BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 782 HEARING: 4/24/13
AUTHOR: DeSaulnier FISCAL: Yes
VERSION: 2/22/13 TAX LEVY: No
CONSULTANT: Grinnell
THE SEXUAL ASSAULT VICTIMS' EQUITY ACT
Enacts the Sexual Assault Victims Equity Act; Imposes a Tax
on Sexually Oriented Businesses
Background and Existing Law
In California, sexually oriented businesses and its
employees pay taxes like any other business or individual:
the Corporation Tax or the Personal Income Tax applies to
the net income generated by the business based on its
corporate form; the business pays property tax to the
County where it's located, and collects and remits sales
taxes on property it sells, or excise taxes on alcohol or
tobacco to the Board of Equalization. These businesses
also remit employment taxes to the Employment Development
Department and the Internal Revenue Service. Employees of
sexually oriented businesses pay personal income tax on
their wages and tips.
California also provides various tax credits designed to
provide incentives for taxpayers that incur certain
expenses, such as child adoption, or to influence behavior,
including business practices and decisions, such as
research and development credits and Geographically
Targeted Economic Development Area credits. The
Legislature typically enacts such tax incentives to
encourage taxpayers to do something but for the tax credit,
they would otherwise not do.
California levies excise taxes on consumers purchasing
certain goods that it deems have potentially harmful
effect, such as gasoline and diesel fuel, tobacco, beer,
wine, and distilled spirits. State law does not assess any
tax for admittance to a venue.
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Proposed Law
Senate Bill 782 imposes a tax on persons who operate a
sexually oriented business, as defined, equal to ten
dollars per customer visit to the business. The sexually
oriented business must authorize on-premises consumption of
alcoholic beverages to be subject to the tax. The tax is
due and payable on or before the last day of the month
following each calendar quarter, and must be paid
electronically.
The Board of Equalization (BOE) must administer and collect
the tax in compliance with the Fee Collection Procedures
Law. BOE may create returns and adopt regulations to
administer the tax, and shall deposit the tax proceeds into
the Sexual Assault Treatment and Prevention Fund, which the
bill creates.
The sexually oriented business operator must register with
BOE, supply specified information, and record daily the
number of persons admitted to the business in the manner
required by BOE. The operator cannot require any of his or
her employees or independent contractors to reimburse him
or her for the tax. The operator may require customers to
reimburse him or her for the tax.
The Legislature can appropriate moneys in the Sexual
Assault Treatment and Prevention Fund only in the manner
specified in the bill. Funding allocation decisions must
be made by the Office of Emergency Services in
collaboration with the State Advisory Committee on Sexual
Assault Victim Services, a committee established in statute
to approve allocations to rape crisis centers, by June 20,
2014. OES may use up to 10% of tax proceeds to administer
grant programs.
OES can allocate funds for grants for intervention services
related to sexual assault survivors and rape prevention
programs provided by rape crisis centers, as specified in
the Penal Code. OES can award funds based on a competitive
request for proposal process for:
Civil legal services to sexual assault survivors,
Coordination of sexual assault response teams,
Culturally and linguistically appropriate
intervention services to sexual assault survivors
from underrepresented or underserved communities,
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Grants to reimburse the payment of adult and
adolescent sexual assault forensic exams,
Grants to nonprofit, community-based
organizations to support intervention and treatment
services for victims of sexual exploitation of human
trafficking. Community-based organizations that
provide services for victims of sexual and domestic
and work to end and prevent sexual and domestic
violence are also eligible for these grants.
OES must receive approval from the State Advisory Council
on Sexual Assault Victim Services to award grants and
contracts as a result of a competitive request for proposal
process with:
A statewide 501(c)(3) organization that has the
primary purpose of ending sexual violence in the
state for programs for the intervention and
prevention of sexual violence, outreach programs,
training, and technical assistance to and support of
California rape crisis centers.
Other organizations to prevent and intervene in
sexual violence in underserved communities.
Nonprofit, community-based organizations to
support the intervention and treatment services for
victims of sexual assault as part of dating or
domestic violence, including sexual assault victims
services as specified in the Penal Code.
