BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 653 HEARING: 5/4/11
AUTHOR: Steinberg FISCAL: Yes
VERSION: 4/27/11 TAX LEVY: No
CONSULTANT: Miller
TAXING AUTHORITY FOR COUNTIES AND SCHOOL DISTRICTS
Allows counties and school districts to impose income
taxes,
vehicle license fees, excise taxes, oil severance taxes,
with voter approval.
Background and Existing Law
I. Local taxing authority .
Under the California Constitution, local taxes are either
general taxes or special taxes. A "general tax" means any
tax imposed for general governmental purposes. A "special
tax" is any tax imposed for specific purposes. Local
general taxes require majority-voter approval. Special
taxes need 2/3-voter approval.
Under the constitutional municipal affairs doctrine,
charter cities can levy taxes which are not preempted by
the state or federal governments. In contrast to a charter
city, a general law city can impose those taxes allowed by
state statutes. However, the Government Code allows all
general law cities to levy any tax which may be levied by
any charter city unless a different general law limits or
prohibits such a tax. This blanket authority means that a
general law city's authority to tax is similar, but not
identical, to a charter city's authority.
Counties can levy only the local taxes allowed by state
statutes. Unlike charter cities, the charter counties
don't have constitutional authority to levy additional
taxes. Counties can levy utility user taxes, business
license taxes, and transient occupancy (hotel) taxes.
The most common form of local taxation is the sales and use
tax. Under the Bradley Burns Sales and Use Tax there is a
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uniform 1% rate for cities and counties. Cities and
counties use 0.75% to support general operations. The
remaining 0.25% goes for county transportation purposes
(for road maintenance and transit operations). The
counties receive the 0.25% tax for transportation purposes
regardless of whether a sale occurs in a city or in the
unincorporated area.
Cities and counties may impose their own sales taxes, a
transactions and use tax for general or specific purposes.
These taxes can be imposed either directly by the city or
county or through a special purpose entity established by
the city or county. Counties can also establish a
transportation authority to impose district taxes under the
Public Utilities Code, for example the Alameda
Transportation Authority or the Orange County Transit
District may impose the transactions and use tax within the
2% limit in the boundaries of the county. These taxes
requires a 2/3 vote of the people pursuant to Proposition
218.
Currently, 132 local jurisdictions (city, county, and
special districts) levy additional local sales and use
taxes; 40 are county-imposed taxes and 92 are city-imposed
taxes.
The combined rate of the transactions and use tax all
district taxes imposed in any county can't exceed 2%.
District taxes increase the tax rate within a city or
county by adding the district tax rate to the combined
state and local (Bradley-Burns local tax) tax rate of
8.25%.
Generally, district tax rates are imposed at a rate of
0.25% increments up to the 2% limit. Currently, the
district tax rates vary from 0.10% (Fresno County Zoo
Authority) percent to 1%. The combined state, local, and
district tax rates range from 8.375% to 10.75% in the
cities of Pico Rivera and South Gate (Los Angeles County).
Cities and counties must contract with the BOE for the
administration and operation of their local sales and use
tax ordinances.
II. Income tax
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Existing law imposes a state tax on the income earned by
individuals, estates, trusts, and certain businesses. The
income tax is imposed on the entire taxable income of
residents of California and upon the taxable income of
nonresidents derived from sources within California. The
tax for individuals is computed on a graduated scale at
rates ranging from 1% to 9.3%. Proposition 63 (2004) added
a 1% surcharge for incomes over $1 million for mental
health funding which makes the maximum tax rate 10.3%.
Existing state law prohibits local governments from levying
or collecting taxes on an individual income.
The FTB administers several non-tax programs, including
child support collections and delinquent vehicle license
fee collections. To collect on these non-tax debts, the
FTB uses the remedies and information sources available for
collecting personal income tax (PIT) debts. If a debtor
has more than one debt being collected by FTB and the
amount being collected is insufficient to cover all the
debts, state law requires the debts to be paid in the
following order:
Child support.
Income and corporation taxes.
Wages due under the Labor Code.
Vehicle licensing fees.
Court-ordered debts.
Penalties and fees due under the Labor Code.
