BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                            Senator Kevin de León, Chair


          AB 919 (Williams) - Sales and Use Tax: Itinerant Vendors:  
          Repayment
          
          Amended: June 24, 2014          Policy Vote: G&F 6-1
          Urgency: No                     Mandate: No
          Hearing Date: June 30, 2014                             
          Consultant: Robert Ingenito     
          
          This bill meets the criteria for referral to the Suspense File.


          Bill Summary: AB 919 would allow veteran vendors, as specified,  
          to receive repayments of sales taxes paid to the Board of  
          Equalization (BOE) between April 1, 2002 and April 1, 2010. 

          Fiscal Impact: 

                 The bill contains a one-time $50,000 General Fund  
               appropriation to the State Controller's Office (SCO) for  
               repayments, as specified. A cost pressure could result to  
               the extent that total claims for repayments exceed $50,000  
               (See Staff Comments). 

                 BOE indicates the bill would result in one-time costs of  
               less than $10,000 (General Fund).
          

          Background: The sales and use tax (SUT) is imposed on retail  
          sales of tangible personal property (TPP) unless specifically  
          exempted. The SUT is generally not applied to sales between  
          wholesalers and retailers, but rather is imposed on the retailer  
          at the point of final sale to its customers. Persons selling TPP  
          generally must obtain a seller's permit and report the tax on a  
          BOE-prescribed return.

          Current law allows about 15 entities that purchase products for  
          resale to be designated as "consumers," and not retailers, of  
          certain TPP that they purchase for resale. Thus, under a  
          "consumer" reporting status, current law eliminates the need for  
          the retailer to obtain a seller's permit and report the tax on  
          his or her sales. Rather, these retailers are regarded as  
          consumers, and they must pay tax on their purchases of taxable  








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          products they intend to sell. These include certain items  
          purchased by optometrists, physicians, pharmacists,  
          veterinarians, and others where the sales are, to varying  
          degrees, incidental to their main businesses. For these  
          entities, sales taxes are due when they purchase the product  
          from the wholesaler, instead of when they resell the products to  
          their customers. The benefit is that these businesses and BOE  
          avoid the recordkeeping and auditing burdens on an incidental  
          amount of sales. The cost to the State is that it loses the  
          sales tax on the mark-up between the wholesale and retail price  
          of the products being sold. In the case of cooked food, the  
          state loses the full value of the product since the raw food  
          materials are generally exempt from the tax.

          Under current law, qualified itinerant vendors (QIVs) are  
          classified as consumers instead of retailers. A QIV is a person  
          that (1) was a member of the United States Armed Forces who  
          received an honorable discharge or release from active duty  
          under honorable conditions, (2) is unable to obtain a livelihood  
          by manual labor due to a service-connected disability, (3) is a  
          sole proprietor with no employees, and (4) has no permanent  
          place of business in the State.

          The provisions granting consumer reporting status to QIVs were  
          added to current law by SB 809 (Committee on Veterans Affairs),  
          Chapter 621, Statutes of 2009.  For several years preceding SB  
          809's enactment, a number of veterans argued that existing law  
          already exempts honorably discharged veterans from collecting  
          and remitting sales tax on sales of food and carbonated  
          beverages from a mobile cart.  Specifically, these veterans  
          pointed to Business and Professions Code (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 board of  








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          supervisors shall issue 
             to such soldier, sailor or marine, without cost, a license  
          therefor. 

          This provision was added in 1893 (40 years before enactment of  
          the Sales and Use Tax 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.  Consequently, BOE adopted the position  
          that, while this statute exempts honorably discharged veterans  
          from locally imposed license taxes and fees, it does not provide  
          an exemption from SUT.  This interpretation has been supported  
          by Legislative Counsel opinions and a Los Angeles Superior Court  
          Decision (No . BC 210257). 

          SB 809 was passed in an effort to address this issue, and  
          explicitly granted preferential treatment to honorably  
          discharged itinerant veterans under the SUT Law. SB 809's  
          provisions would have sunset at the end of 2011, but were  
          extended until the end of 2021 by subsequent legislation.
                  
          Proposed Law: This bill would, among other things, do the  
          following: 

                 Enable a "qualified veteran" to receive from the state a  
               "qualified repayment" of state and local sales taxes paid  
               to the BOE during the eight-year period beginning April 1,  
               2002, and ending April 1, 2010.  

                 Define a "qualified veteran" as a person who met the  
               requirements of a QIV during the period in which the sales  
               were made, and paid to the BOE state and local sales taxes  
               during the period beginning April 1, 2002, to April 1,  
               2010.  To qualify, the QIV must also not have collected  
               sales tax from customers.

                 Define 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, less any  
               amounts previously refunded, credited or paid through any  
               means.  

                 Before January 1, 2016, authorize a qualified veteran to  








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               file a claim with BOE.

                 By March 1, 2016, require BOE to certify to SCO the  
               qualified repayment amount to be made.

                 Appropriate $50,000 to SCO to make payments of qualified  
               repayments to qualified veterans.

                 Require BOE to report to the Legislature by May 1, 2016,  
               the name of each qualified veteran who was issued a  
               repayment and the repayment amount.   

                 Require SCO to transfer back any used portion of the  
               bill's appropriation back to the General Fund. 


          Staff Comments: This bill largely results from the efforts of a  
          single individual whose interpretation of current law as it  
          existed prior to the passage of SB 809 has been consistently  
          rejected. Specifically, the individual filed three separate  
          lawsuits between 1999 and 2008 against BOE seeking a sales tax  
          refund for the period dating back to 1993. He failed all three  
          times.

          Nevertheless, BOE entered into a settlement agreement with the  
          individual in April, 2010. Specifically, under the settlement,  
          BOE agreed to refund him an undisclosed amount of money, while  
          he (1) was required to refrain from further litigation or  
          administrative claims against BOE, and (2) agreed to waive "any  
          known or unknown claims."

          The individual is now advocating for legislation to provide  
          additional relief. Essentially, in enacting this bill, the  
          Legislature would be retroactively conforming the law to support  
          his notion that QIVs were never under legal obligation to  
          collect sales tax, despite the fact that this position was  
          repeatedly rejected by the courts, by BOE, and by Legislative  
          Counsel.
          
          This bill's ultimate fiscal impact is not completely known.  
          Though the bill appropriates $50,000, the actual costs to  
          provide comprehensive repayments to QIVs could be higher. BOE  
          indicates that it is aware of a small number of veterans that  
          over the years have filed appeals on the issue related to the  








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          Business and Professions Code discussed above. The number of  
          those veterans (and potentially others) that would seek  
          repayments is not known. If a single QIV had average daily sales  
          of about $215 over the 8-year period covered in the bill, the  
          resulting sales tax due to BOE (and now repaid under the  
          provisions of the bill) would exceed $50,000. Thus, to the  
          extent that BOE is correct and veterans who have filed appeals  
          previously were to come forward and request repayments, the  
          $50,000 might not be adequate, with a cost pressure being the  
          result.