BILL ANALYSIS Ó
AB 143
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Date of Hearing: April 1, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 143 (Holden) - As Amended: March 4, 2013
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Use taxes: exemption: Armed Forces: National Guard:
transfer orders
SUMMARY : Exempts from use tax qualified tangible personal
property (TPP) purchased by an active duty member of the Armed
Forces, the reserve components of the Armed Forces, or the
National Guard (collectively, 'servicemembers'), under specified
circumstances. Specifically, this bill :
1)Exempts from use tax qualified TPP purchased outside
California by an active duty servicemember prior to the report
date on official orders transferring the servicemember to this
state, "or his or her spouse . . ."
2)Excludes vehicles, vessels, and aircraft from the exemption.
3)Provides that, notwithstanding existing law, the state shall
not reimburse local agencies for any use tax revenues lost as
a result of this exemption.
4)Takes immediate effect as a tax levy. However, this bill's
provisions shall only become operative on the first day of the
first calendar quarter beginning more than 90 days after the
bill's effective date.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
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
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tax, unless the use is exempted. The use tax is set at the
same rate as the state's sales tax and must generally be
remitted to the State Board of Equalization (BOE).<1>
3)Presumes that TPP shipped or brought to this state by the
purchaser was purchased for storage, use, or other consumption
in California.
4)Establishes a rebuttable presumption that any vehicle, vessel,
or aircraft purchased outside this state, which is brought
into California within 12 months of purchase, was acquired for
storage, use, or other consumption in this state and is
subject to use tax, as specified. A member of the armed
services on active duty who purchases a vehicle before being
discharged is not subject to this presumption, however.
5)Allows a credit against the use tax to the extent that a
purchaser has paid a retail sales or use tax on the TPP in
another state, political subdivision thereof, or the District
of Columbia prior to the TPP's storage, use, or other
consumption in California.
FISCAL EFFECT : The BOE estimates that this bill's revenue
impact would be "insignificant."
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Our brave men and women in the Armed Forces sacrifice every
day to protect and defend the United States of America. In
the recent two wars, over two million American military
personnel have been called to serve in Afghanistan and
Iraq, and more than 40 percent of them have been deployed
more than once. California is home to 12.9 [percent] of
the active duty members stationed in the United States.
Under current law, any purchases by an active duty member
of the military from an out-of-state retailer would be
subjected to Use Tax, if the military member were to be
redeployed to California within three months of purchase.
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<1> As an alternative to reporting use tax directly to the BOE,
existing law allows purchasers to report use tax on their state
personal income tax returns or their state corporation franchise
or income tax returns.
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AB 143 would exempt active military members who are
transferring into California on official military business.
It is commonsense legislation that will alleviate [an]
unnecessary tax burden on our active military members.
2)Proponents state that, "We feel that this is an awesome step
forward in continuing a tradition of ensuring that our active
duty military personnel are not given any undue burden as a
result of the circumstances beyond their control."
3)Committee Staff Comments :
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, United
States Treasury officials began arguing that these features
of the tax law should be referred to as "expenditures,"
since they are generally enacted to accomplish some
governmental purpose and there is a determinable cost
associated with each (in the form of foregone revenues).
This bill would establish a new tax expenditure in the form
of a use tax exemption for certain TPP purchased by active
duty servicemembers.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should also be noted that, once enacted, it generally
takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. This effectively results
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
c) Background on California's use tax : Existing law
regards TPP bought outside of California as purchased for
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use in this state (and therefore subject to use tax) if the
property's first functional use is in California. Even
when the property's first functional use occurs outside
California, however, existing law nevertheless presumes
that it was purchased for use in this state if it is
brought into California within 90 days of purchase.<2>
d) A solution in search of a problem? : As a result of the
90-day presumption outlined above, there could be
situations in which an active duty servicemember
technically incurs a use tax liability upon being
transferred to California. For example, if a servicemember
purchased a television in Nevada within 90 days of being
transferred to California, and subsequently moved the
television to California, existing law would presume that
the television was purchased for use in this state. It
should be noted, however, that the servicemember's
California use tax liability would be offset by the amount
of sales tax paid in Nevada. The servicemember would then
be responsible for reporting this differential amount to
the state. As a practical matter, the BOE's Sales and Use
Tax staff are unaware of any servicemembers being assessed
a use tax liability upon being transferred to California.
e) Accepted amendments : The author has agreed to take
amendments in Committee to: (1) clarify the bill's
language; (2) extend the exemption to registered domestic
partners of qualifying servicemembers; and (3) include a
sunset date after five years. As amended, proposed Revenue
and Taxation Code Section 6412 would read as follows:
(a) The storage, use, or other consumption in
this state of qualified tangible personal property
is exempt.
(b) For purposes of this section, "qualified
tangible personal property" means tangible personal
property purchased while outside this state by a
qualified service member or a qualified service
member's spouse or registered domestic partner prior
to the report date on official orders transferring
the qualified service member to this state.
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<2> An exclusion exists for property used or stored outside
California one-half or more of the time during the six-month
period immediately following its entry into this state.
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"Qualified tangible personal property" shall not
include a vehicle, vessel, or aircraft.
(c) For purposes of this section, "qualified
service member" means a member of the Armed Forces
of the United States on active duty, a member of
reserve components of the Armed Forces of the United
States on active duty, or a member of the National
Guard on active duty.
(d) For purposes of this section, "registered
domestic partner" means a person that meets the
requirements of Section 297 of the Family Code, and
includes a person in a union recognized as a valid
domestic partnership as provided in Section 299.2 of
the Family Code.
(e) This section shall remain in effect only
until December 1, 2018, and as of that date is
repealed.
REGISTERED SUPPORT / OPPOSITION :
Support
American Legion - Department of California
AMVETS - Department of California
California Association of County Veterans Service Officers
California State Commanders Veterans Council
State Board of Equalization
State Board of Equalization Member George Runner
Veterans Democratic Club of Sacramento County
VFW - Department of California
Vietnam Veterans of America - California State Council
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
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