BILL ANALYSIS �
AB 163
Page A
Date of Hearing: April 1, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 163 (Atkins) - As Introduced: January 23, 2013
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and Use Tax Law: exemption: military thrift
stores
SUMMARY : Extends indefinitely the current sales and use tax
(SUT) exemption for tangible personal property (TPP) sold by
thrift stores that are both located on a military installation
and operated by a "military welfare society" for specified
purposes. Specifically, this bill :
1)Deletes the January 1, 2014, sunset date for the military
thrift store exemption statute, thereby extending the
exemption indefinitely.
2)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW defines the term "military welfare society"
to mean one of the following organizations:
1)Army Emergency Relief;
2)Air Force Aid Society, Inc.;
3)Navy-Marine Corps Relief Society (Society); or,
4)Coast Guard Mutual Assistance.
EXISTING STATE 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
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the California use tax, the purchaser remains liable for the
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 no general exemption from SUT simply because the
seller or purchaser is engaged in charitable activities.
4)Provides a SUT exemption, until January 1, 2014, for TPP sold
by a thrift store that is both:
a) Located on a military installation; and,
b) Operated by a military welfare society that, in
partnership with the United States (U.S.) Department of
Defense, provides financial, educational, and other
assistance to members of the Armed Forces, eligible family
members, and survivors in need.
5)Provides that the state will reimburse counties and cities for
revenue losses caused by the enactment of SUT exemptions.
FISCAL EFFECT : The BOE estimates that this exemption results in
$15,610 in annual state and local SUT revenue losses.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
[The Society] is a private non-profit charitable
organization that operates thrift stores on Navy or Marine
Corps bases across California. The income generated
through thrift store sales is used to provide financial,
educational and other general assistance to active duty
personnel and military veteran families. The sales tax
exemption for [Society] thrift stores is an important part
of California's commitment to its veterans.
To date, [Society] thrift stores have provided $13.4
million in financial assistance to active duty and retired
military personnel, and have provided 3,500 military
families with financial education classes. [The Society]
will be unable to provide their current level of service if
they are required to pay California sales taxes.
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This bill will bring the exemption for [Society] thrift
stores in line with exemptions for other thrift stores such
as the Goodwill, which is permanently exempted from
California sales tax.
2)This bill is supported by the Society, which notes:
Since 1904, [the Society], a nonprofit charitable
organization, has provided emergency financial assistance
and support to our Marines, Sailors and their families. In
2012, our 3,600 trained volunteers and small cadre of
employees disbursed nearly $42 million in interest-free
loans and grants to 63,929 clients around the world. This
need-based assistance [has] addressed such immediate needs
as basic food and shelter, vehicle repairs, household
set-up, medical and dental, funeral expenses, and emergency
transportation. [. . .]
Our ability to generate funds is, of course, critical to
our mission of providing needed assistance to our Marines,
Sailors and their families in California, the United
States, and around the world. Our twenty-seven thrift
shops, [including] seven thrift shops located on Naval
Installations in California, not only enable [the Society]
to meet the needs of service members, but also allow their
families to shop on-base for articles at economical prices,
thereby allowing them to save more of their limited
military income to pay for other living necessities.
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, U.S.
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
indefinitely extend an existing tax expenditure in the form
of a SUT exemption for military thrift stores.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
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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) History of the military thrift store exemption : SB 765
(Dutton), Chapter 615, Statutes of 2009, first established
the SUT exemption for military thrift stores. SB 765 was
specifically designed to exempt sales at thrift stores
operated by the Society.<1> The Society, in turn, is a
nonprofit, charitable organization that provides financial
and educational assistance to members of the U.S. Naval
Services. The Society, working in partnership with the
Navy and Marine Corps, operates 27 thrift stores, seven of
which are located at naval or marine bases in California.
These thrift stores sell used clothing, uniforms, and
household items to service members and their families.
Income realized from these stores is returned to the Navy
and Marine Corp community in the form of relief services.
As originally introduced, SB 765 provided for an indefinite
SUT exemption. BOE sponsored the measure out of a belief
that service members should not be required to bear the
additional expense of sales tax added to the price of
thrift store purchases. SB 765 was amended in this
Committee, however, to provide a sunset date of January 1,
2014. This bill seeks to delete this sunset date, thereby
extending the exemption indefinitely.
-------------------------
<1> Revenue and Taxation Code Section 6363.4 technically applies
to military welfare societies from all branches of the military.
According to the BOE, however, only the Society currently
operates thrift stores.
AB 163
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d) A note on sunsets : As set forth above, tax expenditures
like the instant SUT exemption, may be enacted by a simple
majority vote. Absent a built-in sunset date, however, tax
expenditures cannot be rescinded without a supermajority
vote. For this reason, this Committee has a longstanding
policy in favor of including sunset dates in tax
expenditure programs, to ensure the opportunity for
periodic legislative oversight.
The author correctly notes that current law provides a
permanent SUT exemption for TPP made or assembled by
certain charitable organizations engaged in the relief of
poverty and distress. This exemption, commonly referred to
as the "Goodwill" exemption, has been in place since 1959.
More recent exemptions, however, have been enacted with
built-in sunset dates to ensure a degree of oversight. For
example, existing law provides a similar 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). This 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, legislation was introduced [AB
180 (Cedillo), 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, legislation was again
introduced [SB 1341 (Cedillo), Chapter 373] to delete the
sunset date outright. The bill was subsequently amended to
delay the sunset date to January 1, 2012. Finally, in
2011, legislation was again introduced [AB 289 (Cedillo),
Chapter 289] to delete the exemption's sunset date. AB 289
was instead amended in this Committee to extend the repeal
date to January 1, 2019. Given this precedent, and the
policy implications involved, the author may wish to amend
this bill to provide for a reasonable extension of the
current SUT exemption for military thrift stores.
e) Potential technical amendment : Section 2 of this bill
provides that this act shall take immediate effect as a tax
levy. Section 3, however, contains an identical
duplication of this language. Based on the Legislative
Counsel digest, Committee staff assumes that the author's
intent was to reserve one of these sections for language
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providing that the state shall not reimburse counties and
cities for revenues losses caused by the continued
exemption. If this is the case, appropriate amendments
should be taken in Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Navy-Marine Corps Relief Society
State Board of Equalization
State Board of Equalization Member George Runner
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098