BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 469 - Eng
Amended: June 18, 2009
Hearing: June 24, 2009 Fiscal: Yes
SUMMARY: Sales and Use taxes: qualified use tax payment
EXISTING LAW imposes a sales tax on retailers for the
privilege of selling tangible personal property without a
specific exemption. The tax is based upon the gross
receipts from the sale of tangible personal property in
this state.
A use tax is imposed on the storage, use, or other
consumption in this state of tangible personal property
purchased from any retailer for storage, use, or other
consumption in this state without a specific exemption.
Existing law allows a person to make an irrevocable
choice to report qualified use tax on that person's income
tax return.
The Franchise Tax Board (FTB) is required to include a
space on income tax returns to allow a person to report and
remit qualified use tax to the FTB. Then, the FTB is
required to remit the collected qualified use tax to the
Board of Equalization.
THIS BILL removes the option to report and pay
qualified use tax on an acceptable tax return and requires
any taxpayer to report and remit the qualified use tax on a
tax return if they have not reported to nor paid the
qualified use tax in accordance to the Sales and Use Tax
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Law.
For "one or more single nonbusiness purchases of
individual items" of tangible personal property with a
sales price of less than $1000, the term "qualified use
tax" means either of the following:
a. the use tax is imposed under the Sales
and Use Tax Law, the California Constitution,
the Bradley-Burns Uniform Local Sales and Use
Tax Law, or the Transactions and Use Tax 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
instructions of the tax return.
This bill also stipulates that for one or more single
nonbusiness purchases of individual items of tangible
personal property with a sales price of $1,000 or more, or
any tangible personal property purchased for use in a trade
or business, qualified use tax means the amount of use tax
imposed under the Sales and Use Tax Law, the California
Constitution, the Bradley-Burns Uniform Local Sales and Use
Tax Law, or the Transactions and Use Tax Law, that has not
been paid to a retailer holding a seller's permit or
certificate of registration-use tax.
A qualified use tax does not include taxes imposed on:
purchase of cigarettes, tobacco products, or cigarettes and
tobacco products for which the purchaser is registered with
the Board of Equalization as a cigarette consumer, a
tobacco products consumer, or a cigarette and tobacco
products consumer.
A person who is required to report the qualified use
tax on an acceptable tax return shall report and remit the
qualified use tax by reporting the amount due based on all
taxable purchases of tangible personal property made during
the taxable year for which the return is required to be
filed.
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A person who has made one or more single nonbusiness
purchase of individual items of tangible personal property,
each with a sales price of less than $1000, may satisfy
their tax liability for those purchases by using the use
tax tables in the instructions of the acceptable tax
return.
With respect to the purchases single nonbusiness
purchases of individual items of tangible personal property
that are less than the sales price of $1,000, the Board of
Equalization shall be prevented from making any
understatement determination against any person that uses
the use tax table in accordance with the instructions of
the tax return.
AB 469 applies to purchases of tangible personal
property make on or after January 1, 2010, in taxable years
beginning on or after January 1, 2010.
FISCAL EFFECT:
According to the BOE:
The Minnesota House of Representatives report indicates
that, on average, the average participation rate in states
that have look-up tables for estimating use tax liability
is 1.63 percent, and the average amount of use tax
collected from those who participate is $57. (Currently,
the participation rate in California without a look up
table is 0.2%). About 14.8 million individual income tax
returns are filed in California annually. Assuming that
241,240 individual income tax returns (14.8 million x
1.63%) would include an average of $57 in use tax,
approximately $13.75 million in use tax revenues would be
collected as follows:
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State General Fund (6%)
$9,207,589
State Fiscal Recovery Fund (1/4%)
383,650
Local Revenue Fund (1/2%)
767,299
Local Public Safety Fund (1/2%)
767,299
Local and County (1%)
1,534,598
Special districts (.71%)
1,089,565
Total
$13,750,000
COMMENTS:
A. Purpose of the Bill
According to the author's office:
The use tax was established in 1935 to protect California
retailers from out-of-state and mail-order vendors, who
generally are not registered with the Board and therefore
do not collect California sales tax.
Currently, if consumers fail to report their use tax
liability directly to the Board, they can "elect" to report
this liability on their income tax returns. The term
"elect," however, is misleading and adds to the
misconception that reporting use tax liabilities on income
tax returns is optional.