III. Excise taxes
Alcoholic Beverage Tax. Current law imposes the following
state taxes and surcharges on beer, wine, and distilled
spirits:
-----------------------------------------------------------------
| | Tax |Per | Total |
| | |Gallon | |
| | |Surcharge| |
| | | | |
| | | | |
|-----------------------------------+---------+---------+---------|
SB 653 -- 4/27/11 -- Page 4
|Beer | $0.04 | $0.16 | $0.20 |
|-----------------------------------+---------+---------+---------|
|Wine (d 14 %alcohol) | $0.01 | $0.19 | $0.20 |
|-----------------------------------+---------+---------+---------|
|Wine (>14 % alcohol) | $0.02 | $0.18 | $0.20 |
|-----------------------------------+---------+---------+---------|
|Sparkling wine | $0.30 | $0.00 | $0.30 |
|-----------------------------------+---------+---------+---------|
|Hard cider | $0.02 | $0.18 | $0.20 |
|-----------------------------------+---------+---------+---------|
|Distilled spirits (100 proof) | $2.00 | $1.30 | $3.30 |
|-----------------------------------+---------+---------+---------|
|Distilled spirits (100+ proof) | $4.00 | $2.60 |$6.60 |
-----------------------------------------------------------------
The proceeds from these taxes and surcharges are deposited
in the General Fund.
The Alcoholic Beverage Tax Law states that these excise
taxes are in lieu of any county, city, or special district
taxes on the sale of beer, wine, or distilled spirits, but
does not prohibit the imposition of any sales and use taxes
imposed under the Sales and Use Tax Law, Bradley-Burns Law,
or the Transactions and Use Tax Law
Cigarette and Tobacco Products Tax. The current excise tax
on cigarettes is 87 cents per package of 20 (43 mills per
cigarette). The different components of the cigarette
taxes and the disposition of the revenues are as follows:
10 cents per pack (5 mills per cigarette) goes to the
General Fund.
2 cents per pack (1 mil per cigarette) is allocated to
the Breast Cancer Fund.
25 cents per pack (12 mills per cigarette) goes to the
Cigarette and Tobacco Products Surtax Fund.
50 cents per pack (25 mills per cigarette) goes to the
California Children and Families (CCF) Trust Fund.
For other tobacco products such as cigars, smoking tobacco,
chewing tobacco, snuff, and other products containing at
least 50% tobacco, Proposition 99 (1988) imposes a tax on
the wholesale cost of the tobacco products distributed at a
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rate which is equivalent to the combined rate of tax
imposed on cigarettes.
Oil Severance Tax. Current law imposes the following
taxes, fees, and assessments relating to oil:
Regulatory Assessment. The Division of Oil, Gas, and
Geothermal Resources of the Department of Conservation
imposes a fee on each barrel of oil. Producers of oil
are required to pay the fee, currently $0.1062988 per
barrel. The fee pays for the Division's regulatory work.
Property Tax. Under Property Tax Law, with respect to
oil in the ground, "proved reserves" are subject to
property tax assessment by county assessors.
Oil Spill Prevention and Administration Fee. Existing
law also imposes an Oil Spill Prevention and
Administration Fee of $0.05 per barrel upon persons
owning crude oil when it is received at a marine terminal
from within the state. The fee is also imposed on
operators of pipelines transporting oil in the state
across, under, or through marine waters. This
BOE-administered fee goes into the Oil Spill Prevention
and Administration Fund.
Oil Spill Response Fee. The BOE also collects an oil
spill response fee. A uniform oil spill response fee is
paid by marine terminal operators, pipeline operators,
and refiners in an amount not exceeding $0.25 per barrel
of petroleum product or crude oil. The BOE collects the
fees and deposits all proceeds into the Oil Spill
Response Trust Fund, but only until a maximum of $50
million is available to react to a spill. No fees are
currently being collected since the Oil Spill Response
Trust Fund is at its maximum.
Sales and Use Tax. Imposes a sales or use tax on the
gross receipts from the sale of, or the storage, use, or
other consumption of, tangible personal property, unless
specifically exempted by statute. Under existing law,
sales of gasoline and diesel fuel are generally subject
to a 2.25% and 8.25% statewide state and local sales or
use tax, respectively. In addition to the state portion
of the sales and use tax rate, the local taxes are
imposed by cities and counties and are administered by
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the BOE.
