BILL ANALYSIS Ó
AB 919
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Date of Hearing: January 13, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 919 (Williams) - As Amended: January 6, 2014
Majority vote. Fiscal committee.
SUBJECT : Sales and Use Tax Law: veterans: itinerant vendors:
repayment
SUMMARY : Enables a "qualified veteran" to receive from the
state a "qualified repayment" of state and local sales taxes
paid to the State Board of Equalization (BOE) during the
eight-year period beginning on and after April 1, 2002, and
before April 1, 2010. Specifically, this bill :
1)Contains the following legislative findings and declarations:
a) Prior to the enactment of [SB 809], which became
operative on April 1, 2010, there was considerable
uncertainty among honorably discharged veterans with
respect to their responsibilities under California's Sales
and Use Tax (SUT) Law. These veterans relied upon Business
and Professions Code (B&PC) Section 16102, which exempts
honorably discharged veterans from payment of any license,
tax or fee, whatsoever, for their sales of goods, wares, or
merchandise owned by them (except alcoholic beverages), and
as a result, failed to pay sales tax or to collect sales
tax reimbursement on their retail sales.
b) This uncertainty resulted in deficiency assessments by
the BOE against these veterans and subsequent payments to
the BOE by these veterans of the tax, interest, and penalty
for amounts that the BOE determined to be due.
c) For the public purpose of assuring equity in the payment
of sales tax among qualified veterans for tangible personal
property (TPP) owned and sold by those veterans for $100 or
less, it is the intent of the Legislature that the sales
tax, interest, and any penalties paid by these veterans on
those sales during the period on and after April 1, 2002,
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and before April 1, 2010, for which there was no sales tax
reimbursement collected from customers, be repaid in
accordance with this bill.
2)Defines a "qualified veteran" as a person who:
a) Met the requirements of a "qualified itinerant vendor"
as set forth in Revenue and Taxation Code (R&TC) Section
6018.3 during the period in which the sales were made; and,
b) Paid to the BOE state and local sales taxes during the
period beginning April 1, 2002, and before April 1, 2010,
for which no sales tax reimbursement was collected from
customers, and also paid any interest or penalties
associated with those tax liabilities.
3)Defines a "qualified repayment" as an amount equal to the
state and local sales taxes paid during the period beginning
April 1, 2002, and before April 1, 2010, as specified.
4)Provides that a qualified veteran may file a claim for a
qualified repayment with the BOE before January 1, 2016.
Claims shall be in writing and shall be completed in
accordance with applicable instructions.
5)Requires the BOE, on or before March 1, 2016, to certify to
the State Controller the amount of qualified repayments to be
paid to each qualified veteran. The total amount of money
available to make qualified repayments shall not exceed
$50,000. If the total amount of claims filed exceeds $50,000,
the BOE shall determine the pro rata share due to each
qualified veteran.
6)Provides that, upon appropriation by the Legislature, the
State Controller shall make the qualified repayments to
qualified veterans.
7)Provides that no interest shall be paid on any qualified
repayment made under this bill.
8)Declares that this act serves a public purpose, and does not
constitute a gift of public funds within the meaning of
California Constitution Article XVI, Section 6.
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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. (R&TC
Section 6001 et seq.)
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
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
BOE.
3)Designates the following entities as consumers, and not
retailers, of specified TPP they use or furnish in the
performance of their professional services:
a) Licensed optometrists, physicians, pharmacists, and
registered dispensing opticians;
b) Licensed veterinarians;
c) Licensed chiropractors;
d) Specified garment cleaning establishments that received
no more than 20% of their total gross receipts from the
alteration of garments during the preceding calendar year;
e) Licensed hearing aid dispensers; and,
f) Producers of X-ray films or photographs used to diagnose
human medical or dental conditions.
4)Classifies a qualified itinerant vendor (QIV) as a consumer,
and not a retailer, of TPP owned and sold by the QIV, except
for alcoholic beverages or TPP sold for more than $100. (R&TC
Section 6018.3)
5)Specifies that a person is a QIV when all the following
conditions apply:
a) The person was a member of the Armed Forces of the
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United States (U.S.), who received an honorable discharge
or release from active duty under honorable conditions;
b) The person is unable to obtain a livelihood by manual
labor due to a service-connected disability;
c) For purposes of selling TPP, the person is a sole
proprietor with no employees; and,
d) The person has no permanent place of business in this
state.