The measure also makes a $200,000 biennial appropriation
from the fund to OES to provide a report on or before July
1, 2015, and biennially thereafter, regarding:
Deficiencies with respect to research,
prevention, response, victim services, adjudication,
and incarceration related to sexual assaults at
state and local levels,
Effectiveness of appropriations made under the
bill,
Recommendations for performance measures to
assess and respond to the status of sexual assault
prevention in this state,
The bill defines the terms "nude," and "sexually-oriented
business," and makes findings and declarations in support
of its provisions. The measure also makes a change to the
penal code to make one technical change and another
conforming it to this bill.
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State Revenue Impact
According to BOE, SB 782 will generate $35 million
annually. However, BOE warns that this estimate is subject
to considerable uncertainty.
Comments
1. Purpose of the bill . According to the author, "SB 782
imposes a $10 fee per customer on California sexually
oriented businesses that serve alcohol or permit alcohol
consumption. Proceeds will be placed into the Sexual
Assault Treatment and Prevention Fund and used for a
variety of purposes to create a comprehensive approach to
the intervention and prevention of sexual violence.
Currently, the California state general fund annually
allocates $45,000 to California rape crisis centers.
According to data from the California Emergency Management
Agency (Cal-EMA), 31,790 victims received services in
California during the 2011-2012 fiscal year. This amounts
to about $1.42 of state general fund money per survivor.
SB 782 would create a sustainable funding stream for
California's rape crisis center programs- which have
survived in recent years with diminishing federal funding
cuts. These centers would be able increase the depth of
services offered to survivors and those survivors who
cannot currently be provided services due to lack of
resources. According to a report issued by the Los
Angeles Police Department in 2003 after conducting a study
on adult entertainment venues, they concluded that such
establishments are associated with higher rates of
prostitution, robbery, assault, and theft in surrounding
areas. SB 782 is intended to ameliorate the negative
secondary effects associated with the combination of
sexually oriented business and alcohol and to promote the
health, safety, and welfare of California's citizens."
2. Making the connection . The First Amendment of the
United States Constitution restricts Congress, and through
incorporation the Legislature, from enacting a law
abridging the freedom of speech. As Congress and the
states have considered legislation to abridge or tax
certain forms of speech, Courts have had to weigh the
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taxpayer's First Amendment protections against the state's
plenary authority to police private behavior and to tax.
While the jurisprudence on the issue is not entirely clear,
states cannot generally tax speech, as "the power to tax
the exercise of a privilege is the power to control or
suppress its enjoyment" in the words of the Supreme Court.
However, Courts apply a less stringent standard, known as
intermediate scrutiny, to content-neutral taxes that apply
generally, or function more as regulatory measures to
police the speech's negative secondary, and allow for other
ways and venues for expression and speech. Courts apply
the more stringent strict scrutiny when the tax intends to
suppress specific content. In these cases, the public
agency must show that it has a compelling state interest to
regulate the specific form of speech because it produces
"negative secondary effects. In addressing these effects,
government must "advance some basis to show that its
regulation has the purpose and effect of suppressing
secondary effects, while leaving the quantity and
accessibility of speech substantially intact." Renton v.
Playtime Books, Inc. 475 U.S. 41 (1986). City of Los
Angeles v. Alameda Books , Inc. 535 U.S. 425 (2002).
While the Supreme Court found that City of Los Angeles's
1977 study on adult businesses that gave rise to Alameda
Books was sufficient evidence that the City at that time
enacted an ordinance focused on secondary effects and not
specific content, is that true of SB 782? Supporters
argue that combining alcohol and attending adult businesses
cause such effects, pointing to a 2010 Supreme Court of
Texas decision ratifying its similar five dollar tax under
the intermediate scrutiny standard. In that case, the
Court found that the tax wasn't content specific, applied
instead to the secondary effects of combining alcohol
consumption and nude dancing, and the business could choose
to avoid the tax by not serving alcohol. Opponents deny
the connection, and also argue that a ten dollar per head
tax is of sufficient economic impact to the operators to
significantly harm speech. Additionally, the Committee has
no empirical information demonstrating that combining
alcohol and nude dancing leads to more sexual assaults in
California. If enacted, Courts will eventually have to
determine whether the current evidence supporting SB 782
constitutionally justifies its tax as a factual matter.