Commencing July 1, 2011, the statewide state and local
sales and tax rate for diesel fuel will decrease from
8.25% to 5.38%, and thereafter change annually to a rate
specified in existing law through 2014-15.
Excise Taxes. Under the Motor Vehicle Fuel Tax Law, the
state imposes an excise tax of $0.353 per gallon ($0.18
excise tax and $0.173 surtax) on the removal of gasoline
(except for aviation gasoline) at the refinery or
terminal rack, upon entry into the state, and upon sale
to an unlicensed person. This surtax tax is subject to
an annual adjustment, that balances the revenues from the
additional excise taxes on gasoline against the state
General Fund sales and tax exemption on gasoline. The
BOE set the excise tax rate on motor vehicle fuel at
$0.357 per gallon for the period of July 1, 2011 to June
30, 2012.
The Diesel Fuel Tax Law also imposes an excise tax of
$0.18 per gallon similar to the Motor Vehicle Fuel Tax
Law. The diesel fuel tax rate will decrease to 13 cents
per gallon on July 1, 2011.
Federal law imposes an additional per gallon tax on
gasoline and diesel fuel of 18.4 cents and 24.4 cents,
respectively.
Sweetened Beverage Tax. State and local sales and use
taxes are imposed on tangible personal property unless
specifically exempted. Food products are excluded from the
tax. Food products include all fruit juices, vegetable
juices, and other beverages, including bottled water, but
exclude carbonated beverages.
Currently, the total combined sales and use tax rate is
between 8.25% and 10.75%, depending on where the
merchandise is sold. The BOE does not collect any
additional taxes or fees on nonalcoholic sweetened
beverages.
Proposed Law
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Senate Bill 653 authorizes the governing body of any county
or city and county, or school district, subject to
Constitutional voter approval requirements, to levy,
increase, or extend the following taxes:
A local personal income tax not to exceed 1% on any
of all of the residents of the county or school
district.
A local vehicle license fee not to exceed 1.35%.
An additional transactions and use tax which would
be excluded from the current 2% combined county and
city rate limit.
The bill allows for local excise taxes but does not limit
counties and school districts to these taxes.
Specifically, the bill allows:
Alcoholic beverage tax of five cents per 5 ounces
and at a proportionate rate for any other quantity.
The tax would be imposed on the seller, not the
consumer.
Cigarette and tobacco products tax of up to five
cents per cigarette or $1 per pack.
Oil severance tax not to exceed 10 % of the gross
value of the product upon a producer for the privilege
of severing oil from the earth or water in the county
for sale, transport, consumption, storage, profit, or
use, as authorized.
Sweetened beverage tax not to exceed once cent per
fluid ounce.
Local medical marijuana tax
For the alcohol beverage tax, the bill states that any tax
imposed would not be regulatory within the meeting of
Section 22 of Article XX of the California Constitution,
which pertains to the regulation of the manufacture, sale,
purchase, possession and transportation of alcoholic
beverages.
SB 653 requires the BOE, the Franchise Tax Board, and the
Department of Motor Vehicles to perform various functions
related to the administration and collection of a local tax
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if the county or city and county contracts with the state
agency to perform those functions.
For the oil severance tax, this bill exempts a stripper
well in which the average value of oil as of January 1 of
the prior year is less than thirty dollars ($30) per barrel
price of California oil. The DOC would provide
notification of all wells that have been certified as a
stripper well. A "stripper well" means a well that has
been certified by the DOC as an oil well incapable of
producing an average of more than 10 barrels of oil per day
during the entire taxable month.
The bill also exempts from the local tax all oil owned or
produced by the state and any political subdivision's
proprietary share of oil produced under any unit,
cooperative, or other pooling agreement.
No exemption is provided from payment of an ad valorem tax
related to equipment, material, or other property by reason
of the payment of the gross severance tax pursuant to the
Act.
The local tax would be reduced to zero for a period of 10
years for oil produced from a well that qualifies as a
"hazardous well" or "idle-deserted well") or which has been
inactive for at least the preceding five consecutive years.
The DOC must determine which wells qualify under these
provisions.
State Revenue Impact
If all counties were to impose the taxes allowed by SB 653
the following amounts could be generated:
1% personal income tax on all residents: $8
billion.
0.5% sales and use tax (the bill does not specify a
rate): $2.2 billion.
