BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1265
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          Date of Hearing:  May 18, 2009

                             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  

             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  

          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  

           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  

              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  

                    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  

               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  

               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  

               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. 


          Board of Equalization 
          Board of Equalization Chairwoman Betty T. Yee
          Department of Foreign Wars of the United States, Department of  

          None on file
          Analysis Prepared by  :  M. David Ruff / REV. & TAX. / (916)