SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2332
AUTHOR: Monning
VERSION: 4/12/12
CONSULTANT: Grinnell
HEARING: 6/27/12
FISCAL: Yes
TAX LEVY: Yes
DISASTER LOSSES IN SANTA CRUZ COUNTY
Allows disaster loss treatment caused by severe storms in Santa Cruz County
Background and Existing Law
Disaster losses result from fires, storms, floods or other natural events proclaimed a disaster by the President. Disaster losses are the amounts not compensated by insurance or other means. Federal law, which California conforms to,
only allows disaster loss deductions for personal income taxes that exceed $100
per taxpayer and 10% of their adjusted gross income for the year. Current state
and federal law allows taxpayers to deduct them in the year the loss occurs or in
the preceding year by filing an amended return, but only when the President declares a disaster.
Starting with the forest fires in 1985, and approximately 49 times thereafter for
various disasters, the Legislature enacted measures whenever the Governor declares a disaster that provides treatment identical to Presidentially declared disasters. These measures allow affected taxpayer to file amended returns, carryforward 100% of excess disaster losses for fifteen years, and allow taxpayers to
apply losses in the previous taxable year before applying them to taxes in the
current taxable year.
Proposed Law
Assembly Bill 2332 allows taxpayers in the County of Santa Cruz that suffered
disaster losses as a result of the severe storms that occurred in November, 2011 to
file an amended return by October 15, 2012 for the 2011 taxable year to deduct
the loss and reduce prior year tax liability. The measure provides that these losses shall not be suspended, deferred, reduced, or otherwise diminished unless
provided otherwise.
AB 2332 – 4/12/12 -- Page 2
State Revenue Impact
According to the Franchise Tax Board (FTB), AB 2332 results in revenue losses of
$2,000 in 2011-12, and revenue gains of $1,000 in 2012-13 and 2013-14.
Comments
1. Purpose of the bill. According to the author, “Between March 15 and 27, 2011,
California was struck by a storm that brought snow, heavy rain, high winds,
flooding and flow of debris and mud, destroying and damaging public facilities
and private property throughout the state. Statewide there was more than $50
million in damages and Santa Cruz County sustained $15 million in damage, 30
percent of the statewide total. In April 2011, Governor Brown issued an Emergency Proclamation regarding this and requested the federal government to declare the event a major disaster. A Presidential Declaration of a Major Disaster
by Federal Emergency Management Agency (FEMA) would pay for 75% of the
recovery costs, offsetting the recovery costs incurred by the effected communities
and local governments that are struggling to address the damage with extremely
limited fiscal resources. Unfortunately, California’s request to FEMA that the
March 2011 storm be declared a major disaster was denied, along with the state’s
subsequent appeal of this decision. In addition, because the Governor did not
invoke the California Disaster Assistance Act (CDAA), state financial assistance
was not made available to counties for disaster recovery and economy recovery
efforts. The residents of Santa Cruz County have been struggling to make repairs and recover from the severe March 2011 storm and this measure is intended to provide a small amount of financial relief.”
2. When disaster strikes. One of the universe’s most infallible cause and effect
relationships exists between natural disasters and subsequent legislation affording tax benefits to disaster-affected taxpayers. One of the traditional three parts
of disaster relief bills is excess disaster loss treatment, which allows taxpayers to
deduct disaster losses in the year the loss occurs or in the preceding year by filing an amended return. However, the Legislature allowed all taxpayers to carry forward net operating losses (NOLs) for 20 years, effective in the 2009 taxable
year, and to carry back losses for two years, regardless of whether they were affected by disasters (AB 1452, Committee on Budget, 2008). With carry backs,
taxpayers may amend returns in the past two taxable years to apply losses from
the current taxable year, generating a refund. AB 1452 pro-vided for two-year
carrybacks according to the following restrictions:
 For NOLs generated in the 2011 taxable year, taxpayers may carry back
50% of the loss to the 2009 and 2010 taxable years.
 For NOLs generated in the 2012 taxable year, taxpayers may carry back,
75% of the loss to the 2010 and 2011 taxable years.
 For NOLs generated in the 2013 taxable year and thereafter, taxpayers
may carry back 100% of the loss to the 2011 taxable year and thereafter.
AB 2332 – 4/12/12 -- Page 3
The Legislature delayed the effective date for carry backs for two years when it
suspended all net operating losses for the 2010 and 2011 taxable years (SB 858,
Committee on Budget, 2010). As such, all taxpayers may begin carrying back
some losses beginning in the 2013 taxable year, and all of them in 2015, so that
the general law provides better treatment for taxpayers than specific disaster loss
statutes.
However, because taxpayers must apply net operating losses to offset income in
the current taxable year, specific legislation is needed now to allow disasteraffected taxpayers to use losses to reduce previous year’s taxes first, thereby generating a quick refund of taxes previously paid. Additionally, special legislation
is needed to allow disaster affected taxpayers a six month extension to do so.
Assembly Actions
Assembly Revenue and Taxation Committee:
Assembly Appropriations Committee:
Assembly Floor:
8-0
17-0
70-0
Support and Opposition (6/20/12)
Support: County of Santa Cruz
Opposition: Unknown