1.35% VLF: $3.8 billion.
2% oil severance tax: $378 million.
$1 per pack of cigarettes: $813 million.
5 cents per drink: $16.1 million.
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Comments
1. Purpose of the bill . The author introduced this bill
to let the bill decide on their level of services in the
county and school districts by choosing whether or not to
tax themselves. The California Constitution reminds us
that "All political power is inherent in the people."
California certainly has a rich history of direct
democracy. According to the author, if the voters are not
allowed to participate in the decision to extend state
taxes, the Legislature must explore alternative methods of
funding state and local programs. Furthermore, the author
states that counties are political subdivisions of the
state which administer state and federal programs for
public safety, public health, child welfare services, and
other programs. If state tax extensions ultimately are not
approved, state budget cuts will burden counties with new
program costs that could jeopardize public health and
safety. SB 653 gives counties and schools the tools to
raise local revenues, if their voters agree that revenues
should be part of the solution.
2. This way, that way, the other way. The groups and
associations that oppose this bill argue that these local
taxes will limit economic growth by lifting decades-old
restrictions that prohibit counties from proposing these
local taxes. They say that this bill effectively
eliminates a business's ability to plan out long-term
costs, because business would be forced to reckon with 58
tax jurisdictions, plus school districts, each of which may
impose taxes that have different applications, regulations,
and rates.
3. Tax the man behind the tree. The late U.S. Senate
Russell Long famously said, "Don't tax you, don't tax me,
tax the man behind the tree." If somebody must be taxed to
pay for vital services, who should it be and who should
decide? Proponents note that charter cities already enjoy
broad authority to impose taxes that are not preempted by
state law, and cities have used this authority responsibly.
As a result, there are some differences in the tax bases
and tax rates of different cities, but these differences
are not a significant impediment to business activity.
Furthermore, voters will exercise the authority granted
under SB 653 responsibly. Business ultimately will benefit
if SB 653 stabilizes funding for vital public services.
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4. Blame it on the alcohol. SB 653 allows local officials
to alcoholic beverages and states that the tax should not
be construed as regulatory. Existing law authorizes local
governmental entities to levy specified taxes, but
prohibits the imposition of local taxes by any city,
charter city, town, county, charter county, city and
county, or other political subdivision or agency, on the
sale, use, ownership, holding, or other distribution of
alcohol products, except as provided. Existing law
specifically states that state alcohol taxes and excise
taxes on alcohol are in lieu of any locally imposed tax.
This bill deletes the "in lieu" provisions of existing law
and also states that the tax should not be construed as
"regulatory" which would violate the Constitution.
Proponents argue that this bill does not violate the
constitutional preemption because it does not amend or
change the "exclusive right and power �of the state] to
license and regulate the manufacture, sale, purchase,
possession, and transportation of alcoholic beverages."
Opponents, however, argue that the Constitution bans any
local taxation of alcohol; the tax allowed by this bill is
an extension of the regulatory prohibition in this bill.
The opponents state that the Constitution prohibits local
excise taxes on alcohol if they are directed at alcohol
(companies, sales, or otherwise). A tax on "tangible
personal property" generically, for example, (whether on
sale or value) was held constitutional because it was not
specific as to alcohol or singled out alcohol (Ainsworth v.
Bryant (1949) 34 Cal.2d 465, 211 P.2d 564.) The types of
taxes contemplated by SB 653, however, would be directly on
alcohol. While the Constitution speaks of "license and
occupation" taxes, the courts have viewed the prohibition
as including any tax which singles out alcohol for special
or unique taxation (A.B.C. Distributing Co. v. City and
County of San Francisco 15 Cal.3d 566 (1975)).
Although there have been some court cases related to this
topic, the courts have not definitively ruled on the
constitutionality of a locally imposed tax on alcohol. As
well as providing for the regulation and license of
alcohol, the California Constitution also allows for the
imposition of the excise tax by the state. For a previous
bill, SB 626 (Romero, 2005) Legislative Counsel tentatively
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opined that although this has not been decided by the
courts and there is not a bright line test of
constitutionality, this proposal could be considered an
extension of the state's right to impose an excise tax.
Furthermore, the Constitution could be understood to
prohibit the taxes under the regulatory section, such as
occupancy taxes and license fees, not necessarily excise
taxes or a tax that is proposed in this bill for alcohol
consumed on the premises.
