BILL ANALYSIS Ó
AB 686
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ASSEMBLY THIRD READING
AB 686 (Huffman)
As Amended March 9, 2011
Majority vote
REVENUE & TAXATION 6-3
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|Ayes:|Perea, Beall, Charles | | |
| |Calderon, Cedillo, Alejo, | | |
| |Gordon | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Harkey, | | |
| |Nestande | | |
| | | | |
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SUMMARY : Decreases the rate at which a county or city may levy,
increase, or extend a transactions and use tax (TUT) from 0.25%, or
a multiple thereof, to a rate of 0.125%, or a multiple thereof.
Specifically, this bill authorizes:
1)A county board of supervisors to levy, increase, or extend a TUT
at a rate of 0.125%, or a multiple thereof, instead of 0.25%, if
all of the applicable requirements are satisfied.
2)The governing body of a city to levy, increase, or extend a TUT at
a rate of 0.125%, or a multiple thereof, instead of 0.25%, if all
of the applicable requirements are satisfied.
FISCAL EFFECT : The Board of Equalization (BOE) staff projects that,
if all of the special taxing jurisdictions in the state increase a
TUT by 0.125%, the annual gain in revenue would be $770 million in
fiscal year (FY) 2012-13 and $818 million in FY 2013-14.
COMMENTS :
Author's statement . The author states that, "Current law allows
cities and counties to propose tax measures to voters to pay for
local services, such as public safety, schools, roads, parks, or
libraries. This bill will allow voters to approve taxes in smaller
increments, giving local governments flexibility to raise a more
targeted amount of money to meet a specific community need while
retaining current requirements for voter approval of tax measures."
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Arguments in support . The Marin County Board of Supervisors, the
sponsor of this bill, argues that "county governments need the
flexibility to ask their voters for more discrete levels of revenue
augmentations that can be used for locally targeted needs." The
proponents further assert that during "these times of financial
challenges, local agencies need as much flexibility as possible to
adapt to changing circumstances" and to address "local challenges
while still ensuring appropriate oversight from the voting public."
Arguments in opposition . The opponents argue that fewer "rates
improve the structure of the sales tax and ease compliance for
taxpayers. "They state that additional increments, "half-percents,
eights and sixteenths of a percent complicate the sales tax" and
this bill "would further distort the intention and design of
California's local sales tax."
Purpose of this bill . According to the author, by allowing local
governments to propose tax increases to voters in smaller
increments, this bill would provide needed flexibility and an
important tool for local governments to fund local services, such as
police, fire, schools, local transportation projects, parks and
libraries.
Background . Under existing law, cities and counties may impose a
district tax, in increments of 0.25%, for general or special
purposes, subject to voter approval, provided that the combined rate
of tax does not exceed 2%. These taxes may be imposed either
directly by the city or county, or through a special purpose entity
established by the city or county. Counties may also create a
transportation authority to impose district taxes under the Public
Utilities Code. As of April 1, 2011, 132 local jurisdictions,
including cities, counties, and special purpose entities, impose a
district tax for general or specific purposes. Generally, a
district tax is imposed at a rate of 0.25%, or 0.25% increments, up
to the 2% limit. Some cities and counties have more than one
district tax, while others have none. Currently, the district tax
rates vary from 0.10% to 1%. Because the combined rate of all
district taxes imposed within a county cannot exceed 2%, the current
maximum combined state, local, and district rate is 10.25% (with the
exception of two cities: the City of South Gate and the City of
Pico Rivera that have a combined district tax rate of 10.75%).
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New authority for cities and counties to impose a TUT at a lower
rate . As discussed, cities, counties, and special districts are
authorized to impose a general or special tax subject to voter
approval, up to a total combined rate of 2%. This bill does not
increase the 2% maximum combined rate of tax nor does it confer onto
local governments any new authority to impose a district tax. What
this bill proposes to do is simply allow local governments to impose
a TUT at a rate of 0.125% rather than 0.25%. The BOE notes that
counties, generally, impose TUTs at a rate of 0.25%, with the
exception of the district tax imposed for library purposes ÝSB 154
(Thompson), Chapter 88, Statutes of 1997]. However, it appears that
the Legislature set the rate of special tax at 0.25% as a matter of
convenience, and not for any particular policy reason.
Will this bill help counties to raise more money ? The stated
purpose of this bill is to change counties' ability to raise funds
to fund local services. As discussed, by providing for a lower rate
of tax, this bill would allow local governments to levy a lesser tax
that could support smaller projects and be more acceptable to the
local voters. However, this bill does not increase the 2% cap, and
thus, may be of very little use to counties that either have already
reached (Los Angeles County), or are close to reaching, the 2%
maximum combined rate limit (for example, Alameda, Contra Costa, and
San Diego).
BOE administrative costs and concerns . Cities and counties are
required to contract with BOE to administer district taxes. If a
city or a county were to adopt a district tax at a lower rate of
0.125%, pursuant to this measure, it would be required to contract
with, and reimburse BOE for, the actual administrative costs
associated with the new tax. Costs for preparation and
administration of this tax would be essentially the same as those
associated with administering the 0.25% rate. However, the net
revenue from imposing a tax at a rate of 0.25% versus a tax at a
rate of 0.125% would be cut in half.
The BOE staff also highlights an additional accounting burden on
retailers associated with the new tax rate of 0.125%. While
existing law authorized the imposition of a district tax at a rate
of 0.125% for library purposes, only four counties currently levy a
library district tax - the County of Fresno, the County of Nevada,
the County of Solano, and the County of Stanislaus. The retailers
would be required to update their computer programs for proper
reporting and accounting if this bill were enacted.
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Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098
FN: 0000393