BILL ANALYSIS AB 1265 Page 1 Date of Hearing: May 28, 2009 ASSEMBLY COMMITTEE ON APPROPRIATIONS Kevin De Leon, Chair AB 1265 (Ma) - As Amended: May 21, 2009 Policy Committee: Revenue and Taxation Vote: 9-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill allows disabled veteran itinerant vendors to pay sales taxes on their wholesale purchases instead of having to collect the tax on the retail sales made to their customers. The bill does not apply to sales of alcohol, catering, or vending machines, and it becomes inoperative on January 1, 2012. FISCAL EFFECT 1)The Board of Equalization estimates that this bill would reduce state and local revenues by $24,000 annually based on its assumption that both the number of individuals meeting the qualifications set forth by this bill - and the value and type of goods sold by these individuals - is quite small. 2)The potential losses, however, could be significantly greater, potentially in the range of several hundreds of thousands annually, depending on the scope of products and value of property, such as works-of-art, that could be eventually exempted from the sales tax under this bill. COMMENTS 1)Background . The California sales tax is imposed on retail sales of tangible personal property unless specifically exempted. The tax is not normally applied to sales of wholesalers to retailers, but rather is imposed on the retailer at the point of final sale to its customers. Current law allows about 15 entities that purchase products for resale to be designated as "consumers," and not retailers, AB 1265 Page 2 of certain tangible personal property that they purchase for resale. These include certain items purchased by optometrists, physicians, pharmacists, veterinarians, and others where the sales are, to varying degrees, incidental to their main businesses. For these entities, sales taxes are due when they purchase the product from the wholesaler, instead of when they resell the products to their customers. The benefit is that these businesses and the Board of Equalization avoid the recordkeeping and auditing burdens on an incidental amount of sales. The cost to the state is that it loses the sales tax on the mark up between the wholesale and retail price of the products being sold. Under current law disabled veteran itinerant venders are subject to the normal sales and use tax requirements, in that their wholesale purchases are exempt and the tax is due at the time they sell the products to their customers. Under this bill, qualifying itinerant disabled veterans would be considered consumers when they make wholesale purchases, and thus would be relieved from collecting sales taxes and maintaining records on their retail sales. 2)Rationale . This bill is intended to address the application of the sales and use tax law to disabled veterans who make sales of goods they own, such as food, handcrafted items, paintings, memorabilia, and blankets. It is meant to acknowledge the sacrifices that these individuals have made to our country and to help remove recordkeeping burdens they face when attempting to earn a living through itinerant vending sales. 3)Related legislation . Several bills have been introduced this year which provide "consumer status" to specified entities. These include AB 659 (Hayashi), which provides consumer status to certain dry cleaners, AB 1486 (Furutani), which extends consumer status to certain nonprofit membership organizations, and AB 676 (Jeffries) which extends the status to destination management companies. Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081