BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 155|
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THIRD READING
Bill No: AB 155
Author: Charles Calderon (D), et al.
Amended: 8/29/11 in Senate
Vote: 27 - Urgency
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 7/6/11
AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
NOES: Huff, Fuller, La Malfa
SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
ASSEMBLY FLOOR : 52-20, 5/31/11 - See last page for vote
SUBJECT : Use tax: retailer engaged in business
SOURCE : Author
DIGEST : This bill repeals and reenacts provisions of AB
28X (Blumenfield), Chapter 7, Statutes of 2011-12, First
Extraordinary Session, which revises the definition of
retailer engaged in business in this state for purposes of
use tax collections", as specified. This bill increases
the small business exemption in AB 28X from $500,000 to one
million dollars and adds an urgency clause.
ANALYSIS :
Existing Federal Law :
CONTINUED
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1. Authorizes Congress, under the commerce clause of the
United States (U.S.) Constitution, to regulate commerce
with foreign nations, and among the several 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.
2. Provides per federal 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.
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/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), revised the
definition of "retailer engaged in business in this state"
to include the 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
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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).
Comments
This bill reenacts provisions and increases the small
business exemption from $500,000 to one million dollars of
ABX1 28 (Blumenfield), which Governor Jerry Brown signed
and became immediately effective on June 29, 2011.
According to the author's office, each year California
loses over $1.145 billion in revenues as a result of
unreported use taxes and a large percentage of this use tax
gap is attributable to out-of-state Internet sales. More
importantly, the lack of use tax collection has provided a
competitive advantage to many out-of-state companies,
allowing them to undercut their in-state competitors. This
bill will help to level the playing field by imposing a use
tax collection obligation on retailers that use in-state
sister companies to help develop or sell their goods. By
taking this important step, this bill will promote the fair
and effective administration of California's Sales and Use
Tax Law.
This bill, like existing law, imposes a use tax collection
obligation on out-of-state retailers who have certain
sister companies in California that perform services in
cooperation with the out-of-state retailer, as described.
Amazon.com LLC (the on-line retailer), for example, and any
other similarly organized out-of-state retailer, fits
within this provision. Amazon.com Inc. is a Seattle-based
corporation. The on-line retailer, Amazon.com LLC, is a
member of Amazon.com Inc.'s commonly controlled group and a
member of Amazon.com Inc.'s combined reporting group under
California's Corporation Tax Law. Amazon.com LLC's
commonly controlled group has other California-based
members that perform various services in this state in
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connection with items sold by Amazon.com LLC. For example,
A9.com is a California-based wholly-owned subsidiary of
Amazon.com, Inc., with about 131 California employees (as
reported in September, 2010 to the Employment Development
Department), and provides product and visual search
technologies for items displayed on Amazon.com LLC's Web
site. Another California wholly-owned subsidiary, Lab 126,
(with about 370 California employees) performs design and
development activities associated with Amazon's Kindle and
other electronic reading devices. A third California
subsidiary of Amazon.com is Internet Movie Database (IMDb),
with 15 California employees, is an online database of
information related to movies, television shows, actors,
production crew personnel, video games and fictional
characters featured in visual entertainment media. This
bill, consistent with existing law, specifies that such
described out-of-state retailers are engaged in business in
California, based on the activities of their other members
of their combined reporting group, and are required to
collect California use tax on their taxable sales to
California consumers. This specific form of nexus has not
been reviewed by the U.S. Supreme Court and could be the
subject of litigation.
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 AB 28X. The petition has been
approved by the 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
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Small business exemptionUnknown, revenue loss associated
General
with increasing exemption
threshold
from $500 to $1,000.
SUPPORT : (Per Senate Governance and Finance Committee of
7/6/11) (unable to reverify)
"M" is for Mystery?and more
99 Cent and Plus
Alicante Group
American Federation of State, County and Municipal
Employees, AFL-CIO
Angela's Glass Co.
A-Vacuum & Sewing Hospital
Barnes & Noble
Best Buy
Blackmaster Video
Blong Ziong, Fresno City council Member
Bluestocking Books
Bright Cleaners
C&M Custom Cabinetry
California Business Properties Association
California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Nurses Association
California Retailers Association
California School Employees Association
California State Association of Counties
California Tax Reform Association
California Teamsters Public Affairs Council
Central Valley Laminating
Chalet Gourmet
Chi Holistic Collective
Chino Hills Network
Citizens for Better city Government
City of Berkeley
Column One, Inc.
Culver City Chamber of Commerce
Custom Cabinets by Kumar
Custom Leisure Services
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Da Avere
Davies Appliance
DjMobile Detailing
DLG Printing
Dollar and Up
Dragatomi
Dreamweaver
Early Ford Store
Echo Antique Gallery
Empire Vintage Clothing
Employee Awareness Alliance
Engineers and Scientists of California
FanaBike Enterprises
Fontanetti's Batting Cages & More
Forefront Real Estate
Glendora Floor Store, Inc.
