BILL ANALYSIS �
AB 28 X1
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 28 X1 (Blumenfield)
As Amended June 14, 2011
Majority vote. Budget Bill Appropriation Takes Effect
Immediately
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|ASSEMBLY: | |(June 3, 2011) |SENATE: |24-15|(June 15, |
| | | | | |2011) |
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(vote not relevant)
SENATE VOTE :Vote not relevant
SUMMARY : Makes various changes to state laws to implement
compliance-related mechanisms relating to existing taxes by
expanding the statutory list of retailers that are considered to
be engaged in business in California and required to collect use
tax on sales of tangible personal property to California
consumers.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Establish that any retailer with substantial nexus in this
state for purposes of the commerce clause of the U.S.
Constitution and any retailer, upon whom federal law permits
the state to impose a use tax collection duty, is required to
collect the use tax on behalf of the state.
2)Require use tax collection and remittance by a retailer that
is a member of a combined reporting group for income tax
purposes, when another member of the same group provides
services in connection with the sale of tangible personal
property in California, pursuant to an agreement with the
retailer.
3)Impose a use tax collection obligation on any retailer that
enters into an agreement under which persons in this state
refer potential customers to the retailer for a commission,
whether by an Internet-based link, a Web site, or otherwise,
provided that the:
a) Cumulative sales price from all of the retailer's sales
within the preceding 12 months to customers in California
AB 28 X1
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that are referred pursuant to those agreements is in excess
of $10,000; and,
b) Cumulative sales price from all of the retailer's sales
within the preceding 12 months to customers in California
exceeds $500,000.
i) Specifies that this provision shall not apply if the
retailer can demonstrate that the person with whom the
retailer has an agreement did not engage in referrals in
the state on the retailer's behalf that would satisfy the
requirements of the commerce clause of the U.S.
Constitution.
ii) Provides that an agreement described above shall not
include any agreement under which a retailer:
(1) Purchases advertisements from a person in this
state, to be delivered on television, radio, in print,
on the Internet, or by any other medium, unless the
advertisement revenue paid consists of commissions or
other consideration that is based upon sales of
tangible personal property; or,
(2) Engages a person in this state to place an
advertisement on a Web site operated by that person,
or operated by another person in this state, unless
the person entering the agreement with the retailer
also directly or indirectly solicits potential
customers in this state, through the use of flyers,
newsletters, telephone calls, electronic mail, blogs,
micro blogs, social networking sites or other means of
direct and indirect solicitation specifically targeted
at potential customers in this state.
i) Provides that for these purposes, retailer includes an
entity affiliated with a retailer within the meaning of
section 1504 of the Internal Revenue Code.
1)Add an appropriation allowing this bill to take effect
immediately upon enactment.
AS PASSED BY THE ASSEMBLY , this bill expresses the intent of the
Legislature to enact statutory changes relating to the 2011
Budget Act.
AB 28 X1
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FISCAL EFFECT : The estimated revenue impact of the measure is
expected to be $195 million General Fund and $122 million
special and local funds.
COMMENTS : California imposes a sales tax on retailers for the
privilege of selling tangible personal property, absent a
specific exemption. The tax is based upon the retailer's gross
receipts from sales in this state. The state also imposes a
complementary use tax on the storage, use, or other consumption
in this state of tangible personal property purchased from any
retailer. The use tax is imposed on the purchaser, and unless
the purchaser pays the use tax to a retailer registered to
collect the California use tax, the purchaser remains liable for
the tax, unless the use is exempted. The use tax is set at the
same rate as the state's sales tax and must be remitted to the
State Board of Equalization. Retailers that are considered to
be engaged in business in this state are required to collect use
tax on sales of tangible personal property to California
consumers.
Existing federal law authorizes Congress, under the Commerce
Clause of the U.S. Constitution, to regulate commerce with
foreign nations, and among the states. The U.S. Supreme Court
has held that the "negative" or "dormant" Commerce Clause also
prohibits states from enacting laws that unduly burden or
discriminate against interstate commerce. Federal law also
provides based on case law that, under the dormant Commerce
Clause, a retailer must have a "physical presence" in a state
before that state can require the retailer to collect its use
tax. There is substantial controversy and ambiguity regarding
the extent to which states can impose the use tax collection
obligation on out-of-state retailers, despite numerous state and
federal court decisions.
This bill combines three different approach regarding
establishing use tax collection obligations on out-of-state
retailers. The approaches include the New York Style or Amazon
Approach, the Reporting Group Method, and Long-Arm Nexus.
1)New York Style or Amazon approach imposes a use tax collection
obligation based on affiliation with individuals and
businesses in California that refer customers to out-of-state
retailers for purposes of selling tangible personal property.
This approach is the basis of AB 153 (Skinner).
AB 28 X1
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2)Reporting Group approach is based on the activities of
in-state related companies and whether these companies engaged
in activities connected to the sales of tangible personal
property by the retailer. This approach is the basis of AB
155 (Calderon).
3)Long-Arm Nexus imposes a use tax collection whenever warranted
under the U.S Constitution or federal law. With this method,
a bright line test is not used but rather the collection
obligation is imposed based on facts and circumstances
involving the firm and applicable case law. This approach is
the basis of SB 234 (Hancock).
Analysis Prepared by : Mark Ibele / BUDGET / (916) 319-2099
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