5. Sideways. Most drinkers might want to open a 1961
Ch�teau Cheval Blanc, most wine sold in California is under
$6.99 a bottle. The estimated price elasticity of demand
is very sensitive. A recent study showed that for every 1%
increase in the price of wine, the sale of that wine will
decrease between 0.5% to 1.8%. A five cent increase,
according to the study, could reduce the gallons sold
between 5.2 million and 17.2 million per year. The
Legislators may wish to consider whether this bill will
adversely impact the wine industry in this state or if the
small numbers of counties that will adopt the tax in the
short term will not be significant enough to alter the
market.
6. The Ottoman Empire. Just as the Ottoman Empire
fragmented the Balkan Peninsula between 1817 and 1912, the
opposition argues that SB 653 will balkanize the state by
creating different levels of services in different counties
and school districts that approve the taxes. Serrano v.
Priest (18 Cal. 3d 728 Dec, 1976) held that California's
former method of funding public education, "fails to meet
the requirements of the equal protection clause of the
Fourteenth Amendment of the United States Constitution and
the California Constitution," because of district to
district disparities.
Existing parcel taxes differ by county to fund school
services and these taxes have not been challenged on the
equalization argument. There are many outstanding
questions regarding the Serrano decision:
Serrano decision has not been analyzed in the
context of voter approved taxes.
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"Equalization" has not been considered with a
significant state shortfall.
Since Serrano not all school funding has been equal
across the state such as "basic aid districts" that
get no state aid.
Serrano has never been analyzed with regard to
Proposition 98.
Because SB 653 does not impose taxes but allows counties
and school districts to impose them with voter approval,
this bill does not violate Serrano as it does not set up
any funding levels.
7. The Austro-Hungarian Empire and the Russian Empire.
After these empires collapsed, numerous states were created
popularizing the term "balkanization." The opposition is
concerned that balkanization is problem for all counties
stating that California's Constitution requires government
in each of the 58 counties to provide services in a manner
that does not penalize disadvantaged communities. Many
lower-income areas throughout California have a smaller tax
base, meaning they would not be able to obtain as much
revenue from higher taxes as communities with higher-income
individuals. Because SB 653 would allow counties to
increase taxes to fund local government, lower-income
regions of the state would not be able to provide the same
quality of services as communities with a higher tax base.
There is no legal precedent that communities cannot decide
themselves on different levels of services such as toll
roads, bridges, and health services that differ widely by
counties.
To the extent there is a requirement for a minimum level of
service statewide under federal law, but the state cuts
these services and no longer qualifies for federal funds,
there may be in fact be no Constitutional issue because the
state will not be able to provide the services. For
example, the child welfare program is already on notice
from the Federal government requiring a minimum level of
services.
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The author disputes the opposition's claim suggesting that
the choices are not a level of services but rather no
services at all. Furthermore, the author states that while
an equal level of services is preferred, the only way to
avoid teacher, police and firefighter lay-offs in certain
counties is to give them the option to tax themselves.
The issues of different levels of services in the context
of a $28 billion shortfall pose many policy questions:
Should all services be funded and equalized
throughout the state?
Should different communities be able to decide on
different levels of services?
By providing different tax rates for different
counties and different school districts, is this bill
creating a disparity not only in vital services from
transportation to health and welfare across counties
but also to different school districts?
Should there be any limits to voter rights as they
relate to all local taxation?
8. Call a chiropractor? The California State Association
of Counties (CSAC) supports SB 653 because it gives
counties more choices. CSAC, however, makes it clear that
the funding sources allowed in this bill should not be
expected to pay for any part of the $5.4 billion
realignment package the Legislature passed. The author has
been clear that this bill is not intended to be the funding
source for any part of the realignment program, including
public safety. The Committee may wish to consider an
amendment that clearly declares the Legislature's intent
not to substitute the bill's new revenues for realigned
programs.
9. What is an excise tax? Without specifically defining
"excise taxes," SB 653 allows counties and schools to
impose them with voter approval. An excise tax is usually
levied on specific goods or commodities produced or sold
within a country, or on licenses granted for specific
activities. According to the bill's opponents, an excise
tax could be construed as anything other than an ad valorem
property tax. If that is the case, the "notwithstanding"
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language in the bill may allow counties to impose
corporation taxes. The Committee may wish to consider
amending SB 653 to define excise tax.