Glendora Village Goldsmith
Glendora Village Pets
GOGA by Gordana
Goldstrand Planning Group
Greater Merced Chamber of Commerce
Greater Stockton Chamber of Commerce
GT-R Wireless
Hart Environmental, Inc.
Her Best Friends Closet
Herbin Acupuncture and Wellness
Hermary's Home Entertainment Lifestyles
Hessian Inc.
Home Depot
International Longshore & Warehouse Union
John Carlisle, Merced City council Member
John R. Hanna, Rancho Santiago Community College District
Trustee
Ken Krause, Waterford City Council member
Kim's Alterations
Latino Times/former Chair California Hispanic Chamber of
commerce
Leach Housekeeping
Lisa Norman Lingerie
Lopez Landscape
Magic Moments Portraits
Main Farms
MARTtoMART
Michelle Marie's Café, LLC
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Mohr Clocks
Momma's Closet
Montana EyecareMontana NaturalMs. Fits Consignments
N.V.me Fashions
Namedroppers
Natural Health Center
Nelson's Drug Store
Neufelds Promenade
Northern California Independent Booksellers Association
Origano Restaurant
Periwinkle
Phariss Tax Service
Planet Videos and More
Postnet
Professional & Technical Engineers, Local 21
Pulp Studio
Punk Bananas Thrifty Store
Quesenberrys Pharmacy
Ray Main Sales
Reid hardware
Relles Florist
Repeat Performance
Rick's Furniture
Sake House Yumeya LLC
San Diego Trading Company
San Francisco Chamber of Commerce
Sary Moon
Senor El Taquero
Signs-A-Rama
Sixth Avenue Mail Station
Small Business California
Southern California Independent Booksellers Association
Strings Music
Stuart Spencer
Sudberry Properties
Sugar Hill
Sumner's Schwinn
Sunlight of the Spirit Books and Gifts
Swanbergs on J
TechAmerica
The Cotton Club
The Fresno Hock Shoppe
The Mugger, Inc.
The Shoe Shop
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The Usuals
The Whistle Stop
Tina's One Stop Shop
Tom Stallard, Woodland City Council Member
Tower Hydro
Tree Time Real Estate
Treeline Realty
T-Shirt Designs
UNITE HERE!
United Food and Commercial Workers Union, Western States
Council
Valadez Jewelers
Village Book Shop
Village Kitchen Shoppe
Village Manor
Visiting Angels
Wal-Mart
Weathervane for Men
Webster's Sportscards
OPPOSITION : (Per Senate Governance and Finance Committee
of 7/6/11) (unable to reverify)
California Taxpayers Association
Direct Marketing Association
Howard Jarvis Taxpayers Association
Internet Alliance
Performance Marketing Association
ARGUMENTS IN SUPPORT : The author has provided the
following statement in support of this bill, "Each year,
California loses over $1.145 billion in revenues as a
result of unreported use taxes. A large percentage of this
use tax gap is attributable to out-of-state Internet sales.
More importantly, the lack of use tax collection has
provided a competitive advantage to many out-of-state
companies, allowing them to undercut their in-state
competitors. AB 155 would help to level the playing field
by imposing a use tax collection obligation on retailers
that use in-state sister companies to help develop or sell
their goods. By taking this important step, AB 155 will
promote the fair and effective administration of
California's Sales and Use Tax Law. "
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ARGUMENTS IN OPPOSITION : Opponents state, "ÝW]e oppose
AB 155 because the California courts have already rejected
"control group nexus" as a basis to require out of state
retailers to collect use tax. Moreover, even if AB 155
could be enforced, such a requirement would not produce
additional revenue for California as related companies can
easily be relocated, or the services they provide can
easily be obtained elsewhere." Opponents also state,
"Instead of AB 155, we encourage the Legislature to
consider expanding California's existing, lawful and
successful program to collect use tax from the purchasers
who are responsible for payment."
ASSEMBLY FLOOR : 52-20, 5/31/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill,
Block, Blumenfield, Bonilla, Bradford, Brownley,
Buchanan, Butler, Charles Calderon, Campos, Carter,
Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes,
Furutani, Galgiani, Gatto, Gordon, Hall, Hayashi, Roger
Hernández, Hill, Huber, Hueso, Huffman, Lara, Bonnie
Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan, Perea, V.
Manuel Pérez, Portantino, Skinner, Solorio, Swanson,
Torres, Wieckowski, Williams, Yamada, John A. Pérez
NOES: Achadjian, Cook, Donnelly, Fletcher, Beth Gaines,
Grove, Hagman, Halderman, Harkey, Jeffries, Knight,
Logue, Mansoor, Miller, Morrell, Nielsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Conway, Garrick, Gorell, Jones,
Nestande, Norby, Olsen
AGB:do 8/29/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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