BILL ANALYSIS Ó AB 919 Page 1 Date of Hearing: January 23, 2014 ASSEMBLY COMMITTEE ON APPROPRIATIONS Mike Gatto, Chair AB 919 (Williams) - As Amended: January 17, 2014 Policy Committee: Revenue and Taxation Vote: 9-0 Urgency: No State Mandated Local Program: No Reimbursable: SUMMARY This bill allows a qualified veteran to receive from the state a 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, as specified. The bill lays out an administrative process for filing and processing of repayments and provides the amount of total authorized repayment shall not exceed $50,000 for all taxpayers, and is subject to appropriation by the Legislature. FISCAL EFFECT This bill limits the allowable repayment amount to $50,000 (GF), upon appropriation by the Legislature. The BOE will have minor and absorbable administrative costs for receiving and processing the reimbursement filings. COMMENTS 1)Purpose . According to the author, 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. The author argues this bill targets a small group of itinerant disabled veteran vendors who live on the fringe of our economy often as a direct result of their military service. The author contends that, to the extent the Legislature can offer financial relief in recognizing the sacrifices made by our veterans, it should take the opportunity to do so. The author states that AB 919 provides modest assistance to veterans who have been required to remit AB 919 Page 2 sales tax, interest, and penalties to the BOE, and who lack significant assets. 2)Sponsor . The bill's sponsor, the BOE, notes 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 of certain goods they sell. The purpose of that legislation was to ease the economic burdens of veterans who sustained permanent injuries in foreign conflicts. BOE argues that some itinerant veterans acted on the belief they could make sales of small items without responsibility for the tax. These itinerant veterans lack substantial assets and many experienced forced collection action by BOE. The sponsor believes a small number of these veterans are in need of relief for prior periods; specifically to allow qualified veteran vendors to submit a claim for reimbursement of the monies paid during the years when the law was unclear. 3)Background-sales and use tax. A sales tax is imposed 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. 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. 4)Background . This bill, and a number of 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. Mr. Connell has brought litigation against the state over the collection of sales tax on four separate occasions. While Mr. Connell met with failure in the courts on the first three occasions, the AB 919 Page 3 fourth case was settled. The BOE agreed to refund Mr. Connell an undisclosed amount of money in 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. Apparently unsatisfied with his legislative victory, which relieves him of the obligation to either collect or remit sales tax and unconcerned with the settlement he voluntarily reached with the state, 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. 5)Small bill, big issues. This bill raises significant issues: a) The bill could be seen as special legislation that gifts public funds, despite the findings specifically stating it is not such a gift. BOE has informed the committee there are at least several vendors who failed to collect sales tax based on their understanding of the 1893 statute and would be affected by this bill. b) This bill provides retroactive relief to conform the law to one individual's repeatedly rejected legal interpretation. c) This bill would seem to ignore the existing settlement. 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. BOE would have to ignore the settlement contract to pay him, although the author has taken amendments to eliminate the possibility of double payment. d) The Legislature in considering this bill ignores the AB 919 Page 4 settlement contract voluntarily entered into by the taxpayer and the BOE. 7)Related legislation . a) SB 805 (Committee on Veterans Affairs), Chapter 246, Statutes of 2011, extended the sunset date for the preferential consumer status provisions from January 1, 2012, until January 1, 2022. b) SB 809 (Committee on Veterans Affairs), Chapter 621, Statutes of 2009 provided that a qualified veteran, as specified, is a consumer, and not a retailer, of TPP, with certain limitations. 8)There is no registered opposition to this bill. Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081