BILL ANALYSIS Ó
AB 760
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Date of Hearing: April 15, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 760 (Dickinson) - As Amended: March 19, 2013
2/3 vote. Tax levy. Fiscal committee.
SUBJECT : Taxes: ammunition sales
SUMMARY : Imposes a tax on retailers for the privilege of
selling ammunition, as defined, at the rate of $0.05 per item of
ammunition sold in this state on or after January 1, 2014.
Specifically, this bill :
1)Contains the following legislative findings:
a) People with mental illness are no more likely to commit
violent acts than are others. California law, however,
restricts the ownership of guns by individuals who have
been adjudicated as being a danger to themselves or others
because of mental illness.
b) Recent tragic events involving mass shootings in
Connecticut, Colorado, Arizona, and elsewhere, are
revealing a pattern of young individuals who are suffering
from some form of mental illness that progressed from mild
or moderate to more serious conditions when those
individuals' mental illness was not identified and treated
at an early age.
c) Research has found a clear relationship between early
adjustment problems and later adolescent problems, and many
of these adjustment problems are due to mild to moderate
mental disorders among school-age children. In many cases,
signs of these problems can be detected in early school
grades.
d) Treating mental illness in a timely manner before
conditions become more severe, in conjunction with
restricting gun ownership from individuals adjudicated as
being a danger to themselves or others, may be a productive
approach for reducing the extent to which some people
suffering from mental illness commit a violent act with the
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use of a deadly weapon.
e) In 1991, California enacted the School-Based Early
Mental Health Intervention and Prevention Services Matching
Grant program (EMHI). This program is intended to ensure
that students receive the benefits of school-based early
mental health intervention and prevention services.
f) Scientific evaluation of EMHI has shown dramatic
improvements in adjustment behavior among children in
grades 1 to 3, and success in reducing the incidence of
early mild to moderate mental illness.
g) Due to state budget constraints, EMHI was defunded in
the 2012-13 Budget Act. Therefore, providing a source of
stable revenue to continue the EMHI matching grants is in
California's best interest, both in economic and human
terms.
h) A reduction in the incidence of mental illness is likely
to reduce acts of violence committed with a deadly weapon
in our state and, therefore, a tax on the sale of
ammunition is a means of refunding the EMHI program.
2)Imposes a tax on retailers at the rate of $0.05 per item of
"ammunition" sold at retail in this state on or after January
1, 2014.
3)Imposes a complimentary excise tax on the storage, use, or
other consumption in this state of "ammunition" purchased from
a retailer, as specified.
4)Defines "ammunition" to mean "projectiles with their fuse,
propelling charges, or primers fired from a weapon," or any of
the individual components thereof, including "shot, sharpel
[sic] bullets, or shells." The term does not include BBs or
pellets commonly used in air rifles or air pistols.
5)Requires every retailer engaged in business in this state and
making sales of ammunition to collect the tax from the
purchaser and give to the purchaser a receipt therefor. Any
person violating this requirement shall be guilty of a
misdemeanor.
6)Makes it a misdemeanor for any retailer to advertise to the
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public or to any customer that the tax or any part thereof
will be assumed by the retailer or that it will not be added
to the price of the ammunition.
7)Provides that the tax required to be collected by the retailer
shall be displayed separately on the sales check or receipt.
Any person violating this requirement shall be guilty of a
misdemeanor.
8)Exempts from taxation any item of ammunition purchased by a
peace officer who must carry a weapon requiring ammunition
while on duty, or by any governmental law enforcement agency
employing that peace officer, for use in the normal course of
employment.
9)Requires the State Board of Equalization (BOE) to administer
and collect the new taxes pursuant to the Fee Collection
Procedures Law.
10)Provides that the taxes are due and payable to the BOE
quarterly.
11)Requires that the revenues raised be allocated to EMHI.
Specifically, provides that all revenues "in this fund shall,
upon appropriation by the Legislature, only be allocated to
[EMHI]."
12)Takes immediate effect as a tax levy.
EXISTING FEDERAL LAW imposes:
1)A 10% tax upon the sale of pistols and revolvers by the
manufacturer, producer, or importer.
2)An 11% tax upon the sale of firearms (other than pistols and
revolvers), shells, and cartridges by the manufacturer,
producer, or importer.
EXISTING STATE LAW imposes a:
1)Sales tax on retailers for the privilege of selling tangible
personal property (TPP), absent a specific exemption. The tax
is based upon the retailer's gross receipts from TPP sales in
this state.
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2)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
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 BOE.
FISCAL EFFECT : The BOE estimates that this bill would generate
annual revenues of $55 million.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 760 seeks to reduce the incidence of mental illness by
re-funding a small and successful state matching grant
program addressing mild to moderate forms of mental illness
in young children. The program, known as the School-Based
Early Mental Health Intervention and Prevention Services
for Children program (EMHI), has been operating since its
enactment in 1991. The program provides screening and
prevention services to K -3 grade students who exhibit
school adjustment difficulties. Funding for the program
was blue-penciled in the 2012-13 Budget.
