax Law and the Corporation Tax Law allow
various credits against the taxes imposed by those laws.
This bill would allow, for taxable years beginning on or after January
1, 2016, and before January 1, 2021, a tax credit under both laws in an
amount equal to 30% of the qualified costs paid or incurred by a
qualified taxpayer for any seismic retrofit construction on a qualified
building, as defined. This bill, prior to seismic retrofit construction,
would require a taxpayer to obtain certification front the appropriate
jurisdiction with local building code enforcement authority that the
building has been certified as an at -risk property, as defined. This bill
would also require a taxpayer to obtain a certification from the
appropriate jurisdiction with authority for building code enforcement
of the area in which the building is located that seismic retrofit
construction, as defined, has been completed, and to provide —that
rtifieation those certifications to the Franchise Tax Board upon the
request of the Franchise Tax Board.
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This bill would take effect immediately as a tax levy.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State - mandated local program: no.
The people of the State of California do enact as follows:
1 SECTION 1. Section 17053.50 is added to the Revenue and
2 Taxation Code, to read:
3 17053.50. (a) For taxable years beginning on or after January
4 1, 2016, and before January 1, 2021, there shall be allowed to a
5 qualified taxpayer a credit against the "net tax," as defined in
6 Section 17039, in an amount equal to 30 percent of the qualified
7 taxpayer's qualified costs.
8 (b) For purposes of this section:
9 (1) "At -risk property" means a building that is deemed
10 hazardous and in danger of collapse in the event of a catastrophic
I l earthquake, including, but not limited to, soft story buildings,
12 nonductile concrete residential buildings, and pre -1994 concrete
13 residential buildings.
14 (2) "Qualified building" means a building that has been certified
15 as an at -risk property by the loeal building eode enfloreement to
16 the ffea withitt whieh the building is loeateel. pursuant to
17 subparagraph (A) ofparagraph (I) of subdivision (c). A qualified
18 building includes a mobilehome registered by the Department of
19 Housing and Community Development.
20 (3) "Qualified costs" means the costs paid or incurred by the
21 qualified taxpayer for any completed seismic retrofit construction
22 on a qualified building, including any engineering or architectural
23 design work necessary to permit or complete the seismic retrofit
24 construction. "Qualified costs" do not include any of the following
25 costs paid or incurred by the qualified taxpayer:
26 (A) Maintenance, including abatement of deferred or inadequate
27 maintenance, and correction of violations unrelated to the seismic
28 retrofit construction.
29 (B) Repair, including repair of earthquake damage.
30 (C) Seismic retrofit construction required by local building
31 codes as a result of addition, repair, building relocation, change
32 of use, or occupancy.
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1 (D) Other work or improvement required by local building or
2 planning codes as a result of the intended seismic retrofit
3 construction.
4 (E) Rent reductions or other associated compensation,
5 compliance actions, or other related coordination involving the
6 qualified taxpayer and any other party, including a tenant, insurer,
7 or lender.
8 (F) Replacement of existing building components, including
9 equipment, except as needed to complete the seismic retrofit
10 construction.
11 (G) Bracing or securing nonpermanent building contents.
12 (H) The offset of costs, reimbursements, or other costs
13 transferred from the qualified taxpayers to others.
14 (I) Any amount paid by the qualified taxpayer to the jurisdiction
15 with authority for building code enforcement for issuing the
16 "° °" ifteaaon certifications required pursuant tom
17 subdivision (c).
18 (4) "Qualified taxpayer" means a taxpayer that is an owner of
19 a qualified building located in this state. A taxpayer that owns a
20 proportional share of a qualified building in this state may claim
21 the credit allowed by this section based on the taxpayer's share of
22 the qualified costs.
23 (5) (A) "Seismic retrofit construction" means alteration of a
24 qualified building or its components to substantially mitigate
25 seismic damage. Seismic retrofit construction shall be for work
26 performed voluntarily, and for which qualified costs were paid or
27 incurred, on or after January 1, 2016. Seismic retrofit construction
28 shall include, but not be limited to, the following:
29 (AO
30 (i) Anchoring the structure to the foundation.
31 (B)
32 (ii) Bracing cripple walls.
33 (E)
34 (iii) Bracing hot water heaters.
35 (E�)
36 (iv) Installing automatic gas shutoff valves.