10. Of benefits and burdens . To the extent that this bill
results in disparate income tax rates, opponents of this
measure argue that this bill will affect residential
decisions of certain taxpayers. For example, when choosing
between San Francisco and Concord, some taxpayers might
choose to reside in a county that doesn't tax their
incomes. To the extent that disparate effective income tax
rates influence the relative population growth of cities,
the surtax could prove counterproductive to the goal of
increasing the local tax base. Proponents argue to the
contrary and note that communities that give voters the
option of enacting this tax will demonstrate their
commitment to protecting and enhancing the local quality of
life. Communities that enact the tax will become magnets
for residents concerned about education, public safety and
local services.
Furthermore, commuters and tourists who benefit from public
safety services and other local services funded by local
taxes would not be required to share in the added tax
burden, which would be borne entirely by residents.
Therefore, opponents state that this bill would provide
inequitable treatment for certain classes of taxpayers. A
local income tax would not be levied against individual
taxpayers who do not have a PIT filing requirement or
businesses and corporations that reside or do business
within the area of the general tax, even though everyone
benefits from fire department services.
11. In good company. While there are some administrative
burdens to imposing a local income tax, there are at least
two examples of local income taxes in other states.
Yonkers and New York City impose a progressive income tax
with returns handled by the Department of Taxation and
Finance. 22 cities in Michigan impose a 1.0% to 2.60%
income tax on residents and 50% to 1.30% tax on
nonresidents with returns handled by the individual city.
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12. But there already is a law. Under the transactions
and use tax, the combined rate of all taxes imposed in a
county cannot exceed 2%. However, this bill contains a
provision that excludes a district tax levied under the
authority in this bill from that cap. Currently, there are
27 counties for which one or more transactions and use
taxes are being imposed countywide. Also, there are 15
counties for which no countywide transactions and use tax
is being imposed, but where a city or multiple cities in
the county are imposing a transactions and use tax.
Counties and cities may impose local taxes as long as the
combined rate in the county does not exceed 2%. The city
taxes count against the 2% limit. Currently, there are
three counties that are prohibited from enacting new local
taxes because certain cities in those counties that have
pushed them to the 2 percent limit (Alameda, Contra Costa,
and Los Angeles).
13. To lead or follow. The first county to enact a new
tax under SB 653 will incur the entire cost for
implementation, while counties that enact taxes later will
escape startup costs. To prevent disputes between
counties and the FTB, BOE or DMV, the Committee may wish to
consider an amendment that specifies how costs will be
allocated among the counties that enact local taxes.
14. To make it work. The bill would make the operative
date of the bill for taxable years beginning on or after
January 1 of the first calendar year following approval by
the voters, conditioned on the county elections official
providing notice no later than September 30 of the
preceding year. The bill is silent regarding who is to
receive notice from the county. The Committee may wish to
consider an amendment that specifies that notice of a voter
approved local personal income tax would be required to be
provided to the FTB.
The bill reimbursement structure requires the FTB to borrow
funds from the General Fund programs it administers to
implement and maintain the local personal income tax
programs until the county can reimburse those amounts at a
later date. The FTB lacks sufficient resources to fund the
local personal income tax program for any period without
putting at risk the core mission of state income tax
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administration. The Committee may wish to consider and
amendment that parallels the process in place between the
Board of Equalization and local entities for local sales
tax administration, the amounts transferred to the county
be a net amount of funds collected reduced by the amount of
costs, refunds, adjustments, or losses incurred by the FTB
in administering the local personal income tax.
Local tax officials can obtain tax information from the
FTB only upon affidavit. When the tax official requests
the tax information, he or she must provide a copy of the
affidavit to the taxpayer whose information is sought, and
upon request, make the obtained information available to
that person. If Legislators want county tax officials to
receive information through a different process, the
committee may wish to consider amendments that express
authorization for the FTB to provide information relative
to the local personal income tax reported, paid, or
collected would need to be authorized under the bill.
The FTB lacks the resources to identify taxpayers by county
of residence and would need to rely on taxpayers self
declaring their residency on their state income tax return.