According to the [Department] of Health Care Services, the
systematic early detection and screening, combined with
prompt intervention, as offered by EMHI, has been effective
in reducing later adjustment difficulties in 79% of the
students served by the program. Reducing student mental
health and adjustment problems at an earlier age may very
well reduce violent behavior by students later on in their
academic careers.
AB 760 is not primarily intended to reduce the consumption
and use of ammunition, although imposing a tax on the sale
of ammunition may have that effect. Rather, the bill is
intended to help fund a program which screens, identifies
and reduces the number of people who suffer from mild or
moderate forms of mental illness affecting their emotional
condition and behavior, and, which left untreated, may
increase their propensity to commit a violent act, possibly
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with a gun, resulting in tragic consequences. In essence
then, the tax on ammunition is a means to reducing external
costs created by the use of ammunition in certain
circumstances by underwriting the costs of an effective
mental health intervention and prevention program.
2)Proponents of this bill note:
Mental health experts across the country are calling for
school-based prevention and early intervention services as
a means of reducing many issues, including potential
gun-related violence. Extensive research indicates that we
can identify mental health concerns as early as
kindergarten, and that left unattended these concerns will
predictably develop into greater long-term issues,
including school failure, substance abuse, social
alienation, mental illness, and other antisocial behavior.
As these issues progress, they are less [amenable] to
prevention/intervention, and incur much greater social and
fiscal costs for individuals, schools, and communities.
The modest ammunition tax proposed in AB 760 is a small
price to pay for supports that have been demonstrated to
successfully address mental health issues before they
become severe.
3)Opponents of this bill note:
Buyers of ammunition should not be taxed to pay for a
school based mental health program. There is no
substantive connection between the two that would justify
it.
If the philosophy behind this proposed legislation is that
ammunition buyers should be responsible for the actions of
a small number of mentally disturbed persons, then all
other products that can be lethally used, such as gasoline
and knives, should similarly be taxed.
AB 760 would be excessive and abusive of those who enjoy
the outdoor sports.
4)BOE notes the following in its staff analysis of this bill:
Record and reporting complications : "Ammunition retailers
already collect and remit sales and use tax on their retail
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ammunition sales in California. These retailers most
likely sell other tangible personal property subject to
sales and use tax. Collecting an additional tax from
ammunition purchasers will require retailers to keep track
of ammunition sales separately from other sales of tangible
personal property."
"Additionally, smaller ammunition retailers may find
collecting the additional tax burdensome. Larger retailers
are able to enter the ammunition subject to the additional
tax into their computer system. Therefore, the tax will be
automatically added to the purchase price once the product
code or UPC is entered at the register. Cashiers at
smaller supply stores, which are typically not
computerized, must manually apply the additional tax, which
could likely lead to collection and reporting errors."
5)Committee Staff Comments:
a) What exactly are we taxing? : This bill proposes a new
tax of $0.05 per item of "ammunition" sold at retail in
this state. Ammunition, in turn, is defined to mean
"projectiles with their fuse, propelling charges, or primers
fired from a weapon," or any of the individual components
thereof, including "shot, sharpel [sic] bullets, or
shells." This language is somewhat vague and potentially
susceptible to differing interpretations. For example,
must a projectile first be fired from a weapon before being
properly considered an item of ammunition? Moreover, what
does it mean to include within the definition of ammunition
"any of the individual components thereof"? Are individual
projectile components sold separately on the open market
for subsequent assembly by consumers? If they are, does it
make sense to tax these individual components at the same
rate as fully functioning projectiles? Finally, would this
tax apply to retailers selling historical artifacts, like
bullets from the Civil War? The author may wish to amend
the definition of "ammunition" to provide greater clarity
on these issues.
b) How will the tax proceeds be used? : This bill requires
that all revenues raised, less refunds and costs of
collection, be allocated to EMHI. Specifically, this bill
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provides that all revenues "in this fund<1> shall, upon
appropriation by the Legislature, only be allocated to
[EMHI]." The Department of Health Care Services notes
that, for the past 20 years, EMHI grants have funded
prevention and early intervention programs for students
experiencing mild-to-moderate school adjustment
difficulties. Over this period, EMHI demonstrated a
successful track record, and in fiscal year 2010-11 alone,
served over 15,823 students. As the author notes, however,
EMHI was defunded in the 2012-13 Budget Act. Therefore,
this bill seeks to provide a source of stable revenues to
continue the EMHI matching grants.