37 (H)
38 (v) Repairing or reinforcing the foundation to improve the
39 integrity of the foundation against seismic damage.
40 (F
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AB 428
1 (vi) Anchoring fuel storage.
2 (S)
3 (vii) Installing earthquake resistant bracing system for
4 mobilehomes that are registered with the r_,A Department
5 of Housing and Community Development.
6 (B) Seismic retrofit construction does not include construction
7 pe formed to bring a building into compliance with local building
8 codes.
9 (c) To be eligible for the credit under this section, the following
10 imtst shall apply:
11 (1) The qualified taxpayer shall doJaotlt all of the following:
12 (A) Prior to seismic retrofit construction, obtain certification
13 from the appropriate jurisdiction with local building code
14 enforcement authority that the building is an at -risk property.
15 Upon the request of the Franchise Tax Board, the qualified
16 taxpayer shall provide a copy of the certification to the Franchise
17 Tax Board.
18 W
19 (B) Obtain certification from the appropriate jurisdiction with
20 authority for building code enforcement, upon a review of the
21 building, that the completed construction satisfies the definition
22 of seismic retrofit construction. The certification shall identify
23 what part of the completed construction, if any, is not seismic
24 retrofit construction. Upon the request of the Franchise Tax Board,
25 the qualified taxpayer shall provide a copy of the certification to
26 the Franchise Tax Board.
27 (B)
28 (C) Retain for his or her records a copy of the eertifieat-ion
29 certifications specified ink subparagraphs (A)
30 and (B).
31 (2) The jurisdiction with authority for building code enforcement
32 in which a qualified building is located has entered into an
33 agreement with the state to provide certifications pursuant to this
34 section and to not seek reimbursement pursuant to Section 6 of
35 Article XIIIB of the California Constitution for any costs incurred
36 in providing those certifications.
37 (d) (1) The credit amount allowed in subdivision (a) shall be
38 claimed by a qualified taxpayer at the rate of one -fifth of the credit
39 amount for the taxable year in which the credit is allowed, and
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one -fifth of the credit amount for each of the subsequent four
taxable years.
(2) In the case where the credit allowed under this section
exceeds the "net tax" as defined in Section 17039, for a taxable
year, the excess credit may be carried over to reduce the "net tax"
in the following taxable year, and succeeding four taxable years,
if necessary, until the credit has been exhausted.
(e) For purposes of computing the credit provided by this
section, the qualified costs shall be reduced by any grant provided
by a public entity for the seismic retrofit construction.
(f) This credit shall be in lieu of any other credit or deduction
that the qualified taxpayer may otherwise claim pursuant to this
part with respect to qualified costs.
(g) Section 41 shall not apply to the credit allowed pursuant to
this section.
(h) This section shall remain in effect only until December 1,
2021, and as of that date is repealed.
SEC. 2. Section 23650 is added to the Revenue and Taxation
Code, to read:
23650. (a) For taxable years beginning on or after January 1,
2016, and before January 1, 2021, there shall be allowed to a
qualified taxpayer a credit against the "tax," as defined in Section
23036, in an amount equal to 30 percent of the qualified taxpayer's
qualified costs.
(b) For purposes of this section:
(1) "At -risk property" means a building that is deemed
hazardous and in danger of collapse in the event of a catastrophic
earthquake, including, but not limited to, soft story buildings,
nonductile concrete residential buildings, and pre -1994 concrete
residential buildings.
(2) "Qualified building" means a building that has been certified
as an at -risk property by the loeE4 building e de enf6teement for
the area within wthie . `t- 1iriiding is iii-.au.d. pursuant to
subparagraph (A) ofparagraph (1) of subdivision (c). A qualified
building includes a mobilehome registered by the Department of
Housing and Community Development.
(3) "Qualified costs" means the costs paid or incurred by the
qualified taxpayer for any completed seismic retrofit construction
on a qualified building, including any engineering or architectural
design work necessary to permit or complete the seismic retrofit
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AB 428
_6_
1 construction. "Qualified costs" do not include any of the following
2 costs paid or incurred by the qualified taxpayer:
3 (A) Maintenance, including abatement of deferred or inadequate
4 maintenance, and correction of violations unrelated to the seismic
5 retrofit construction.
