BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2788 - Portantino
Amended: June 16, 2010
Hearing: June 23, 2010 Tax Levy Fiscal: Yes
SUMMARY: Extends from 30 Days to 75 Days for a Taxpayer to
Remove Specified Vehicles Purchased from
Out-of-State Manufacturers Before Triggering
Sales Tax.
EXISTING LAW provides that when an in-state retailer
sells an item which is subsequently shipped out-of-state
for use outside the state, the sales and use tax does not
apply because it is considered interstate commerce.
Taxpayers must ship the product directly to the purchaser
through its own delivery vehicle, another means it owns, or
through a common carrier to enjoy the exemption.
EXISTING LAW (R&T Code and BOE Regulation 1620.1 sets
forth two timelines for taxpayers outside the state who
purchase of a new or remanufactured truck, truck tractor,
semi trailer, or trailer with an unladen weight of 6,000
pounds or more, or a new or remanufactured trailer coach,
or auxiliary dolly for use exclusively in interstate,
out-of-state, or foreign commerce to enjoy the exemption:
If the item was purchased from a
manufacturer in this state , and delivered in the
state, the taxpayer has 75 days to remove the
item from the state. This provision applies to a
new or remanufactured truck, truck tractor, semi
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trailer, or trailer with an unladen weight of
6,000 pounds or more a new or remanufactured
trailer coach, or auxiliary dolly.
If the item was purchased from a
manufacturer outside the state , and delivered in
the state, the taxpayer has 30 days to remove the
item from the state. This provision only applies
to remanufactured trailers and semi trailers.
EXISTING LAW requires taxpayers in either case to
provide written evidence of out-of-state registration for
the vehicle, the purchaser's affidavit attesting that he or
she is not a resident of California and that he or she
purchased the vehicle from a dealer at a specified location
for use outside the state, and that the vehicle has been
moved or driven to a point outside the state within the
specified timeline.
THIS BILL elongates the 30 day deadline to 75 days for
taxpayers who purchase from a manufacturer outside the
state a new or remanufactured trailer or semi trailer for
use outside the state but take delivery inside the state to
remove the item from the state. The bill adds new or
remanufactured truck, truck tractors, new or remanufactured
trailer coaches, and new or remanufactured auxiliary
dollies manufactured outside the state to the exemption.
The measure repeals the exemption for taxpayers purchasing
the same item under the same conditions from manufacturers
inside the state; however, this provision was not intended
by the Author and may be rectified by suggested amendments
(See Comment D).
THIS BILL also states that the written evidence of an
out-of-state license and registration of the vehicle is
necessary only when required by another state, if not, then
the taxpayer must provide an affidavit stating that the
registration is not required.
FISCAL EFFECT:
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According to BOE, revenue losses attributable to AB
2788 are minimal.
COMMENTS:
A. Purpose of the Bill
The author provides the following statement:
In today's environment, traditional warehousing of
goods has declined dramatically. Accordingly,
businesses are moving toward Just in Time delivery of
many goods and services and can modify their business
practices to take advantage of the most favorable
business conditions. The trailers, semi trailers and
dollies referenced in section 6388.5 are used
exclusively in interstate or foreign commerce. Thus,
the ability to move the vehicles may not always occur
in the very tight timeframes currently outlined in
section 6388.5 of the Revenue and Taxation Code
requiring that the vehicles move out of state within
30 days.
Creating parity - allowing all such vehicles purchased
in California and moved outside of California in 75
days - will result in increased sales. The state
would benefit from the incidence of increased revenues
for California based businesses generating increased
sales. Increased sales in turn will reflect more
revenue to the state as a result in higher sales
figures and give those companies located in California
the ability to hire more employees to support the
increased sales.
B. The Long Haul
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BOE provided the following background:
"Section 6388 was added to law in 1959 to exempt sales
of new trailer coaches by out-of-state dealers when an
out-of-state resident took delivery in California,
provided the trailer was to be used exclusively
outside the state, delivery was by the California
manufacturer at the manufacturer's California's place
of business, and the trailer was removed from
California within 30 days. The reason for this
exemption was to attract out-of-state purchasers of
California-built trailer coaches. Proponents of the
bill also noted that an incidental benefit would also
accrue to businesses catering to the tourist trade,
since qualified purchasers would be permitted to use
their trailers within California without incurring a
tax liability for a period of 30 days after accepting
delivery. Proponents also noted that there was no
real tax loss because people were not making any
purchases at the time because they did not want to pay
the tax.