c) A note on unintended consequences : Some might argue
that, by increasing the retail price of ammunition sold in
California, this bill might inadvertently encourage
consumers to purchase ammunition from out-of-state
retailers. This, in turn, could have a negative effect on
sales tax revenues derived from ammunition purchases. This
bill attempts to address this issue by imposing a
complimentary excise tax, akin to a use tax, on the
storage, use, or other consumption in this state of
"ammunition". The use tax itself, however, has been
historically underreported by consumers. Specifically,
when consumers buy goods from out-of-state retailers that
are not obligated to collect California's use tax, many
consumers simply fail to report their use tax obligation
directly to the state, as the law requires. Moreover,
these purchases are very difficult to identify, and
auditing individual consumers is most often cost
prohibitive. It is possible that this bill's excise tax on
ammunition could prove susceptive to similar complications.
d) The exemption for peace officers : This bill exempts
from taxation any item of ammunition purchased by a peace
officer who must carry a weapon requiring ammunition while
on duty. The exemption, however, does not specify whether
a peace officer would be able to purchase tax-free
ammunition for recreational purposes. The author may wish
to clarify this point.
e) A tax upon a tax? : California's sales tax is based upon
--------------------------
<1> It is not clear to which fund this bill refers, given that
the bill does not establish a separate fund for the deposit of
revenues.
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a retailer's gross receipts from TPP sales, including sales
of ammunition. Because this bill does not specifically
exclude the ammunition tax from the definition of gross
receipts, the new tax would likely be included in the final
sales price of ammunition subject to sales tax. The author
may wish to clarify this issue by either specifically
including or excluding the new tax from the definition of
"gross receipts" subject to sales tax.
f) Federal tax on firearms and ammunition : As noted above,
federal law imposes a Firearms and Ammunition Excise Tax
(FAET) on the sale of firearms and ammunition by
manufacturers, producers, and importers. Because the
federal tax is imposed higher up the distribution chain, it
does not fall prey to some of the potential administrative
complications noted in BOE's staff analysis. Specifically,
the FAET does not require retailers to track ammunition
sales separately from other sales, which could result in
significant compliance costs for smaller retailers and
attendant reporting errors.
g) Related legislation :
i) AB 180 (Bonta), of the current legislative session,
would authorize the City of Oakland to enact and enforce
an ordinance that is more restrictive than state law
regulating the registration or licensing of commercially
manufactured firearms. AB 180 has been referred to the
Assembly Committee on Public Safety.
ii) AB 187 (Bonta), of the current legislative session,
would impose a 10% tax upon retailers for the privilege
of selling ammunition on or after January 1, 2014. AB
187 has been referred to this Committee.
iii) AB 992 (Ridley-Thomas), of the 2003-04 legislative
session, would have imposed a fee of $0.10 on every
munition, as defined, sold at retail. Revenues raised
would have been used to pay firearm-injury victims for
uncompensated pecuniary losses. AB 992 died on the
Assembly inactive file.
iv) SCA 12 (Perata), of the 2001-02 legislative session,
would have imposed a tax on retailers at the rate of
$0.05 for each munition sold at retail in this state.
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Revenues collected would have been deposited in a
newly-established Trauma Center Fund. SCA 12 died in the
Senate Committee on Revenue and Taxation.
h) Technical amendments : Committee staff suggests the
following technical amendments to this bill:
i) On page 3, line 23, strike "1991" and insert
"1991,";
ii) On page 3, line 37, strike "constraints" and insert
"constraints,";
iii) On page 5, line 28, strike "sharpel" and insert
"shrapnel";
iv) On page 5, line 33, strike "definition" and insert
"definitions";
v) On page 6, line 20, insert "of" before "ammunition";
vi) On page 7, line 17, strike "tax" and insert "taxes";
vii) On page 7, line 21, strike "tax" and insert "taxes";
and,
viii) On page 7, line 23, strike "that" and insert "this".
REGISTERED SUPPORT / OPPOSITION :
Support
Children Now (sponsor)
Autism Deserves Equal Coverage
Autism Health Insurance Project
BlueSkies for Children
Brighter Beginnings
California Black Health Network
California Council of Community Mental Health Agencies
California Division of the American Association for Marriage and
Family Therapy
California Immigrant Policy Center
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California Pan-Ethnic Health Network
California School Health Centers Association
California Tax Reform Association
Children's Advocacy Institute
Children's Defense Fund - California
Children's Partnership
Coalition Against Gun Violence
Early Edge California
Lincoln Child Center
Los Angeles County Education Foundation
Los Angeles Trust for Children's Health
Lucile Packard Children's Hospital
Mental Health America of California
Oakland Schools Foundation
Public Profit
Time For Kids
United Advocates for Children and Families
Opposition
California Association of Firearms Retailers
California Chapters of Safari Club International
California Rifle and Pistol Association
California Sportsman's Lobby
California Waterfowl Association
Crossroads of the West Gun Shows
National Rifle Association
National Shooting Sports Foundation, Inc.
Outdoor Sportsmen's Coalition of California
Shasta County Sheriff Tom Bosenko
State Board of Equalization Member George Runner
2 individuals
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098