6 (B) Repair, including repair of earthquake damage.
7 (C) Seismic retrofit construction required by local building
8 codes as a result of addition, repair, building relocation, change
9 of use, or occupancy.
10 (D) Other work or improvement required by local building or
11 planning codes as a result of the intended seismic retrofit
12 construction.
13 (E) Rent reductions or other associated compensation,
14 compliance actions, or other related coordination involving the
15 qualified taxpayer and any other party, including a tenant, insurer,
16 or lender.
17 (F) Replacement of existing building components, including
18 equipment, except as needed to complete the seismic retrofit
19 construction.
20 (G) Bracing or securing nonpermanent building contents.
21 (H) The offset of costs, reimbursements, or other costs
22 transferred from the qualified taxpayers to others.
23 (I) Any amount paid by the qualified taxpayer to the jurisdiction
24 with authority for building code enforcement for issuing the
25 eeft4fieafioti certifications required pursuant tom
26 ofprer�€ subdivision (c).
27 (4) "Qualified taxpayer" means a taxpayer that is an owner of
28 a qualified building located in this state. A taxpayer that owns a
29 proportional share of a qualified building in this state may claim
30 the credit allowed by this section based on the taxpayer's share of
31 the qualified costs.
32 (5) (A) "Seismic retrofit construction" means alteration of a
33 qualified building or its components to substantially mitigate
34 seismic damage. Seismic retrofit construction shall be for work
35 performed voluntarily, and for which qualified costs were paid or
36 incurred, on or after January 1, 2016. Seismic retrofit construction
37 shall include, but not be limited to, the following:
38 (A)
39 (i) Anchoring the structure to the foundation.
40 (B-)
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1 (ii) Bracing cripple walls.
2 (CJ
3 (iii) Bracing hot water heaters.
4 (�}
5 (iv) Installing automatic gas shutoff valves.
6 (E)
7 (v) Repairing or reinforcing the foundation to improve the
8 integrity of the foundation against seismic damage.
9 (Fj
10 (vi) Anchoring fuel storage.
11 (G}
12 (vii) Installing earthquake resistant bracing system for
13 mobilehomes that are registered with the Department of Housing
14 and Community Development.
15 (B) Seismic retrofit construction does not include construction.
16 per formed to bring a building into compliance with local building
17 codes.
18 (c) To be eligible for the credit under this section, the following
19 must shall apply:
20 (1) The qualified taxpayer shall do -bath all of the following:
21 (A) Prior to seismic retrofit construction, obtain certification
22 fi•om the appropriate jurisdiction with local building code
23 enforcement authority that the building is an at -risk property.
24 Upon the request of the Franchise Tax Board, the qualified
25 taxpayer shall provide a coPy of the certification to the Franchise
26 Tax Board.
27 (M
28 (B) Obtain certification from the appropriate jurisdiction with
29 authority for building code enforcement, upon a review of the
30 building, that the completed construction satisfies the definition
31 of seismic retrofit construction. The certification shall identify
32 what part of the completed construction, if any, is not seismic
33 retrofit construction. Upon the request of the Franchise Tax Board,
34 the qualified taxpayer shall provide a copy of the certification to
35 the Franchise Tax Board.
36 (-j
37 (C) Retain for his or her records a copy of the jai ea
38 certifications specified ink subparagraphs (A)
39 and (B).
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AB 428 —8—
1 (2) The jurisdiction with authority for building code enforcement
2 in which a qualified building is located has entered into an
3 agreement with the state to provide certifications pursuant to this
4 section and to not seek reimbursement pursuant to Section 6 of
5 Article XIIIB of the California Constitution for any costs incurred
6 in providing those certifications.
7 (d) (1) The credit amount allowed in subdivision (a) shall be
8 claimed by a qualified taxpayer at the rate of one -fifth of the credit
9 amount for the taxable year in which the credit is allowed, and
10 one -fifth of the credit amount for each of the subsequent four
11 taxable years.
12 (2) In the case where the credit allowed under this section
13 exceeds the "tax," as defined in Section 23036, for a taxable year,
14 the excess credit may be carried over to reduce the "tax" in the
15 following taxable year, and succeeding four taxable years, if
16 necessary, until the credit has been exhausted.