The questions for the Committee today are whether the
combination alcohol consumption and sexually oriented
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businesses leads to more sexual assaults, and would
applying a tax to fund the measure's programs result in
fewer sexual assaults? The Committee may wish to consider
whether SB 782's tax is consistent with the lines drawn by
the United States Supreme Court, and whether the programs
it seeks to fund will reduce sexual assaults.
3. Who pays? An old piece of tax policy wisdom
attributed to Louisiana Gov-ernor Russell Long states that,
"Don't tax you, don't tax me, tax the man behind the tree."
California generally aligns general taxes with the costs
of general services: the "Big Three" revenue sources, the
Personal Income Tax, the Sales and Use Tax, and the
Corporation Tax, fund general programs authorized in the
annual State Budget. However, California has some other
taxes that apply on certain taxpayers to pay for specific
services unrelated to the taxpayer: the Mental Health
Services Act applies a one-percent surcharge on incomes
over $1 million to pay for mental health services
(Proposition 63, 2004), and one component of the excise tax
on tobacco funds early childhood development (Proposition
10, 1998), among others. Prior to Proposition 26 (2010),
the Legislature enacted many regulatory and mitigation
fees, which were designed to shift costs from the state
General Fund to individuals that derived a distinct benefit
or imposed a specific burden on the public. SB 782 taxes
some adult business operators to create an ongoing revenue
stream to fund sexual assault prevention and victim
services, a general government responsibility. While the
service need may be acute and compelling, is it appropriate
to tax one segment of the economy to pay for it instead of
funding services from general revenue? The Committee may
wish to consider whether funding the bill's sexual assault
prevention programs from general revenues is a better way
than assessing a tax on one form of economic activity.
4. Behind the green door . Committee staff recommends the
following amendments:
Given the significant chance that individuals
subject to SB 782's tax will litigate if enacted, is
the measure's requirement that allocations be
specified by June 20, 2014 reasonable? The Committee
should either delete that date or specify a time
period after an appellate court ratifies the tax.
Additionally, BOE needs at least 180 days to
prepare for the tax to be administered effectively.
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The Committee should amend the measure to allow BOE
proper time to inform taxpayers.
Specify that owners, not operators, are liable for
the tax. BOE can more easily identify ownership than
control of the facility.
Delete language allowing reimbursement from
customers to reduce BOE audit workload.
OES no longer exists; replace with references to
California Emergency Management Agency.
The measure's funding direction doesn't preclude
one group that meets multiple criteria from securing
most or almost all of the tax proceeds. Should the
Committee wish to ensure that SB 782's tax proceeds
don't flow solely to one group, it should amend the
measure to cap any one group's annual allocation of
tax proceeds to a specified percentage.
The measure restricts funding for some purposes to
"community-based" groups. What does this term mean?
The Committee should amend the bill to define the term
or delete it to prevent confusion.
The bill calls for a report to recommend
appropriate performance measures to assess and respond
to the status of sexual assault prevention in the
state. Shouldn't these performance measures be
identified prior to levying a tax to show actual
funding need? Shouldn't SB 782 lay out the expected
reductions in sexual assaults because of the measure's
enhanced funding, and fix a sunset date, thereby
allowing a future Legislature to assess whether the
bill achieved its goals?
5. Magic words . SB 782 constitutes an increase of a tax
on any taxpayer for the purposes of Section Three of
Article XIIIA of the California Constitution, so the
measure must be enacted by 2/3 vote of the Senate and the
Assembly to be enacted.
Support and Opposition (4/18/13)
Support : Alameda County District Attorney, Nancy O'Malley,
California Coalition Against Sexual Assault, Crime Victims
United of California, CA Police Chiefs Association, Crime
Victims Action Alliance
Opposition : CalSmallBiz, Taxpayers for Improving Public
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Safety, and Association of Club Executives of California.