BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 782 (DeSaulnier) - Sexually Oriented Business Tax Amended: May 7, 2013 Policy Vote: G&F 5-2, Public Safety 5-2 Urgency: No Mandate: No Hearing Date: May 23, 2013 Consultant: Robert Ingenito SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Bill Summary: SB 782 would, until January 1, 2024, impose a tax on sexually oriented businesses, the proceeds of which would be used to fund sexual violence prevention programs. Fiscal Impact: The Board of Equalization (BOE) estimates that this measure could result in annual revenue gains of $35 million (special funds). However, this estimate is subject to considerable uncertainty, due to data limitations regarding (1) the number of establishments affected, and (2) customer attendance (see Staff Comments). BOE would incur unknown substantial costs, likely in low millions of dollars annually, to implement the provisions of the bill. Costs would include: taxpayer identification, notification, and registration; regulation development; manual and publication revisions; tax return design; computer programming; audit and collection tasks; staff training; and public inquiry responses. Ongoing costs of administration would likely be somewhat lower. Additionally, the Office of Emergency Services (CalEMA) estimates increased costs of $1.5 million to implement its provisions. Proposed Law: SB 782 would, until January 1, 2024, impose 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. BOE would administer and collect the tax in compliance with the Fee Collection Procedures Law. BOE would create returns and SB 782 (DeSaulnier) Page 1 adopt regulations to administer the tax, and would deposit the tax proceeds into the Sexual Assault Treatment and Prevention Fund, which the bill creates. Revenues (net of BOE administrative costs and refunds) would be allocated as follows: At least 90 percent would be made available to CalEMA, in collaboration with the State Advisory Committee on Sexual Assault Victim Services, to provide grants for a variety of prevention, intervention, and treatment programs, as specified. No more than 10 percent would be available to fund administrative and implementation costs. 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 employees or independent contractors to provide reimbursement for the tax. The operator may require customers to provide reimbursement. CalEMA would 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. CalEMA could 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. 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. CalEMA 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: SB 782 (DeSaulnier) Page 2 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 bill also makes a $200,000 biennial appropriation to CalEMA 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 term "nude" to mean clothed in a manner that leaves uncovered or visible through less than fully opaque clothing, any portion of the genitals or, in the case of a female, any portion of the breasts below the top of the areola of the breasts. The bill defines the term "sexually oriented business" to mean a nightclub, bar, restaurant, or similar commercial enterprise that does both of the following. Provides for an audience of two or more individuals live nude entertainment or live nude performances where the nudity is a function of everyday business operations and where nudity is a planned and intentional part of the entertainment or performance. Authorizes on-premises alcoholic beverage consumption regardless of whether the consumption is under an Alcoholic Beverage Control Act license or permit. SB 782 (DeSaulnier) Page 3 Related Legislation: AB 2441 (Williams, et al, 2012) would have imposed a $10 per customer visit tax upon an operator. That bill was held in the Assembly Revenue and Taxation Committee. Staff Comments: A credible revenue estimate for this bill requires verifiable data regarding (1) the number of sexually oriented businesses (not all businesses that provide nude entertainment serve alcohol on premise), and (2) customer attendance data for sexually oriented businesses. Unfortunately, the requisite data do not exist. The BOE revenue estimate ($35 million annually) assumes 80 sexually oriented businesses, with an average clientele of 120 persons daily. The number of affected sexually oriented businesses in the State could be lower than 80, because (1) some establishments could have closed operations due to economic conditions, and (2) they might not meet the bill's definition of sexually oriented business, because nude performances are not offered every day. To the extent that either of these circumstances applies, revenues from the bill would be lower. With respect to customer patronage, attendance at sexually oriented businesses will vary around the State, as some are located in urban locations with large population centers, while others are in more rural parts of the State. Assuming the 80 establishments in the BOE estimate, if average daily attendance increased or decreased by 10 persons, revenues would swing up or down by about $3 million. Additionally, this revenue estimate does not account for any changes in economic activity that may or may not result from enactment of the proposed law. Assuming the $10 tax is passed on to consumers, they could respond to the tax increase with fewer visits, which would result in lower revenues (as well as lower alcohol excise tax revenues). Author Amendments would (1) delay the bill's operative date, (2) impose the $10 tax on owners of sexually oriented businesses (as opposed to operators), (3) delete authorized reimbursement language, and (4) clarify the type of sexual forensic exams being funded. SB 782 (DeSaulnier) Page 4