BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE Senator Lois Wolk, Chair AB 1265 - Ma Amended: June 1 2009 Hearing: July 8, 2009 Tax Levy Fiscal: Yes SUMMARY: Specifies that certain United States veterans would be regarded as consumers, rather than retailers, of tangible personal property that they sell EXISTING LAW Imposes the sales and use tax on the gross receipts on tangible personal property unless statutorily exempted; the law does not contain a general exemption from the sales or use tax for sales to or by veterans. The following chart shows the basic sales and use tax rate for the state; in addition, cities and counties may levy transactions and use taxes with a vote of the people for either general or special purposes in that city. ----------------------------- |Rate |Jurisdiction | |-----+-----------------------| |5.75%|State (General Fund) | | | | |-----+-----------------------| |0.25%|State (Fiscal Recovery | | |Fund) | AB 1265-Ma Page 4 |-----+-----------------------| |0.50%|State (Local Revenue | | |Fund) | |-----+-----------------------| |0.25%|State (General Fund) | | | | |-----+-----------------------| |0.50%|State (Local Public | | |Safety Fund) | |-----+-----------------------| |1.00%|Local (County/City) | | | 0.25% County | | |transportation funds | | | 0.75% City and | | |county operations | |-----+-----------------------| |8.25%|Total Statewide Base | | |Sales/Use Tax | ----------------------------- Under the law, every retailer or any other person engaged in the business of selling tangible personal property which is taxable in this state is required to obtain a seller's permit and report the tax on his or her sales on a return prescribed by the Board. However, California's Sales and Use Tax Law places a variety of retailers making taxable sales of tangible personal property under a "consumer" reporting status. Under a "consumer" reporting status, a qualifying retailer making otherwise taxable sales is not required to obtain a seller's permit or report tax on those sales. Rather, the qualifying retailer is only required to pay tax on his or her cost of the taxable components of the products he or she sells. The "consumer" reporting status is primarily intended to minimize reporting burdens placed on smaller businesses and entities, while minimizing the associated revenue loss that can accompany a complete exemption from the tax. The law has extended this consumer reporting status to certain sales by such entities as nonprofit youth groups, PTAs, AB 1265-Ma Page 4 nonprofit veterans' organizations, various charitable organizations, schools and school districts, optometrists, veterinarians, podiatrists, licensed hearing aid dispensers, and others with respect to certain products they sell. THIS BILL Specifies that a "qualified itinerant vendor" is a consumer (not a retailer) of tangible personal property owned by the qualified itinerant vendor, except alcoholic beverages. The bill would specify that a person is a "qualified itinerant vendor" when all of the following apply: 1) 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 from service, 2) The person is unable to obtain a livelihood by manual labor due to a service-connected disability. 3) For the purposes of selling tangible personal property, the person is a sole proprietor with no employees, and 4) The person has no permanent place of business in this state. The bill would define "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, tangible personal property, and would exclude from that term, any building or other permanently affixed structure, including a residence, used for any of the following: 1) The storage of tangible personal property. 2) The cleaning or the storage of equipment or other property used in connection with the manufacture or sale AB 1265-Ma Page 4 of tangible personal property. The bill would specify that its provisions do not apply to either of the following: 1) A person engaged in the business of serving meals, food, or drinks to a customer at a location owned, rented, or otherwise supplied by the customer, or 2) A person operating a vending machine. The bill would become operative on the first day of the first calendar quarter commencing more than 90 days from the bill's effective date. FISCAL EFFECT: The BOE estimates a total revenue loss of $24,855 associated with this bill as follows: ---------------------------------------------- | | | Rates| Dollars| | | | | | |---------------------+------+-------+---------| | State | | 6.25%| $17,337| | | | | | |---------------------+------+-------+---------| | General Fund | | 6.00%| $16,644| | | | | | |---------------------+------+-------+---------| | Fiscal Recovery | | 0.25%| $693| |Fund | | | | | | | | | |---------------------+------+-------+---------| | Local | | 2.00%| $5,548| | | | | | |---------------------+------+-------+---------| AB 1265-Ma Page 4 | Transit | | 0.71%| $1,970| | | | | | |---------------------+------+-------+---------| | | | | | | | | | | |---------------------+------+-------+---------| |Total State and | | 8.96%|$24,855 | |Local | | | | | | | | | | | | | | ---------------------------------------------- COMMENTS: A. Purpose of the Bill According to the author's office, the strict wording of the Business and Provisions code sections which outlines provisions which exempt honorably discharged veterans from locally-imposed license taxes and fees is confusing and resulting in errors by veterans making retail sales of goods. This bill will clarify existing law and represents "one small step" towards recognizing our disabled veterans who have already made or are making the transition from military to civilian employment. Enactment for this bill would help by clarifying existing law and allowing these veterans to actively participate in small businesses in this state. B. Tie a Yellow Ribbon Proponents note, "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 physical or psychological disabilities directly related to their military service. The BOE has been advised in public hearings that some of these veterans seek to make a modest living from the AB 1265-Ma Page 4 itinerant sales of food and beverages." BOE's support letter states that this bill 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 by simplifying reporting requirements under the Sales and Use Tax Law for those qualifying disabled veterans that are honorably discharged or released from service that desire to engage in the business of selling goods they own. For qualifying disabled veterans without employees or a permanent place of business, this bill would eliminate the need for them to hold a seller's permit, file sales tax returns, and remit sales tax on their sales. C. It's not just about hot dogs anymore! Last year, this bill would only have applied to a narrow number of veterans who sell food such as hot dogs from mobile food carts. This year, the bill extends to sales beyond food products and beverages. Therefore, all itinerant veterans who sell non-edible tangible personal property would still be considered retailers and would still be required to obtain a seller's permit. D. Related Legislation SB 809 (Committee on Veteran's Affairs) is almost identical to this bill and passed out of this committee on consent. Support and Opposition Support:Board of Equalization CalTax Oppose:None Received AB 1265-Ma Page 4 --------------------------------- Consultant: Gayle Miller