In 1963, this exemption was expanded to include
trucks, truck tractors, semi trailers, trailers and
auxiliary dollies.
In 1970, the exemption was further expanded by
relaxing the requirements for truck trailers. The
requirement of out-of-state use was loosened to allow
in-state use, if exclusively in interstate commerce.
Also, delivery to purchasers by dealers within
California was permitted, provided the dealership was
owned by the manufacturer.
Section 6388.5 was added to law in 1974 to extend and
expand the Section 6388 exemption so that a purchaser
may purchase a trailer or semi trailer from a
California dealer - provided the manufacturer
delivered the item directly to the purchaser, and the
purchaser removed the item out of California within 30
days for use exclusively in interstate commerce or
exclusively outside of California.
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In 1982, this exemption was further expanded to allow
the trailers or semi trailers to be removed to a point
outside of California within 75 days from delivery if
the item was manufactured in California. Also, any
dealer could make the delivery to the purchaser (not
just the manufacturer as previously required). The
reason behind the 75-days was that one manufacturer
(Utility Trailer Manufacturing Company located in Los
Angeles) had intended to sell 400 trailers to a
purchaser who planned on using them outside
California. The purchaser was concerned that it would
not be possible to meet the conditions of the
exemption at the time which required removal from
California within 30 days from the date of delivery,
given the large number of trailers involved. The
transaction therefore fell through.
Also in 1982, the exemption was further expanded by
allowing the exemption if the item is used exclusively
in foreign commerce and the other requirements of the
exemption are met. This amendment was sponsored by
Freuhauf Corporation which manufactured container
chassis in California. Its sales to a Korean
steamship company for use in foreign commerce did not
qualify for the exemption, as the law required the use
to be in interstate commerce (not foreign commerce)."
C. East Bound and Down?
State law and BOE Regulation provides two different
deadlines for taxpayers who purchases trucks and semi
trailers to remove the item before triggering a sales tax
obligation, depending on where the item is manufactured, 30
days for out-of-state and 75 days for in-state purchases.
Additionally, the exemption for out-of-state manufactured
items applies to a shorter list of vehicles than the
in-state exemption. While consolidating the sections to
apply the exemption for the same list of products make
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sense, extending the timeline from 30 days to 75 days for
out-of-state purchased items removes the preference in
existing law for California manufacturers that justified
the initial exemption. While proponents state that no
manufacturers in California exist for these products, the
Committee was unable to verify this information given the
late emergence of this proposal.
The other policy question posed by AB 2788 is: what is
the appropriate length of time a taxpayer needs to
reasonably remove the vehicle before he or she should be
considered a consumer of public services, and the sales tax
should therefore apply? Proponents state that delays in
the process from inception of the purchase and delivery to
the actual date of interstate travel exist, necessitating a
longer timeline than 30 days. In response to fiscal
realities, the Legislature in recent years has moved to
tighten, not loosen, these deadlines, most notably for
taxpayers who used to be able to bring airplanes, vehicles,
and yachts purchased out-of-state for use in California.
Taxpayers did not to trigger use tax when bringing these
items into California only 90 days after purchase, until
the Legislature enacted a rebuttable presumption existed
that use tax applied if the taxpayer brought the item into
the state before a one-year period passed (AB 1452,
Committee on Budget, 2008). Because of the state's
precarious financial condition and the recent direction of
policy in this area, the Committee may wish to consider
whether easing rules around these specific deadlines is
merited given that California will likely serve as a
primary delivery point for these vehicles under the 30 day
period.
D. Stuck in Neutral
Due to a drafting error, AB 2788 repeals the exemption
for items purchased from in-state manufacturers. On Page
4, Line 19, after "remanufactured," insert "inside or" will
address this error.
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Support and Opposition
Support:California Trucking Association, Hyundai
Translead
Oppose:California Tax Reform Association
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Consultant: Colin Grinnell