6)Specifies that this preferential tax treatment does not apply
to a person:
a) Engaged in the business of serving meals, food, or
drinks to a customer at a location owned, rented, or
otherwise supplied by the customer (i.e., a caterer); or,
b) Operating a vending machine.
FISCAL EFFECT : This bill limits the allowable repayment amount
to $50,000, upon appropriation by the Legislature.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Disabled veterans transitioning from military to civilian
life can struggle to reintegrate. Frequently, they are
unable to find a job and many veterans become vendors
selling art, food, books, among other items.
As a result of previous misinterpretations of the law
governing the collection of sales tax on the part of
certain disabled veteran vendors, the Legislature passed
and the Governor signed Senate Bill 809 in 2009. That bill
granted certain qualified vendors an exemption from
collecting sales tax from consumers through [January] 1,
2012. Senate Bill 805 (2011) extended these provisions to
2022.
While SB 809 and SB 805 benefit those qualified disabled
veterans returning to the civilian workforce from 2010 and
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moving forward, disabled veteran vendors who operated
before the adoption of [SB 809] still paid several years'
worth of sales tax, interest and penalties to the BOE.
This bill targets a small group of itinerant disabled
veteran vendors. These veterans live on the fringe of our
economy often as a direct result of their military service.
To the extent that the Legislature can offer a little
financial relief in recognizing the sacrifices our veterans
made, it should take the opportunity to do so. AB 919
provides modest assistance to those veterans who have been
required to remit sales tax, interest, and penalties to the
BOE, and who lack significant assets.
2)The BOE, which is sponsoring this bill, notes the following:
a) Veterans relied on other statutes and failed to collect
the tax : "These veteran itinerant vendors relied in good
faith on a variety of statutes that led them to believe,
that sales tax did not apply to their itinerant sales. As
a result, they failed to collect sales tax reimbursement
from their customers, and many experienced forced
collection action when the BOE ultimately issued
determinations against them. This narrowly crafted measure
applies to those itinerant veteran vendors who are sole
proprietors with no employees, have no permanent place of
business, and who have a service-connected disability."
b) AB 919 recognizes the sacrifices our veterans have made :
"In recognition of their military service and the
confusion in law unique to veterans' tax obligations, this
bill provides modest relief to veterans who have been
required to remit sales tax, interest, and penalties to the
BOE, and who lack significant assets. This bill only
applies in situations in which the veterans failed to
collect the sales tax reimbursement from their customers."
3)Furthermore, the BOE's staff analysis notes the following:
a) Sponsor and purpose : "As the sponsor of this bill, BOE
Member Betty Yee notes that in 2009, the Legislature
unanimously voted to specify that honorably discharged
veterans with service-related disabilities who have no
permanent place of business are consumers, not retailers,
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of certain goods they sell. As a result, these veterans
are no longer responsible for sales tax on goods sold for
less than $100 per item (except alcohol beverages). The
purpose of that legislation was to ease the economic
burdens of veterans who have served our nation and
sustained permanent injuries in foreign conflicts. The
sponsor indicates that due to a variety of statutes, some
itinerant veterans in need of this relief have acted on the
belief they could makes sales of small items without
responsibility for the tax. These itinerant veterans lack
substantial assets and many experienced forced collection
action when the BOE ultimately collected the tax."
"The sponsor believes the circumstances warranting this
treatment apply to periods before 2009, and a small number
of itinerant veterans are in need of this relief for prior
periods. BOE Member Yee notes that in recognition of their
military service, this legislation would provide modest
relief to some of our veterans who have been required to
remit sales tax, interest, and penalties to the BOE, in
those unfortunate situations in which they failed to
collect the sales tax reimbursement from their customers."
b) The BOE records are adequate to process refund claims :
"The BOE has retained computer files and taxpayer payment
histories sufficiently far back to track payments
attributable to any claims for repayment that may be filed
under the bill."
c) How many veterans will claim a refund? : "The BOE is
aware of a small number of veterans that have filed appeals
on the issue related to the [B&PC] explained previously.
We do not know how many other qualified veterans this bill
may reach. However, we expect that the number will be
minimal."
4)Proponents of this bill note:
Because veteran vendors misunderstood Section 16102 of the
[B&PC], they did not collect sales tax from their customers
but instead ended up having to pay it out of their own
pockets to the Board of Equalization.