By clarifying that consumers are required to report use tax
liabilities on their income tax returns after failing to
pay the BOE directly, this measure will enable both tax
practitioners and consumers to have a better understanding
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of their obligation to properly report use tax liabilities.
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. Further, it would preserve vital
state programs without proposing new tax burdens on
business and working families.
B. Technical Amendment
The author will change the table income measurements from
taxable income to adjusted gross income. The change is on
page 3, line 24 to change the word "taxable" to "adjusted
gross."
C. Extra Lines do not equal more money
The BOE's costs associated with this measure would be
commensurate with the number of additional returns that
would be filed with FTB (currently the BOE incurs personnel
costs for collecting the unpaid use tax reported on the FTB
returns, refunding use tax reported in error, answering
questions from taxpayers about the use tax, and allocating
the local and district taxes included in the tax reported
on the FTB returns). However, the BOE anticipates that the
additional revenue would substantially exceed the
additional costs.
Since the line was incorporated into the FTB returns, the
BOE has reimbursed FTB for associated costs, as shown
below.
--------------------------
|2003-04 | $1,007,316|
| | |
|-----------+--------------|
|2004-05 | 237,038|
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| | |
|-----------+--------------|
|2005-06 | 239,458|
| | |
|-----------+--------------|
|2006-07 | 198,649*|
| | |
|-----------+--------------|
|2007-08 |118,859* |
| | |
--------------------------
D.The optional use tax table would provide simplicity
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. This
bill would provide that the use tax table is in the income
tax form; the table will be a suggestion for consumers in
the event they do not know exactly how much use tax is
owed.
Of the 38 states that impose both an income tax and a use
tax on purchases of tangible personal property, 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 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.
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The committee may wish to suggest to the BOE that consumers
must use either receipts from purchased items or the use
tax tables so that consumers do not think there is an
option of not reporting any use tax on the form. If the
consumer has no use tax liability, he or she would be
required to report "0."
E.What would the use tax table look like?
The bill does not incorporate a specific use tax table that
taxpayers could use to determine their use tax liability if
they opted to do so. The BOE would therefore determine the
applicable use tax amount that is commensurate with varying
levels of taxable income, and the table would likely be
similar to other states' tables. To illustrate five other
states' tables, a taxpayer that has an annual adjusted
gross income (AGI) or taxable income (TI) of $50,000 with
no individual taxable purchases of $1,000 or more, the use
tax liability would be:
State Rate of Tax Use Tax
New York (AGI) 7% to 8.75% $21
North Carolina (TI) 6.75% to 7.25%33.75
Oklahoma (AGI) 4.5% to 9% 28
Massachusetts (AGI) 5% 25
Michigan (AGI) 6% 31
F. The Use Tax is Confusing? but does not have to be
The Governor vetoed AB 969, a similar bill in 2008. In his
veto message, the Governor cited the following:
"Although increasing use tax reporting is desirable, I
have concerns that the effective date of January 1,
2008 is too soon for taxpayers to compile adequate
records of their purchases that are subject to the use
tax for calendar year 2007. Further, I would like to
see a plan to better educate taxpayers on the use tax,
as I suspect that many taxpayers have little knowledge
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of the tax and may unknowingly fail to pay it."
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).
The BOE has agreed to update the instructions in the income
tax form that accompanies the line on the income tax return
to clarify the meaning of the use tax and the amount owed.
The operative date of this bill is prospective for January
1, 2010 to report use tax on April 15, 2011; therefore, the
consumers have entire year in advance to collect receipts
and remit the use tax. The BOE and the FTB will provide
information on their websites and in the tax booklets
related to use tax.
Support and Opposition
Support:
Board of Equalization (Sponsor)
League of California Cities
California Association of School Business
Officials
California Professional Firefighters (CPF)
California Rural Legal Assistance Foundation
California School Employees Association (CSEA)
California State Association of Counties (CSAC)
California Public Interest Research Group
(CALPIRG)
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American Federation of State, County, and
Municipal Employees
Alhambra Fire Department
City of San Gabriel
Peace Officers Research Association of
California (PORAC)
The Advocacy Respect Commitment (Arc) of
California
Oppose:None Received
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Consultant: Gayle Miller & Gina Le