BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1265
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          ASSEMBLY THIRD READING
          AB 1265 (Ma)
          As Amended June 1, 2009
          Majority vote.  Tax levy 

           REVENUE & TAXATION  9-0         APPROPRIATIONS      17-0        
           
           ----------------------------------------------------------------- 
          |Ayes:|Charles Calderon, DeVore, |Ayes:|De Leon, Nielsen,         |
          |     |Beall, Coto, Harkey, Ma,  |     |Ammiano,                  |
          |     |Nielsen, Portantino, Fong |     |Charles Calderon, Davis,  |
          |     |                          |     |Duvall, Fuentes, Hall,    |
          |     |                          |     |Harkey, Miller,           |
          |     |                          |     |John A. Perez, Price,     |
          |     |                          |     |Skinner, Solorio, Audra   |
          |     |                          |     |Strickland, Torlakson,    |
          |     |                          |     |Krekorian                 |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Provides that, until January 1, 2012, a "qualified  
          itinerant vendor" (QIV) is a consumer, and not a retailer, of  
          tangible personal property (TPP) that the QIV owns and sells for  
          less than $100, 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. 








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             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:


             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)   Applies to retail sales of TPP worth less than $100. 


             5)   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.


             6)   Specifies that the state will not reimburse any local  
               agency for any sales or use tax (SUT) revenues lost by the  
               agency under this bill.

           EXISTING LAW  :








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          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;

             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 $24,000  
          annually.  

           COMMENTS  :  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  








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               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.

          Committee Staff Notes:


             1)   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,  
               licensed hearing aid dispensers, and others with respect to  
               certain TPP sales.  

             2)   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." 


             3)   This provision was enacted in 1893 [long before  
               enactment of the 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  








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               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.  


             4)   This bill seeks to address the issue by explicitly  
               granting preferential treatment to honorably discharged  
               itinerant 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.  


             5)   Committee staff note the following related bills also  
               introduced in the current legislative session:  


             a)   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) passed out of  
               the Assembly Appropriations Committee on Consent;  

             b)   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) was  
               held in Assembly Appropriations Committee;  


             c)   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) passed out of the  
               Assembly Appropriations Committee on Consent; and,  









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             d)   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. 




           Analysis Prepared by  :  M. David Ruff / REV. & TAX. / (916)  
          319-2098 


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