While legislation has already passed to clarify the law
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regarding qualified itinerant vendors and the collection of
sales tax so that this problem no longer occurs, [this]
legislation is needed to allow qualified veteran vendors to
submit a claim for reimbursement of the monies paid during
the years where clarity in the law was lacking.
5)Committee staff comments:
a) Retailers and consumers : The sales tax is imposed on
retailers for the privilege of selling TPP. As such,
retailers of TPP must generally obtain a seller's permit
and report and remit the tax to the BOE. Existing law,
however, classifies a variety of retailers as consumers,
and not retailers, of specified TPP they sell. These
retailers are not required to obtain seller's permits or to
report tax on their qualifying sales. Instead, these
retailers are only required to pay tax on the taxable goods
used to produce the property they sell. This "consumer
reporting status" is primarily designed to alleviate
reporting burdens for small businesses, while minimizing
the revenue losses associated with complete SUT exemptions.
b) One man's personal cause : This bill, and the four
related bills preceding it, stem from the efforts of
veteran William M. Connell. Since at least June 25, 1993,
Mr. Connell has operated a mobile food business known as
"All American Surf Dog." For years, Mr. Connell has
asserted that, under a law originally enacted in the 19th
Century, he has no obligation to collect or remit SUT on
his retail sales. Specifically,
Mr. Connell has relied on B&PC Section 16102, which
provides in its entirety:
Every soldier, sailor or marine of the United States
who has received an
honorable discharge or a release from active
duty under honorable conditions
from such service may hawk, peddle and vend
any goods, wares or
merchandise owned by him, except spirituous,
malt, vinous or other
intoxicating liquor, without payment of any
license, tax or fee whatsoever,
whether municipal, county or State, and the
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board of supervisors shall issue
to such soldier, sailor or marine, without
cost, a license therefor.
This provision was added in 1893 (long before enactment of
the SUT Law), and was described in the chaptering bill as
"An act to establish a uniform system of county and
township government." Moreover, this statute is contained
in Chapter 2 of Part 1 of Division 7 of the B&PC, entitled
Licensing by Counties.
As such, in 1999, the BOE held that, while this statute
exempts honorably discharged veterans from locally imposed
license taxes and fees, it does not provide an exemption
from SUT.<1>
Mr. Connell, however, was not satisfied with this
interpretation. Thus, on May 12, 1999, Mr. Connell filed a
Superior Court complaint against the BOE seeking a refund
of SUT for the period of July 1, 1993, through June 30,
1997. The BOE filed a motion for judgment on the
pleadings, which the court granted. Mr. Connell did not
appeal this judgment.
On June 2, 2004, Mr. Connell filed a second lawsuit against
the BOE seeking a SUT refund for the period beginning on
July 1, 1993, to which the BOE demurred. The court
sustained the BOE's demurrer, without leave to amend, and
notice of entry of judgment was served by mail on September
13, 2004. Again, Mr. Connell did not appeal this judgment.
On June 4, 2008, Mr. Connell filed his third lawsuit
against the BOE, again seeking a SUT refund for the period
"1993 to present." Once again, the BOE demurred to Mr.
Connell's complaint, and once again, the court sustained
the BOE's demurrer without leave to amend. Mr. Connell
then appealed this case to the Court of Appeal.
-------------------------
<1> The BOE notes that its interpretation was also supported by
two separate opinions issued by the Office of Legislative
Counsel in 1998 and 2006. Specifically, the Office of
Legislative Counsel concluded that the B&PC exemption only
applies to county license taxes and license fees, and does not
apply to SUT.
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Thereafter, on April 29, 2010, Mr. Connell signed a
"Settlement Agreement and Mutual Release of all Claims"
(Settlement Contract) covering the entire period from June
25, 1993 through March 31, 2009. The BOE agreed to refund
Mr. Connell an undisclosed amount of money "[i]n full
consideration for the settlement and releases" contained in
the Settlement Contract. In addition to requiring the
dismissal of Mr. Connell's appeal, the Settlement Contract
required Mr. Connell to refrain from further litigation or
administrative claims against the BOE, and furthermore, Mr.
Connell agreed to waive "any known or unknown claims".
