BILL ANALYSIS
AB 469
Page 1
GOVERNOR'S VETO
AB 469 (Eng)
As Amended August 17, 2009
2/3 vote
-----------------------------------------------------------------
|ASSEMBLY: |49-30|(May 26, 2009) |SENATE: |22-14|(August 31, |
| | | | | |2009) |
-----------------------------------------------------------------
-----------------------------------------------------------------
|ASSEMBLY: |47-30|(September 2, | | | |
| | |2009) | | | |
-----------------------------------------------------------------
Original Committee Reference: REV. & TAX.
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.
The Senate amendments :
1) Provide that any person required to file a return, that
is not required to report QUT, shall designate a "0" on the
space provided on the return for use tax.
2) Provide that the estimated amount of use tax due (as
reflected in the use tax table) shall be based on
California adjusted gross income (AGI), instead of
California "taxable" income.
3) Add coauthors.
EXISTING LAW :
AB 469
Page 2
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
sales 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).
AS PASSED BY THE ASSEMBLY , this bill:
1)Provided that, for "one or more single nonbusiness purchases
of individual items" of 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) Specified that, for one or more single nonbusiness
AB 469
Page 3
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
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) Specified 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.
3) Provided 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. Provided 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) Specified 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) Applied to purchases of TPP made on or after January 1,
2010, in taxable years beginning on or after January 1,
2010.
AB 469
Page 4
6) Made other conforming changes to the Revenue and
Taxation Code.
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 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:
AB 469
Page 5
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 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 AGI.
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
AB 469
Page 6
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.
GOVERNOR'S VETO MESSAGE :
"I have vetoed a similar measure before. My concerns with the
bill remain the same. This bill exposes individual taxpayers to
additional recordkeeping and confusion about a tax that few
Californians understand and even fewer track for tax purposes."
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0003387