BILL ANALYSIS                                                                                                                                                                                                    





                                                                  AB 469

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          GOVERNOR'S VETO
          AB 469 (Eng)
          As Amended  August 17, 2009
          2/3 vote

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          |ASSEMBLY:  |49-30|(May 26, 2009)  |SENATE: |22-14|(August 31,    |
          |           |     |                |        |     |2009)          |
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          |ASSEMBLY:  |47-30|(September 2,   |        |     |               |
          |           |     |2009)           |        |     |               |
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           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  :  










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             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  










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               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.  












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             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:










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             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  










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               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 

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