At the same time that Mr. Connell was litigating his
dispute in the courts, he was also advocating for
legislation to amend the SUT Law to conform to his personal
interpretation of the law. The 2007-08 Regular Session saw
the first such legislative effort in the form of AB 3009
(Brownley), which sought to classify certain veterans as
consumers, and not retailers, of food products and
nonalcoholic beverages they sell. AB 3009 was held in this
Committee. In 2009, however, Mr. Connell was successful in
his efforts to pass SB 809 (Committee on Veterans Affairs),
Chapter 621, Statutes of 2009, which granted consumer
reporting status to QIVs until January 1, 2012. In 2011,
SB 805 (Committee on Veterans Affairs), Chapter 246,
Statutes of 2011, was introduced to delete this sunset date
outright, making the preferential provisions permanent. SB
805 was amended in this Committee, however, to instead
provide a sunset extension to January 1, 2022. Thus, until
that date, Mr. Connell can continue to operate his business
without collecting or remitting sales tax.
c) A fifth bite at the apple : Apparently unsatisfied with
his legislative victory, which relieves him of the
obligation to either collect or remit sales tax, Mr.
Connell is now seeking retroactive relief for sales tax
payments made to the BOE between April 1, 2002, and April
1, 2010. Essentially, this bill is asking the Legislature
to retroactively conform the law to support Mr. Connell's
position that he was never under a legal obligation to
collect sales tax; this, despite the fact that Mr.
Connell's position was repeatedly rejected as lacking merit
by the courts, by the BOE itself, and by the Legislature's
own Office of Legislative Counsel.
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d) A highly questionable precedent : This bill would
establish a highly questionable precedent by essentially
providing retroactive relief to conform the law to one
individual's repeatedly rejected legal interpretation. In
addition, while it is conceivable that there are other
similarly situated individuals, Committee staff has not
been made aware of any other vendors who failed to collect
sales tax based on their understanding of a 1893 statute.
Thus, this bill could arguably be considered special
legislation and, despite the legislative declaration to the
contrary, a gift of public funds. Finally, if this bill
were to pass, it is not clear how the BOE would be in a
position to pay Mr. Connell, given that he signed a
Settlement Contract with the BOE forever releasing his
claims for this period in exchange for an unspecified
settlement payment. Would this Settlement Contract simply
be ignored? Would the amount of the unspecified payment be
deducted from the amount paid to Mr. Connell? This bill
does not address either issue.
e) Suggested technical amendments :
i) On page 2, in line 4, delete "805" and insert "809";
ii) On page 2, in line 9, delete "Code that" and insert
"Code, which";
iii) On page 4, in line 9, delete "repayment" and insert
"repayments"; and,
iv) On page 4, in line 11, delete "exceed" and insert
"exceeds".
f) Related legislation :
i) AB 855 (Ma) of the 2011-12 Regular Session: AB 855
would have retroactively applied preferential consumer
status to QIVs as of January 1, 1986. AB 855 was
referred to the Senate Committee on Governance and
Finance, where it was never heard.
ii) SB 805 (Committee on Veterans Affairs), Chapter 246,
Statutes of 2011: As originally introduced, SB 805 would
have deleted outright the sunset date for the provisions
of the SUT Law that currently classify a QIV as a
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consumer, and not a retailer, of specified TPP the QIV
sells. SB 805 was instead amended in this Committee to
extend the sunset date for the preferential consumer
status provisions from January 1, 2012, until January 1,
2022.
iii) SB 809 (Committee on Veterans Affairs), Chapter 621,
Statutes of 2009: SB 809 provided that a QIV is a
consumer, and not a retailer, of TPP the QIV owns and
sells, except alcoholic beverages or TPP sold for more
than $100.
iv) AB 3009 (Brownley), of the 2007-08 Regular Session:
AB 3009 would have provided that, for purposes of the SUT
Law, certain U.S. veterans shall be considered consumers
of, and not retailers of, food products and nonalcoholic
beverages they sell. AB 3009 was held on this
Committee's suspense file.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (Sponsor)
American Legion, Department of California
AMVETS, Department of California
California Association of County Veterans Service Officer
California State Commanders Veterans Council
Carpinteria Valley Chamber of Commerce
City of Carpinteria
County of Santa Barbara
Military Officers Association of America, California Council
Chapter
Veterans of Foreign Wars, 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
AB 919
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