BILL ANALYSIS
AB 469
Page 1
Date of Hearing: April 27, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 469 (Eng) - As Amended: April 2, 2009
Majority vote. Fiscal committee.
SUBJECT : Sales and use taxes: qualified use tax payment
SUMMARY : Eliminates the election to report and pay qualified
use tax (QUT) on an acceptable tax return (Return), and instead,
requires any taxpayer who fails to report and pay QUT pursuant
to the Sales and Use Tax (SUT) Law to report and remit the QUT
on a Return. Specifically, this bill :
1)Provides that, for "one or more single nonbusiness purchases
of individual items" of tangible personal property (TPP) with
a sales price of less than $1,000, the term QUT means either
of the following:
a) The use tax imposed under the SUT Law, the California
Constitution, the Bradley-Burns Uniform Local SUT Law, or
the Transactions and Use Tax (TUT) Law, that has not been
paid to a retailer holding a seller's permit or certificate
of registration-use tax; or,
b) The estimated amount of use tax due based on the
person's California taxable income as reflected in the use
tax table shown in the accompanying instructions of the
Return.
1) Specifies that, for one or more single nonbusiness
purchases of individual items of TPP with a sales price of
$1,000 or more, or for any TPP purchased for use in a trade
or business, QUT means the amount of use tax imposed under
the SUT Law, the California Constitution, the Bradley-Burns
Uniform Local SUT Law, or the TUT Law, that has not been
paid to a retailer holding a seller's permit or certificate
of registration-use tax.
2) Specifies that QUT does not include use tax imposed on a
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purchase of cigarettes, tobacco products, or cigarettes and
tobacco products for which the purchaser is registered with
the Board of Equalization (BOE) as a cigarette consumer, a
tobacco products consumer, or a cigarette and tobacco
products consumer.
3) Provides that a person required to report QUT on a
Return shall report and remit the QUT by reporting the
amount due based on all taxable purchases of TPP made
during the taxable year for which the Return is required to
be filed. Provides that a person that has made one or more
single nonbusiness purchases of individual items of TPP
each with a sales price of less than $1,000 may satisfy
his/her tax liability for those purchases by using the use
tax table shown in the accompanying instructions of the
Return.
4) Specifies that, with respect to one or more single
nonbusiness purchases of individual items of TPP with a
sales price of less than $1,000, BOE shall be precluded
from making any understatement determination against any
person that uses the use tax table in accordance with the
accompanying instructions.
5) Applies to purchases of TPP made on or after January 1,
2010, in taxable years beginning on or after January 1,
2010.
6) Makes other conforming changes to the Revenue and
Taxation Code.
EXISTING LAW :
1) Imposes a sales tax on retailers for the privilege of
selling TPP, absent a specific exemption. The tax is based
upon the gross receipts from the sale of TPP in this state.
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2) Imposes a use tax on the storage, use, or other
consumption in this state of TPP purchased from any
retailer for storage, use, or other consumption in this
state, absent a specific exemption.
3) Authorizes a person to make an irrevocable election to
report QUT on that person's income tax return.
4) Requires the Franchise Tax Board (FTB) to include space
on income tax returns to allow a person to report and remit
QUT to the FTB. The FTB, in turn, is required to remit the
QUT collected to BOE.
FISCAL EFFECT : BOE estimates that this bill would result in the
collection of approximately $13.75 million in use tax revenues.
FTB, in turn, notes that this bill would not impact state income
tax revenues.
COMMENTS :
1) The author states, "According to the BOE, California
loses over $1 Billion every year as a result of unreported
use tax from the purchase of electronic and mail-order
goods. By increasing compliance and capturing a portion of
that unreported tax revenue, we could help prevent the
unnecessary elimination or reduction of core state
services, such as education, public transportation, and
assistance for the blind, disabled and elderly."
2) BOE, which is sponsoring this bill, states:
While the use tax law was enacted in 1935, the most costly
area of tax noncompliance consists of purchases made from
out-of-state vendors without payment of use tax - [BOE] has
estimated that California is losing over one billion
dollars annually attributable to these purchases. Closing
this tax gap is a priority of [BOE's], and we believe this
measure brings us one step closer by strengthening the laws
applicable to the reporting of use tax. Instead of having
an option to either report to [BOE] or to [FTB], as the law
currently provides, this measure would require consumers
(including businesses that aren't already registered with
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[BOE]) to report their use tax obligations on their [FTB]
income tax return, if they failed to report the tax to
[BOE] during the preceding year. With these changes, we
hope that we can achieve a greater level of compliance from
taxpayers, as well as enhanced cooperation from tax
practitioners, by making it perfectly clear that the use
tax is required to be paid on untaxed purchases made from
out-of-state retailers.
3) BOE also notes:
a) "In an effort to increase the public's awareness of the
use tax and to encourage voluntary compliance in reporting
the use tax, legislation enacted in 2003 (SB 1009, Ch.
