BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 155 (Calderon) Hearing Date: 08/25/2011 Amended: 05/02/2011 Consultant: Mark McKenzie Policy Vote: G&F 6-3 _________________________________________________________________ ____ BILL SUMMARY: AB 155 would enact a "controlled group of corporations" nexus to determine whether out-of-state retailers must collect and remit the use tax on sales to California consumers. In doing so, this bill would chapter out recently-enacted provisions that established an "affiliate" and "long-arm" nexus for purposes of use tax collections. Proposed amendments would address this problem (see below). _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Small business exemption Unknown revenue loss associated with General increasing exemption threshold from $500 to $1,000 _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. State law requires every retailer "engaged in business in this state" that sells tangible personal property to collect the appropriate tax from the purchaser and remit the amount to the Board of Equalization (BOE). Unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed at the same rate as the sales tax on any person consuming tangible personal property in the state. When a California resident purchases tangible personal property from a retailer online, by mail order, or on a trip to another state, and the retailer lacks physical presence in this state, the obligation rests on the consumer to remit the use tax due to BOE. Existing law, enacted by ABx1 28 (Blumenfield), Chapter 7 of the 2011-12 First Extraordinary Session, revised the definition of "retailer engaged in business in this state" to include the AB 155 (Calderon) Page 1 following, for purposes of use tax collections: Any retailer that is a member of a commonly controlled group and a member of a combined reporting group that includes another member of the retailer's commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with tangible personal property to be sold by the retailer. (controlled group of corporations nexus) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of tangible personal property to the retailer under specified conditions. (affiliate nexus) Any retailer that has substantial nexus with this state for the purposes of the commerce clause of the United States Constitution and upon whom federal law permits this state to impose a use tax collection duty. (long-arm nexus). AB 155 would repeal the expanded nexus provisions of ABx1 28, and only re-enact the "controlled group of corporations" nexus for purposes of defining a retailer engaged in business in this state that is required to collect and remit use taxes from California consumers. Thus, AB 155 would chapter out provisions that establish an "affiliate" and "long-arm" nexus. Staff notes that the 2011-12 Budget assumed General Fund revenue gains of $200 million as a result of the passage of ABx1 28, of which $83 million is attributable to the "controlled group of corporations" nexus. Assuming these estimates are accurate, AB 155 would result in first year revenue losses of $117 million due to the chaptering out of "affiliate" nexus and "long-arm" nexus provisions. Actual revenue impacts of ABx1 28 and AB 155 are unknown and would depend upon numerous factors, including behavior of retailers that would be subject to state requirements to collect and remit the use tax from consumers as a result of the nexus created by these bills, the scope of any subsequent BOE regulations, and actions of the courts in response to legal challenges to enactment of a long-arm nexus. Staff notes that Amazon, one of the largest out-of-state retailers that does not currently collect and remit California use taxes, has filed a petition for a referendum that will allow voters decide whether to overturn ABx1 28. The petition has been approved by the AB 155 (Calderon) Page 2 Attorney General, and Amazon has until late September to collect 504,000 signatures in order to qualify the referendum for the next statewide election in February of 2012. AS PROPOSED TO BE AMENDED this bill would repeal and re-enact all of the provisions of ABx1 28, add an urgency clause, and increase the small business exemption from $500,000 to $1 million. Staff notes that BOE does not track micro-level data on affiliates that may be subject to the exemption, so the fiscal impact related to increasing the threshold in indeterminable.