17 (e) For purposes of computing the credit provided by this
18 section, the qualified costs shall be reduced by any grant provided
19 by a public entity for the seismic retrofit construction.
20 (f) This credit shall be in lieu of any other credit or deduction
21 that the qualified taxpayer may otherwise claim pursuant to this
22 part with respect to qualified costs.
23 (g) Section 41 shall not apply to the credit allowed pursuant to
24 this section.
25 (h) This section shall remain in effect only until December 1,
26 2021, and as of that date is repealed.
27 SEC. 3. This act provides for a tax levy within the meaning of
28 Article IV of the Constitution and shall go into immediate effect.
L
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AB 428
Page 1
ASSEMBLY THIRD READING
AB 428 (Nazarian)
As Amended May 21, 2015
Majority vote. Tax levy
Appropriations 17 -0 Gorne7, Bigelow, Bonta,
Calderon, Chang, Daly,
Eggman, Gallagher,
Eduardo Garcia, Gordon,
Holden, Jones, Quirk,
Rendon, Wagner, Weber,
Wood
SUMMARY: Allows a credit equal to 30% of a "qualified taxpayer's" "qualified costs" incurred for
"seismic retrofit construction," as specified. Specifically, this bill:
1) Allows the credit for taxable years beginning on or after January 1, 2016, and before January 1,
2021.
2) Defines a "qualified taxpayer" as an owner of a "qualified building" located in California. A
taxpayer that owns a proportional share of a "qualified building" may clain the credit based on
the taxpayer's share of the "qualified costs."
3) Defines "qualified costs" as costs paid or incurred by the qualified taxpayer for any completed
"seismic retrofit construction" on a "qualified building," including any engineering or
architectural design work necessary to permit or complete the "seismic retrofit construction."
"Qualified costs" shall not include any of the following:
a) Maintenance, including abatement of deferred or inadequate maintenance, and correction of
violations unrelated to the "seismic retrofit construction ";
b) Repair, including repair of earthquake damage;
c) "Seismic retrofit construction" required by local building codes as a result of addition, repair,
building relocation, change of use, or occupancy;
d) Other work or improvement required by local building or planning codes as a result of the
intended "seismic retrofit construction';
e) Rent reductions or other associated compensation, compliance actions, or other related
coordination involving the qualified taxpayer and any other party, including a tenant, insurer,
or lender;
f) Replacement of existing building components, including equipment, except as needed to
complete the "seismic retrofit construction ";
AB 428
Page 2
g) Bracing or securing nonpermanent building contents;
h) The offset of costs, reimbursements, or other costs transferred from the qualified taxpayers to
others; or,
i) Amounts paid to the jurisdiction with authority for building code enforcement for issuing the
certifications required by this bill.
4) Defines "seismic retrofit construction" as alteration of a "qualified building" or its components to
substantially mitigate seismic damage. Seismic retrofit construction shall be for work performed
voluntarily, and for which qualified costs were paid or incurred, on or after January 1, 2016.
Seismic retofit construction shall include the following:
a) Anchoring the structure to the foundation;
b) Bracing cripple walls;
c) Bracing hot water heaters;
d) Installing automatic gas shutoff valves;
e) Repairing or reinforcing the foundation to improve the foundation's integrity against seismic
damage;
f) Anchoring fuel storage; and,
g) Installing an earthquake- resistant bracing system for mobile homes registered with the
Department of Housing and Community Development.
5) Provides that seismic retrofit construction does not include construction pet-formed to bring a
building into compliance with local building codes.
6) Defines a "qualified building" as a building that has been certified as an "at -risk property," as
specified. A qualified building specifically includes a mobile home registered by the Department
of Housing and Community Development.
7) Defiles an "at -risk property" as a building deemed hazardous and in danger of collapse in the
event of a catastrophic earthquake, including soft story buildings, nonductile concrete residential
buildings, and pre -1994 concrete residential buildings.
8) Provides that, to be eligible for the credit, the following must apply:
a) The qualified taxpayer must obtain certification, prior to construction, that the building is an
at -risk property.
b) The qualified taxpayer must obtain certification from the appropriate jurisdiction with
authority for building code enforcement, upon a review of the building, that the completed
construction satisfies the definition of seismic retrofit construction. The certification shall
identify what part of the completed constriction, if any, is not seismic retrofit construction.
