BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 469| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 469 Author: Eng (D), et al Amended: 8/17/09 in Senate Vote: 21 SENATE REVENUE & TAXATION COMMITTEE : 5-2, 7/8/09 AYES: Wolk, Alquist, Florez, Padilla, Wiggins NOES: Walters, Ashburn NO VOTE RECORDED: Runner SENATE APPROPRIATIONS COMMITTEE : 8-3, 8/17/09 AYES: Kehoe, Corbett, Hancock, Leno, Oropeza, Price, Wolk, Yee NOES: Runner, Walters, Wyland NO VOTE RECORDED: Cox, Denham ASSEMBLY FLOOR : 49-30, 5/26/09 - See last page for vote SUBJECT : Sales and use taxes SOURCE : Board of Equalization DIGEST : This bill 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 Law to report and remit the QUT on a return. ANALYSIS : CONTINUED AB 469 Page 2 Existing law: 1. Imposes a sales tax on retailers for the privilege of selling tangible personal property (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 the Board of Equalization (BOE). 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 Sales and Use Tax (SUT) Law, the California Constitution, the Bradley-Burns Uniform Local SUT 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. B. The estimated amount of use tax due based on the person's California adjusted gross income as reflected in the use tax table shown in the accompanying instructions of the return. 2. 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 AB 469 Page 3 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 Transactions and Use Tax Law, that has not been paid to a retailer holding a seller's permit or certificate of registration-use tax. 3. 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 BOE as a cigarette consumer, a tobacco products consumer, or a cigarette and tobacco products consumer. 4. 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. 5. 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. 6. Applies to purchases of TPP made on or after January 1, 2010, in taxable years beginning on or after January 1, 2010. 7. Makes other conforming changes to the Revenue and Taxation Code. Prior Legislation 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. AB 469 Page 4 AB 969 (Eng), 2007-08 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." AB 1957 (Eng), 2007-08 Session, would have also replaced the election with a mandatory reporting requirement. The bill failed in the Senate Revenue and Taxation Committee. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/19/09) Board of Equalization (source) American Federation of State, County and Municipal Employees California Association of School Business Officials California Immigrant Policy Center California Labor Federation California Professional Firefighters California Rural Legal Assistance Foundation California School Employees Association California State Association of Counties California Public Interest Research Group California Tax Reform Association City of Alhambra Fire Department Cities of San Gabriel and San Marino Faculty Association of California Community Colleges League of California Cities Peace Officers Research Association of California San Marino Firefighters Association The Advocacy Respect Commitment of California United Firefighters of Los Angeles City ARGUMENTS IN SUPPORT : The author states, "According to AB 469 Page 5 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 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." ASSEMBLY FLOOR : AYES: Ammiano, Arambula, Beall, Block, Blumenfield, Brownley, Buchanan, Caballero, Charles Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi, Hernandez, Hill, Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal, Ma, Mendoza, Monning, Nava, John A. Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas, Saldana, Skinner, Solorio, Swanson, Torlakson, Torrico, Yamada, Bass NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill, Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson, Fletcher, Fuller, Gaines, Garrick, Gilmore, Hagman, Harkey, Huber, Jeffries, Knight, Logue, Miller, Nestande, AB 469 Page 6 Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran, Villines NO VOTE RECORDED: Torres DLW:mw 8/19/09 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****