BILL ANALYSIS Ó
AB 479
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Date of Hearing: May 13, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 479 (Donnelly) - As Amended: April 1, 2013
SUSPENSE
SUBJECT : Sales and use taxes: exemptions: textbooks.
SUMMARY : Provides an exemption from the sales and use taxes
(SUT) for purchases of textbooks, as defined. Specifically,
this bill :
1)Provides an exemption from SUT for the sale of, and the
storage, use, or other consumption of, textbooks that are
either:
a) Purchased by a student at an institution of higher
education, or
b) Sold by an entity whose primary purpose is to provide
textbooks to students attending institutions of higher
education.
2)Defines "institution of higher education" as a public or
private college or university that is nationally or regionally
accredited or a postsecondary educational institution as
defined in Education Code Section 66261.5 as added by AB 499
(Kuehl), Chapter 914, Statutes of 1998.
3)Defines "textbooks" as any published material that is
principally designed for use by a student at an institution of
higher education as a source of instructional material and
includes any book or edition of a book that is directed or
recommended by an instructor at an institution of higher
education to a student to purchase for use as a basis for a
course of study at that institution.
4)Excludes from the definition of a "textbook" books on audio
tape, computer disc, CD-ROM, and similar storage media.
5)Provides that no appropriation is made by this measure and no
local agency will be reimbursed for any SUT revenues lost by
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the agency under this measure.
6)Takes effect immediately as a tax levy, but will become
operative on the first day of the first calendar quarter
commencing more than 90 days after enactment.
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 gross receipts from sales of TPP in
this state.
2)Imposes a use tax on the storage, use, or other consumption in
this state of TPP purchased from any retailer for storage,
use, or other consumption in this state, absent a specific
exemption.
3)Provides that the sale of books are subject to the SUT to the
same extent as the sale of any other TPP not specifically
exempted or excluded from SUT by statute.
FISCAL EFFECT : The State Board of Equalization (BOE) staff
estimates that SUT provisions of this bill will result in an
annual loss of $79 million in fiscal year (FY) 2013-14, $164
million in FY 2014-15, and $169 million in FY 2015-16. The
revenue estimates do not account for purchases of textbooks by
vocational school students.
COMMENTS :
1)Author's Statement . The author states:
"AB 479 is a bill that would exempt college textbooks from
sales tax. Under existing law, textbooks are subject to State
sales tax. This bill presents a simple way for the State of
California to give students a small measure of financial
breathing room.
"College students in California, in both the Public and
Private University systems, are under constant threat of being
priced out of an education. The rising cost of tuition,
books, and cost of living are all contributing factors to the
financial squeeze felt by students. A recent study, by the
U.C. Public Interest Research Group, found that 7 in 10
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college students have skipped buying one or more textbooks
because of the cost.
"This bill is one small way that the State of California can
assist students seeking an education."
2)Arguments in Support . The proponents of this bill argue that,
with the "rising cost of textbooks combined with the cost of
tuition and other expenses that college students face, it is
becoming increasingly difficult to afford the textbooks
required for every class." Thus, "students are forced to be
selective with their textbook purchases, which hinders the
education process and the success of students." The
proponents state that AB 479 is a "small step in the right
direction to start reinvesting in students and the power of
education."
3)Arguments in Opposition . The opponents argue that, while they
can appreciate "a broader policy goal of making public higher
education more affordable, this bill is a costly step in the
wrong direction." They believe that the scope of this bill is
too broad since it would apply to all books for college
courses and "it would be presumably up to the bookstore to
determine whether it meets a college course requirement." In
addition, the bill would adversely impact scarce state
revenues, which are critical to funding firefighting and other
vital public safety services. The opponents conclude that AB
479 would "provide yet another unnecessary exemption and
revenue loss" without "any significant empirical data
outlining that doing so would result in a greater public good
to the people of the State of California."
4)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 enact a tax
expenditure, in the form of a SUT exemption for purchases of
textbooks, as provided.
5)How is a Tax Expenditure Different from a Direct Expenditure ?
As the Department of Finance notes in its annual Tax
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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 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. To that end, the author may wish to
consider adding an appropriate sunset date to this bill to
allow the Legislature to review this tax expenditure in the
future.
6)What Does This Bill Do? AB 479 would exempt purchases of
textbooks by students at a public or private university that
is nationally or regionally accredited, a community college,
or a public or private vocational or professional school from
the SUT. Only textbooks directed or recommended for a course
at an eligible institution would be exempted from SUT. The
intent of this bill is to make college textbooks more
affordable for college students.
Under current law, the statewide base SUT rate is 7.5%, which is
comprised of 3.9375% General Fund (GF) state rate, 0.25%
Fiscal Recovery Fund rate, 0.50% Local Revenue Fund rate,
0.50% Local Public Safety Fund rate, 0.25% Education
Protection Account rate, 1.0625% Local Revenue Fund 2011 rate,
0.75% city and county operations rate and 0.25% county
transportation rate. In addition to the statewide base rate
of 7.5%, cities and counties are authorized to impose
additional voter-approved taxes.
