BILL ANALYSIS                                                                                                                                                                                                    




                   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.