In cases where a taxpayer is subject to a local personal
income tax and fails to file a state income tax return, the
department lacks the data to identify the county of
residence with certainty because most income data received
by the department reflects the taxpayer's mailing address,
which may not be in the same county as the taxpayer's
county of residence. Calculating an estimated local
personal income tax liability based on a taxpayer's "last
known address" could result in inaccurate amounts being
remitted to the affected counties.
According to the FTB, the bill lacks administrative details
that must be determined before it can be implemented. The
bill is silent on the following issues:
Payment priority between state income tax and use
tax reported on the return, which are both sources of
General Fund revenues, and the local personal income
tax.
The treatment of taxpayers filing jointly that do
not both reside in the county that has imposed the
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income tax.
Because of California residents' mobility, how
would residency in a county be determined?
Would wage withholding of amounts estimated to
cover the local personal income tax be required?
Would estimate tax payments be required? Would
revisions to the Unemployment Insurance Code and
withholding table requirements be needed?
Because the county of residence is unknown, how
would non-filer enforcement efforts be applied?
It is recommended that the bill be amended to specify these
conditions so that there is no confusion as to the author's
intensions.
The BOE notes the following concerns with the bill which
the author is committed to resolving:
Alcoholic Beverage Tax. Chapter 3.55 would
authorize the imposition of a tax on the privilege of
selling beer, wine, or distilled spirits at retail in
the county. The imposition language is not clear with
respect to the taxpayer or the point of imposition of
the local tax. For example, would the local tax be
imposed upon the retailer at the time of sale at
retail? Or would the tax be imposed upon consumers,
but required to be collected by the retailer at the
time of sale? These provisions should be amended, in
part, to clearly identify the taxpayer, the imposition
of tax, administrative provisions, return and payment
due dates and to authorize the payment of refunds.
In addition, Section 7289.23 states that this tax
shall conform to Part 1.6 of the Transactions and Use
Tax Law. However, the second sentence of this
section, states that a tax imposed pursuant to this
part is not a sales tax, or a transactions and use
tax. What is a tax on the privilege of selling if not
a sales tax? The language is contradictory.
And lastly, Section 32010, which this provision would
amend intending to authorize a local alcoholic
beverage tax, incorrectly references the proposed
local cigarette and tobacco products tax. As such,
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this section should be amended to correctly reference
the local alcoholic beverage tax imposed pursuant to
Chapter 3.55 (commencing with Section 7289.20).
Cigarette and Tobacco Products Tax. Section 30111,
which this provision would amend intending to
authorize a local cigarette and tobacco products tax,
incorrectly references the proposed local alcoholic
beverage tax. As such, this section should be amended
to correctly reference the local cigarette and tobacco
products tax imposed pursuant to Chapter 3.56
(commencing with Section 7289.30).
Severance Tax. Section 7289.40(f) provides a
stripper well exemption if the average value of oil as
of January 1 of the prior year is less than thirty
dollars ($30) per barrel price of California Oil.
This provision should include a date by which this
determination must be made by the BOE and when the
exemption would become effective if the criteria is
met. Also, is it the author's intent that January 1
be the basis of the exemption, or a period of time
(such as a fiscal year)?
In addition, the provisions of the local severance tax
should also clarify that the DOC shall notify the BOE
of its findings with respect to stripper well
certification and wells that qualify under Public
Resources Code Section 3251 or which have been
inactive, as described.
Also, Section 7289.44 contains duplicative language
with respect to the due date for the severance tax
return and payment.
And lastly, a definition should be added for the term
"in this state" and the definition for the term
"producer" revised to more clearly identify the
taxpayer. In its current form, it appears there could
be more than one taxpayer, which may cause confusion
and result in reporting errors.
Sweetened Beverage Tax. Chapter 3.58 (county
sweetened beverage tax) should be amended to
incorporate clear and concise language related to the
due date of the payment of tax and return and language
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that would add a mechanism for a distributor (who is
also a retailer) to report and pay the tax on
beverages and concentrate purchased ex-tax under an
exemption certificate in cases where the beverage is
consumed by the distributor or sold at retail.
The language should also add distributor invoicing
provisions, such as requiring a distributor to
separately state the amount of tax due to the BOE from
the distributor on the receipt, invoice, or other form
of accounting of the transaction given to the
retailer, and to include on each receipt, invoice, or
other form of accounting for the distribution of
beverages and concentrate, the following: (1) the
name and address of the distributor; (2) the name and
address of the purchaser; (3) the date of sale and
invoice number; and (4) the kind, quantity, size, and
capacity of packages of beverages sold.
