BILL ANALYSIS
AB 469
Page 1
ASSEMBLY THIRD READING
AB 469 (Eng)
As Amended April 2, 2009
Majority vote
REVENUE & TAXATION 6-2 APPROPRIATIONS 11-5
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|Ayes:|Charles Calderon, Beall, |Ayes:|De Leon, Ammiano, Charles |
| |Coto, Ma, Portantino, | |Calderon, Davis, |
| |Fong | |Krekorian, Hall, John A. |
| | | |Perez, Price, Skinner, |
| | | |Solorio, Torlakson |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|DeVore, Nielsen |Nays:|Nielsen, Duvall, Harkey, |
| | | |Miller, Audra Strickland |
| | | | |
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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
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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
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 :
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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.
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 : 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."
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
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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 [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.
Committee Staff Comments:
1) 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.
2) 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.
3) 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.
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Prior legislation:
1) 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.
2) AB 969 (Eng) of 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."
3) AB 1957 (Eng) of 2008 would have also replaced the
election with a mandatory reporting requirement. AB 1957
failed in the Senate Committee on Revenue and Taxation.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0000683