BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 469
                                                                  Page  1

          Date of Hearing:   May 13, 2009

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Kevin De Leon, Chair

                      AB 469 (Eng) - As Amended:  April 2, 2009 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            6-2

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill strengthens current provisions related to a taxpayers'  
          obligation to declare unpaid use tax obligations on their income  
          tax returns. Specifically, the bill:

          1)States that taxpayers with unpaid use tax obligations from the  
            preceding year  shall  report and remit the amount owed on their  
            income tax return. Current law states that taxpayers  may  
             report and pay such taxes owed.

          2)For small and moderate sized purchases, allows individuals  
            making nonbusiness purchases to base their use tax liabilities  
            on a table that shows estimated use tax liabilities for  
            various levels of household income. Individual purchases of  
            more than $1,000 would have to be reported separately.

          3)Applies to purchases made after January 1, 2010. 

           FISCAL EFFECT  

          1)The BOE indicates that the bill will increase annual use tax  
            collections by about $14 million beginning in 2010-11, of  
            which $9 million would accrue to the General Fund and $5  
            million would accrue to special and local funds.

          2)FTB indicates that inclusion of the table in its instructional  
            booklet could be accomplished within existing resources.  

           COMMENTS  

           1)Rationale  . This bill, sponsored by the BOE, is intended to  








                                                                  AB 469
                                                                  Page  2

            raise public awareness of the California use tax and increase  
            compliance among the growing number of California consumers  
            that use electronic commerce. The author asserts that, by  
            increasing compliance and capturing a portion of unreported  
            tax revenue, the state can avoid deeper cuts in core services.
           
           2)Background  . The use tax is levied at the same rate as the  
            sales tax on items purchased for use in California which are  
            not subject to the sales tax, either because they were not  
            purchased from a licensed retailer or they were purchased from  
            an out-of-state source with no nexus in California. With the  
            exception of vehicles, vessels, and aircraft (which are  
            subject to registration and thus can be identified by BOE) the  
            compliance rate for use tax payments is relatively low. BOE  
            estimates that total uncollected use taxes is over $1 billion,  
            of which about $400 million is attributed to households. A  
            major portion of the underreporting is believed to be related  
            to the growing amount of internet and purchases from  
            out-of-state retailers, which, under federal law, are not  
            required to collect use taxes and remit them to the state.

            Legislation enacted in 2003 required the FTB to revise the  
            personal income tax and corporation tax returns to add a  
            separate line for use tax reporting.  This requirement is  
            scheduled to sunset on December 31, 2009. Tax payments  
            reported and remitted under this program have risen from $2.8  
            million in 2004 to $9 million by 2007. However, the amount of  
            under reporting by households of use tax obligations remains  
            substantial.

              3)   Previous legislation  . This bill is similar to AB 1957  
               (Eng), introduced in the 2008 legislative session.  AB 1957  
               failed in the Senate Committee on Revenue and Taxation.  
           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081