Upon request of the Franchise Tax Board (FTB), the qualified taxpayer must provide a copy
of the certification to the FTB.
AB 428
Page 3
c) The jurisdiction with authority for building code enforcement in which a qualified building is
located has entered into an agreement with the state to provide certifications and to not seek
reimbursement for any costs incurred in providing those certifications.
9) Requires the credit amount allowed to be claimed by a qualified taxpayer at the rate of one -fifth
of the credit amount for the taxable year in which the credit is allowed, and one -fifth of the credit
amount for each of the subsequent four taxable years.
10) Provides that, in cases where the credit amount exceeds the taxpayer's tax liability, the excess
credit amount may be carried over to the fallowing taxable year, and succeeding four taxable
years, until the credit has been exhausted.
11) Provides that, for purposes of computing the credit, the qualified costs shall be reduced by any
grant provided by a public entity for the seismic retrofit construction.
12) Provides that this credit shall be in lieu of any other credit or deduction that the qualified
taxpayer may otherwise claim with respect to qualified costs.
13) Allows the credit under both the Personal Income Tax Law and the Corporation Tax Law.
14) Provides that Revenue and Taxation Code (R &TC) Section 41 shall not apply to the credit.
15) Takes immediate effect as a tax levy.
16) Sunsets the credit provisions on December 1, 2021.
FISCAL EFFECT: According to the Assembly Appropriations Committee:
1) Potentially significant General Fund (GF) costs to the FTB to administer the changes to forms
and systems.
2) Estimated GF revenue decreases of $1.4 million, $5.2 million, and $9.1 million in fiscal year
(FY) 2015 -16, FY 2016 -17, and FY 2017 -18, respectively.
COMMENTS:
1) The author has provided the following statement in support of this bill:
The recent earthquakes, which shook Southern California cities [in] 2014, remind
us that an earthquake can strike at any given moment and it is imperative that we
ensure our structures are suitable to withstand a catastrophic earthquake.
According to the Southern California Earthquake Center, CalTornia has a 99.7%
chance of having a magnitude 6.7 or larger earthquake during the next 30 years,
and the likelihood of an even more powerfid quake of magnitude 7.5 or greater in
the next 30 years is 46 %. It is imperative that we take every precaution to make
sure that human life and property is saved in the event of a catastrophic
earthquake. This measure will improve California's resilience against
earthquakes, saving the public money that would otherwise have been required for
disaster relief.
2) Revenue and Taxation Committee Comments:
AB 428
Page 4
a) nat would this bill do? This bill would allow a credit equal to 30% of a qualified taxpayer's
qualified costs incurred for seismic retrofit construction. According to the United States
Geological Survey, there is a 99.7% chance that a major earthquake of 6.7 in scale will strike
California in the next 30 years. This bill's tax credit is designed to lower the overall cost for
property owners to improve the seismic safety of their buildings. Proponents note that such
action, in turn, could save countless lives in the event of a catastrophic earthquake, and
would reduce the demand for state and local emergency services by hopefully minimizing
structural damage. Older concrete structures are particularly vulnerable to earthquake
damage; last year, the author noted that recent research has identified 1,500 concrete
buildings that are seismically vulnerable in the Los Angeles area alone.
b) R&TC Section 41 shall not apply: On September 29, 2014, Governor Brown signed into law
SB 1335 (Leno), Chapter 845, Statutes of 2014, which added R &TC Section 41. SB 1335
recognized that the Legislature should apply the same level of review used for government
spending programs to tax preference programs, including tax credits. Thus, R &TC Section
41 requires any bill introduced on or after January 1, 2015, that allows a new credit to
contain specific goals, purposes, and objectives that the tax credit will achieve. In addition,
R &TC Section 41 requies detailed performance indicators for the Legislature to use when
measuring whether the tax credit meets the goals, purposes, and objectives so- identified.
The present bill provides that R &TC Section 41 shall not apply to this credit. The
Legislature may wish to consider the appropriateness of this R &TC Section 41 exemption.
Critics of an R &TC Section 41 exemption might argue that the exemption exacerbates one of
the primary problems inherent in crafting tax expenditure measures — namely, it is often
unclear what objectives the Legislature is aiming to achieve.
Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319 -2098 FN: 0000674