BILL ANALYSIS
AB 1265
Page 1
Date of Hearing: May 18, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 1265 (Ma) - As Introduced: February 27, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: consumer status: qualified
itinerant vendors
SUMMARY : Provides that a "qualified itinerant vendor" (QIV) is
a consumer, and not a retailer, of tangible personal property
(TPP) the QIV owns, except alcoholic beverages. Specifically,
this bill :
1) Provides that a person is a QIV when all of the
following apply:
a) The person was a member of the United States Armed
Forces, who received an honorable discharge or a release
from active duty under honorable conditions;
b) The person is unable to obtain a livelihood by manual
labor due to a service-connected disability;
c) For the purposes of selling TPP, the person is a sole
proprietor with no employees; and,
d) The person has no "permanent place of business" in this
state.
2) Defines "permanent place of business" as "any building
or other permanently affixed structure, including a
residence, that is used in whole or in part for the purpose
of making sales of, or taking orders and arranging for
shipment of, [TPP]." Provides that a permanent place of
business does not include any building or other permanently
affixed structure, including a residence, used for any of
the following:
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a) The storage of TPP; and,
b) The cleaning or storage of equipment or other property
used in connection with the manufacture or sale of TPP.
3) Provides that the preferential classification shall not
apply to a person:
a) Engaged in the business of serving meals, food, or
drinks to a customer at a location owned, rented, or
otherwise supplied by the customer (i.e., a caterer); or,
b) Operating a vending machine.
4) Takes immediate effect as a tax levy, but becomes
operative on the first day of the first calendar quarter
beginning more than 90 days after its effective date.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
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)Designates the following entities as consumers, and not
retailers, of specified TPP they use or furnish in the
performance of their professional services:
a) Licensed optometrists, physicians, pharmacists, and
registered dispensing opticians;
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b) Licensed veterinarians;
c) Licensed chiropractors;
d) Specified garment cleaning establishments that received
no more than 20% of their total gross receipts from the
alteration of garments during the preceding calendar year;
e) Licensed hearing aid dispensers; and,
f) Producers of X-ray films or photographs used to diagnose
human medical or dental conditions.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
this bill would reduce state and local revenues by $24,855
annually.
COMMENTS :
1)The author states:
AB 1265 represents one small step towards recognizing our
disabled veterans who have already made, or are making the
transition from military to civilian employment. Enactment
of this bill would assist in this transition in two ways:
(1) by making the law specific with regard to sales tax
obligations of qualifying disabled veterans, and (2) by
simplifying reporting requirements that can be unduly
burdensome for these small businesses.
By placing qualifying itinerant veterans in the 'consumer'
status for sales and use tax purposes, the veterans would
not be required to obtain a seller's permit, file sales tax
returns, or remit sales tax on [their] sales . . . .
Instead, the veterans would simply pay tax up front on
their purchases of the goods they intend to sell.
2)BOE Chairwoman Betty T. Yee, who supports this bill, states:
AB 1265 would provide that a disabled, honorably discharged
veteran engaged in business as an itinerant vendor is the
consumer, rather than the retailer, of any tangible
personal property they sell, if the veteran's activity
lacks a fixed retail location, works as a sole proprietor,
and is unable to obtain a livelihood by manual labor. As a
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consumer, such an itinerant vendor would pay tax upon
purchase of any items sold rather than collecting the tax
upon sale of the food or beverages. (Emphasis in original)
In recent years, we have seen large numbers of veterans
return home from two major foreign conflicts in which the
United States Armed Forces are actively engaged. Many of
these returning veterans face continuing challenges from
disabilities directly related to their military service.
The BOE has learned in public hearings that some of these
veterans seek to make a modest living from the itinerant
sales of small items, such as food, artwork, incense, or
t-shirts. The BOE also has been informed that those
veterans seeking to support themselves in this way have
found the sales tax collection obligation to be a barrier
to entry.
3) BOE notes the following in its staff analysis of this
bill:
a) Sponsor and purpose . "This bill is sponsored by the
author to specifically address the application of the Sales
and Use Tax Law to itinerant disabled veterans who
themselves make sales of goods they own, such as
handcrafted items, paintings, memorabilia, and blankets.
Specifically, this bill would deem these veterans to be
consumers of the products they sell, and provide for the
payment of taxes at the point these veterans purchase the
component parts of the items they sell, to the extent the
tax applies. The purpose of this bill is to recognize and
honor service-disabled veteran survivors that are seeking
to make a living by itinerant sales of goods. This bill
would apply to veterans of past conflicts as well as
veterans returning from foreign conflicts in which the
United States is currently engaged."
b) What would a qualifying veteran's tax obligations be ?
"Under this bill, a qualifying itinerant disabled veteran
making taxable sales of goods, wares or merchandise owned
by him or her would not be required to report sales tax on
his or her sales of these items. Instead, those veterans
would only be required to pay tax on their cost of any
taxable purchases of the items or the component parts of
the items he or she sells. For example, if a veteran were
selling his or her own paintings, the veteran would pay tax
on his or her purchase of the paint, brushes, and canvas
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used to make the painting. The sale of the painting,
itself, would thereafter be exempt from tax. Under this
measure, if the qualifying veteran makes no sales of
alcoholic beverages, the veteran would not be required to
obtain a seller's permit, file sales tax returns, or remit
sales tax on his or her sales of the goods he or she sells.
