BILL ANALYSIS Ó AB 289 Page 1 ASSEMBLY THIRD READING AB 289 (Cedillo) As Amended May 24, 2011 Majority vote. Tax levy REVENUE & TAXATION 8-0 APPROPRIATIONS 17-0 ----------------------------------------------------------------- |Ayes:|Perea, Donnelly, Beall, |Ayes:|Fuentes, Harkey, | | |Charles Calderon, | |Blumenfield, Bradford, | | |Fuentes, Gordon, Harkey, | |Charles Calderon, Campos, | | |Nestande | |Davis, Donnelly, Gatto, | | | | |Hall, Hill, Lara, | | | | |Mitchell, Nielsen, Norby, | | | | |Solorio, Wagner | | | | | | ----------------------------------------------------------------- SUMMARY : Extends the sunset date for the current sales and use tax (SUT) exemption for retail items sold by thrift stores operated by nonprofit organizations to assist individuals with human immunodeficiency virus (HIV) or acquired immune deficiency syndrome (AIDS). Specifically, this bill : 1)Extends the current sunset date from January 1, 2012, to January 1, 2019. 2)Provides that, notwithstanding existing law, the state shall not reimburse any local agency for any SUT revenues lost as a result of this bill. 3)Takes immediate effect as a tax levy. EXISTING LAW : 1)Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state. 2)Imposes a complementary use tax on the storage, use, or other consumption in this state of TPP 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 AB 289 Page 2 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 (BOE). 3)Provides a SUT exemption for used pieces of clothing, household items, or other retail items sold by specified thrift stores operated by a "nonprofit organization." To qualify for the exemption, the thrift store's purpose must be to generate revenue for the funding of medical, hospice, or social services for chronically ill individuals, and at least 75% of the thrift store's net income must be so used. 4)Defines a "nonprofit organization," for purposes of the exemption, as a nonprofit organization that provides medical, hospice, or social services to individuals with a chronic, life-threatening illness, as defined in Health and Safety Code (H&SC) Section 1568.01(c). H&SC Section 1568.01(c), in turn, defines a chronic, life-threatening illness as HIV disease or AIDS. FISCAL EFFECT : The BOE estimates that this bill would result in annual state and local revenue losses of approximately $1 million. COMMENTS : The author has provided the following statement in support of this bill: Current law provides an exemption to the Sales and ÝUse] Tax Law for retail items sold by thrift stores operated by non-profit organizations, which raise funds for services to HIV or AIDS patients. This exemption will be repealed on January 1, 2012. The BOE notes the following in its staff analysis of this bill: 1)Provisions would not be problematic to administer . "Since the BOE is already administering the sales and use tax exemption for thrift stores that benefit individuals with HIV or AIDS, extending the sunset date would not pose a problem." 2)Related legislation . "At the January 27, 2011 BOE Legislative AB 289 Page 3 Committee meeting, the committee voted to sponsor legislation to extend the sunset date on the sales and use tax exemption for thrift stores that benefit individuals with HIV or AIDS, from January 1, 2012 to January 1, 2017." Assembly Revenue and Taxation Committee Staff Comments: 1)The BOE notes that there are currently three nonprofit organizations operating thrift stores that qualify for this exemption. These organizations hold seller's permits, file tax returns, and claim exempt sales pursuant to existing law. 2)The current SUT exemption was established by AB 3187 (Martinez), Chapter 781, Statutes of 1996. As originally enacted, the exemption provisions included a sunset date of January 1, 2002. In 2001, the author introduced legislation (AB 180, Chapter 383) to delete permanently the exemption's sunset date. Prior to enactment, however, AB 180 was amended in the Senate to instead extend the sunset date to January 1, 2007. In 2006, the author again introduced legislation (SB 1341, Chapter 373) to delete the sunset date outright. The bill was subsequently amended to delay the sunset date to the current date of January 1, 2012. Analysis Prepared by : M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0000945