BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                   AB 469|
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                                 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





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          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  







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             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. 







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          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  







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          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,  







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            Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran,  
            Villines
          NO VOTE RECORDED:  Torres


          DLW:mw  8/19/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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