718), required the FTB to revise the personal income tax
and corporations tax returns to add a separate line for use
tax reporting. While the use tax law was enacted in 1935,
this was the first time a line to report use tax appeared
on the state's income tax returns. This legislation
allowed consumers to elect to report use tax on their
income tax returns for purchases made on or after January
1, 2003, and through December 31, 2009, as an alternative
to reporting the tax to the [BOE] (certain consumers and
retailers already registered with the [BOE], however, may
not use this alternative)."
b) "In an FTB analysis of individual returns from tax year
2008, FTB found that taxpayers who self-prepared their
returns were three times more likely to declare use tax
than those who used a tax practitioner. Nearly 64 percent
of all individual returns FTB received were
practitioner-prepared. Yet only 23 percent of all use tax
declarations were made on practitioner-prepared returns.
While the dollar amount of use tax reported on the FTB
returns is increasing (in 2004, use tax of $2.8 million was
reported, in 2005, $4.6 million, in 2006 and 2007, $5.5
million each year was reported, and in 2008, $9 million was
reported), voluntary compliance is still very low. [BOE]
has estimated that the total annual dollar amount of
unreported use tax is over $1.1 billion (unreported use tax
by consumers is estimated to be over $400 million, and for
businesses not registered with [BOE], over $600 million)."
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c) "One of the reasons that practitioner-prepared returns
do not reflect use tax is that some tax practitioners
believe that they can disregard their ethical obligation to
inquire about a client's use tax obligation when preparing
a client's income tax returns, since the income tax return
form and instructions simply provide for an election to
report the tax. This bill is seeking to dispel this
misconception by eliminating the election to report on the
FTB return. Instead, the bill would specify that the tax
is required to be reported on that return if the purchaser
failed to already report the tax to [BOE]."
d) "It is anticipated that these proposed changes would
enable tax practitioners, consumers, and business entities
not registered with the [BOE] to have a better
understanding of their obligation to properly report use
tax liabilities. In return, the competitive disadvantage
in-state retailers have compared to out-of-state retailers
that are not required to collect the California use tax may
be improved."
e) "A use tax table would make compliance with reporting
use tax more convenient for taxpayers who know they have
made untaxed purchases but have not kept receipts from
those purchases. For individual purchases of less than
$1,000, the table would reflect the amount of use tax due
based on the person's California taxable income as shown in
the instructions in the state income tax booklet. For
individual purchases of $1,000 or more, taxpayers would be
required to report the actual amount of use tax due."
f) "Of the 38 states that impose both an income tax and a
use tax on purchases of [TPP], 21 states provide for
individuals to report their use tax obligations on their
income tax return. Nine of those states incorporate a use
tax table, and according to a November 2007 report prepared
by the Research Department of the Minnesota House of
Representatives, Use Tax Collection on Income Tax Returns
in Other States, many of those states that allow purchasers
to report their use tax obligations using the tables have
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higher participation rates. Although those states collect
less use tax per return than do states without lookup
tables, the greater participation rate in those states
overwhelms the effect of lower average use tax reporting
per return."
4) Proponents state, "This legislation is of growing
importance in an economy where purchases increasingly occur
on the Internet - where sales taxes are not collected, but
use taxes, of the same amount, are owed by the purchaser.
Improved collection of these revenues is important for
funding vital state and local programs."
5) FTB notes that, "Under this bill, administrative
functions regarding the use tax would remain divided
between FTB and BOE. FTB would process and collect use tax
reported on the Personal Income Tax return, while BOE would
retain responsibilities for auditing, collecting, and
processing claims for refund of the use tax."
6) Committee Staff Comments
a) A timely measure : With the increased SUT rate that
became effective on April 1 of this year, there are
concerns that some consumers may seek to avoid their SUT
obligations by purchasing TPP from out-of-state retailers
that are not required to collect California's use tax -
further increasing the already substantial tax gap.
Moreover, many consumers simply believe, incorrectly, that
SUT does not apply to any purchase made over the Internet.
This bill would make it clear, to consumers and tax
practitioners alike, that paying use tax is not elective.
b) What would the use tax table look like? : This bill does
not incorporate a specific use tax table for taxpayers to
use in determining their use tax liability. BOE has stated
that it would determine the applicable use tax amount that
is commensurate with varying levels of taxable income, and
that the table would likely be similar to those used by
other states.
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c) Greater compliance at the expense of accuracy : Under
this measure, as long as a person's use tax liability arose
from single non-business purchases of individual items of
TPP sold for less than $1,000, the individual could satisfy
his/her use tax liability using the contemplated table.
They could apparently do so without regard to the number of
such individual purchases, as the liability would be based
on their taxable income.
a) Prior legislative efforts :
i) SB 1009 (Alpert), Chapter 718, Statutes of 2003,
added the election for taxpayers to report and pay use
tax on their state income tax returns.
ii) AB 969 (Eng), introduced in the 2007 legislative
session, would have replaced the current option for a
taxpayer to report use tax on the state income tax return
with a requirement to report use tax. AB 969 was vetoed
by the Governor, who noted his concern that the bill's
effective date was too soon for taxpayers to compile
adequate records of purchases subject to use tax. He
also stated, "I would like to see a plan to better
educate taxpayers on the use tax, as I suspect that many
taxpayers have little knowledge of the tax and may
unknowingly fail to pay it."
iii) AB 1957 (Eng), introduced in the 2008 legislative
session, would have also replaced the election with a
mandatory reporting requirement. AB 1957 failed in the
Senate Committee on Revenue and Taxation.
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization (sponsor)
California Professional Firefighters
California School Employees Association, AFL-CIO
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California State Association of Counties
CALPIRG
League of California Cities
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098