This essentially eliminates the sales tax compliance costs
and associated recordkeeping that can be unduly burdensome
for disabled veterans."
c) Qualifying veterans would need to provide evidence of
disability to qualify . "Up until January 1, 2009, Business
and Professions Code authorized cities to issue business
licenses to honorably discharged or honorably relieved
United States veterans without payment of any business
license tax or fee for their sales of goods they own,
provided, among other things, the veteran was physically
unable to obtain a livelihood through manual labor
(however, the law did not require that the veteran have a
service-connected disability). Although this qualification
is no longer necessary through enactment of AB 1952 (Stats.
2008, Ch.435), we contacted several cities to determine how
they administered Section 16001.5 prior to January 1, 2009.
The cities that we contacted indicated that they required
the veteran to provide confirmation from a physician that
he or she had such a physical impairment. If this bill
becomes law, we expect that we would require a similar
physician confirmation of the veteran's disability. Also,
since the bill would require that the disability be
service-related, we would require that a qualifying veteran
also provide written confirmation of that disability from
the Department of Veteran Affairs."
4)Committee Staff Notes:
a) What is "consumer" status? : "Consumer" reporting status
is conferred on specified entities to alleviate the burden
of registering with BOE as a retailer of TPP. At the same
time, consumer status minimizes the revenue losses often
associated with outright exemptions from tax. As noted
above, consumer status has been conferred on a wide range
of entities, including optometrists, veterinarians,
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licensed hearing aid dispensers, and others with respect to
certain TPP sales.
b) How did we get here? : For several years, certain
veterans have argued that Business and Professions Code
(B&PC) Section 16102 exempts honorably discharged veterans
from sales tax on sales of food and carbonated beverages
from a mobile cart. B&PC Section 16102 provides in its
entirety:
Every soldier, sailor or marine of the United States
who has received an
honorable discharge or a release from active duty
under honorable conditions
from such service may hawk, peddle and vend any goods,
wares or
merchandise owned by him, except spirituous, malt,
vinous or other
intoxicating liquor, without payment of any license,
tax or fee whatsoever,
whether municipal, county or State, and the board of
supervisors shall issue
to such soldier, sailor or marine, without cost, a
license therefore.
This provision was enacted in 1893 [long before enactment
of the Sales and Use Tax (SUT) Law], and was described in
the chaptered bill as "An act to establish a uniform system
of county and township government." Moreover, this statute
is contained in Chapter 2 of Part 1 of Division 7 of the
B&PC, entitled Licensing by Counties. As such, BOE has
taken the position that this statute exempts honorably
discharged veterans from locally imposed license taxes and
fees, and does not provide an exemption from SUT. BOE
notes that its determination was challenged unsuccessfully
in Los Angeles County Superior Court, and is consistent
with two opinions provided by the Office of Legislative
Counsel.
This bill seeks to address the issue by explicitly granting
preferential treatment to honorably discharged itinerant
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veterans under the SUT Law. It should be noted that this
bill is similar to AB 3009 (Brownley) of the 2007-08
Legislative Session, which would have conferred consumer
status to similarly situated QIVs, but only with respect to
food products and nonalcoholic beverages. AB 3009 was held
in this Committee.
c) Related legislation : Committee staff note the following
related bills also introduced in the current Legislative
Session:
i) AB 659 (Hayashi): Provides that specified garment
cleaning businesses shall be regarded as consumers,
rather than retailers, of TPP they sell, provided those
sales do not exceed 0.5% of their total gross receipts
for the preceding calendar year. AB 659 (Hayashi) is
currently in the Assembly Appropriations Committee.
ii) AB 676 (Jeffries): Designates a qualified
destination management company as a consumer, and not a
retailer, of the TPP it provides a client under a
qualified contract for destination management services.
AB 676 (Jeffries) is set to be taken up today on this
Committee's suspense file.
iii) AB 1486 (Furutani): Provides that specified
tax-exempt organizations shall be deemed consumers,
rather than retailers, with respect to certain transfers
of TPP to their members. AB 1486 (Furutani) is set to be
heard by this Committee today.
iv) SB 809 (Veteran Affairs Committee): Contains
provisions identical to this bill, except that SB 809
also provides that the state shall not reimburse local
agencies for lost sales and use tax revenues. SB 809
passed out of the Senate Revenue and Taxation Committee
on May 13, 2009 with a vote of 7-0.
d) Potential amendments :
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i) Revenue and Taxation Code Section 2230 requires the
state to reimburse cities and counties for the net loss
of revenue from each statute that provides a SUT
exemption. All of the other related bills noted above
contain language stating that, "Notwithstanding Section
2230 of the Revenue and Taxation Code, no appropriation
is made by this act and the state shall not reimburse any
local agency for any sales and use tax revenues lost by
it under this act." The author may wish to consider a
similar amendment to mitigate revenue losses to the
state.
ii) Committee staff suggests a technical amendment to
insert "and sold" after "owned" on page 2, line 5. In
addition, a space should be added before "when" on page
2, line 7.
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization
Board of Equalization Chairwoman Betty T. Yee
Department of Foreign Wars of the United States, Department of
California
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098