AB 479 would eliminate the SUT for purchases of eligible
textbooks. Thus, those purchases would be completely exempt
from the state portion of SUT as well as local taxes imposed
by a county, city, or district pursuant to the Bradley-Burns
Uniform Local SUT Law or the Transactions and Use Tax Law.
[Revenue &Taxation Code Parts 1.5, 1.6 and 1.7 (commencing
with Section 7200)].
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7)The Scope of the Proposed SUT Exemption . According to the
Government Accountability Office (GAO), textbook prices nearly
tripled from December 1986 to December 2004, increasing at an
average of 6% per year. (College Textbooks: Enhanced
Offerings Appear to Drive Recent Price Increases, GAO, July
2005). The GAO report noted that, while many factors affect
textbook pricing, the increasing costs associated with
developing products designed to accompany textbooks best
explain price increases in recent years.
AB 479 recognizes that the purchase of textbooks may be a
significant financial expenditure for students at colleges and
universities and attempts to ease the burden to students by
exempting purchases of textbooks from the SUT. The proposed
exemption, however, is very broad. It clearly applies to
textbooks that are purchased by a student at an eligible
college, university, or vocational or professional school.
But it also applies to textbooks that are sold by an entity
whose primary purpose is to provide textbooks to students
attending institutions of higher education. In other words,
anyone, not just students, would be able to purchase textbooks
free of SUT as long as the textbook is purchased from a
specified retailer, such as for example, a campus bookstore.
The Committee may wish to consider limiting the proposed SUT
exemption to purchases made by students who present or possess
a valid student identification card at the time of the
purchase. A valid identification would allow affected
retailers to determine if the purchaser is a student enrolled
in a specified college, university, or a vocational school.
8)Price Cap. This bill does not limit the amount of the
purchase price that would be exempt from the SUT. Nor is the
proposed SUT exemption targeted to low- and moderate-income
consumers. In fact, it is available to all students
regardless of income as well as all non-students, as
discussed. Without a price cap, this bill would provide
financial help to students who do not need it. Furthermore,
it would potentially subsidize purchases of textbooks for
students who are not enrolled in the course for which the
textbooks are recommended. The Committee may wish to consider
imposing a cap on the purchase amount that would be eligible
for the proposed SUT exemption.
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9)Incentive or reward ? The state currently exempts certain
sales, either partially or completely, from the SUT. Each
additional exemption further erodes the tax base and reduces
revenues for both the state and local governments. Because
individual exemptions establish a precedent for future
legislation, it is important to question whether such
exemptions actually reduce the cost of these exempt items.
Retailers, including campus bookstores, maintain a mark-up on
new textbooks to cover the costs of store operations,
transportation costs, and other expenses. For example, the
average mark up on new textbooks at the campus bookstore at
the California State University, Long Beach, is 25.6%. There
is no guarantee that, given a SUT exemption, the manufacturer
would simply pass the savings on to the consumer and would not
mark up the price of the textbook accordingly. The Committee
may wish to consider whether the proposed SUT exemption is the
most effective way to deliver cost savings to students.
10)Implementation Concerns . The staff at BOE identified several
administrative and technical issues.
a) This bill states that eligible textbooks may be
purchased from entities whose primary purpose is to provide
textbooks to students attending institutions of higher
education. However, it does not define the phrase "primary
purpose." According to the author, the exemption targets
college and university bookstores that are separate
entities from the actual college and university that they
serve. The BOE staff recommends that the term "primary
purpose" be defined.
b) The term "textbook" is defined to mean any published
material principally designed for use by a student at any
institution of higher education that is directed or
recommended by an instructor. In order to avoid ambiguity,
the BOE staff suggests that the phrase "principally
designed for use" be replaced with the term "used." In
addition, the term "directed" be replaced with the term
"required" to eliminate any confusion.
c) This bill specifies that the textbook would be exempt
from SUT if it is purchased by a student at an institution
of higher education. The term "at" generally denotes
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physical location. The BOE staff notes that, while
administratively the BOE would allow exempt purchases via
the Internet, mail order, or telephone, it is advisable to
substitute the term "from" for "at".
11)Related Legislation .
AB 1077 (Mountjoy), introduced in the 2001-2002, would have
provided a SUT exemption for any TPP purchased by a K-12
public school or school district for use by that school or
district. AB 1077 was held under submission in this
Committee.
AB 1246 (Leonard), introduced in the 2001-02 legislative
session, would have provided a SUT exemption for any textbook
purchased by a higher education student or from an entity
whose primary purpose is to provide textbooks to higher
education students for use as a learning resource at that
institution. AB 1246 was held under submission in the
Assembly Committee on Appropriations.
AB 2636 (Leonard), introduced in the 2001-02 legislative
session, would have provided a partial SUT exemption for the
purchase of any instructional materials by any qualifying
school entity, as defined. AB 2636 was held under submission
in this Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
College Republicans at Sacramento State
Students for Quality Education, Cal State Long Beach Chapter
Opposition
AFSCME
California State Association of Counties (oppose unless amended)
California Professional Firefighters
California School Employees Association, AFL-CIO
California Tax Reform Association
SEIU California
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
AB 479
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