And lastly, on page 24, line 9, "producer" should be
replaced with "distributor."
General. Section 7289.27 appears to conflict with
Section 7273, Charges for administering the taxes.
Does Section 7289.27 (d) override Section 7273 so that
if the county contracts with the BOE, the BOE can
recover its full administrative costs? It appears
that the BOE would be able to recover all of its
costs, but the language is not clear.
15. Have we met before? Various legislation in past years
and in this Legislative session relate to the provisions of
this bill.
SB 223 (Leno) imposes a local VLF. On April 27,
the Senate Governance and Finance Committee passed SB
223 by a vote of 6 to 3.
AB 686 (Huffman) decreases the rate at which cities
and counties may levy, increase, or extend a
transactions and use tax to from 0.25% to 0.125%
This bill is on the Assembly Revenue & Taxation
Committee suspense file.
AB 1086 (Wieckowski) authorizes Alameda County to
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impose a transactions and use tax, in excess of the 2%
combined rate limitation of transactions and use taxes
imposed within any county, to support countywide
transportation programs. This bill just passed out of
the Assembly Revenue & Taxation Committee on a 6-3
vote.
SB 10 (Leno, 2009) would have required the FTB to
report to the DMV the estimated revenue loss as a
result of deductions taken by residents of any county
that has passed a voter approved local VLF. This bill
failed to pass out of the Assembly.
AB 1342 (Evans, 2009) would have authorized the
board of supervisors of any county to place on a
ballot by ordinance, subject to voter approval,
provisions to impose a local personal income tax and
or a local VLF. This bill was held in the Assembly
Revenue and Taxation Committee.
SB 297 (Romero, 2007) would have authorized a
county to impose a tax on the retail sale of beer,
wine or distilled spirits sold for consumption on the
premises of the seller. SB 297 died in Senate
Governmental Organization Committee without being
heard.
AB 1590 (Leno, 2007) would have required the FTB to
provide an estimate of the revenue loss to the state
as a result of deductions taken by residents of the
City and County of San Francisco for a local VLF
assessment. This bill was held in the Senate Revenue
and Taxation Committee.
SB 656 (Romero, 2005-06) and SB 726 (Romero,
2003-04) proposed local alcohol taxes which were
identical to those in this bills but both died in
Senate Revenue and Taxation Committee.
Support and Opposition (4/28/11)
Support : American Federation of State, County, Municipal
Employees, State Council; California Labor Federation;
California School Employees Association; California State
SB 653 -- 4/27/11 -- Page 21
Parent, Teacher Association; Los Angeles Unified School
District; San Bernardino Unified School District; San
Francisco Unified School District; Service Employees
International Union, State Council; California State
Association of Counties; Yolo County.
Opposition : Air Logistics Corporation; American Council of
Engineering Companies; Anheuser-Busch Companies Inc.;
Association of California Life and Health; Insurance
Companies; California Aerospace Technology Association;
California Apartment Association; California Association of
Bed and Breakfast
Inns; California Attractions and Parks Association;
California Bankers Association; California Beer and
Beverage Distributors; California Business Properties
Association California Cable and Telecommunications
Association; California Chamber of Commerce; California
Farm Bureau Federation; California Grocers Association;
California Hotel and Lodging Association; California
Independent Grocers Association; California Manufacturers
and Technology Association; California Taxpayers
Association; California/Nevada Soft Drink Association;
California New Car Dealers Association; California
Restaurant Association; California Retailers Association;
California Spa & Pool Industry Education Council; Council
on State Taxation (COST); Direct Selling Association;
Distilled Spirits Council of the United States; Family
Winemakers of California; Granite Construction
Incorporated; Grocery Manufacturers Association; Howard
Jarvis Taxpayers Association; Insurance Brokers & Agents of
the West; Los Angeles County Business Federation; Motion
Picture Association of America; National Association of
Theatre Owners of California/Nevada; National Federation of
Independent Business; Personal Insurance Federation of
California; TechAmerica; Western Growers Association;
Western States Petroleum Association; Wine Institute.