BILL ANALYSIS Ó
AB 89
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Date of Hearing: May 18, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 89
(Travis Allen) - As Amended March 26, 2015
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use taxes: exemptions: public schools.
SUMMARY: Provides a temporary sales and use tax (SUT) exemption
for items purchased by a K-12 public school or a K-12 public
school district. Specifically, this bill:
1)Provides a partial exemption from the SUT for any items
purchased by a K-12 public school or a K-12 public school
district for use by that school or district in California.
2)Specifies that the exemption does not apply to local sales and
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use taxes, transactions and use taxes, and specified state
taxed from which revenues are deposited into the Fiscal
Recovery Fund, the Local Public Safety Fund, the Education
Protection Account, the Local Revenue Fund, and the Local
Revenue Fund of 2011.
3)Takes effect immediately as a tax levy, but will be operative
from January 1, 2016 until January 1, 2021.
EXISTING LAW:
1)Imposes a sales tax 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.
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
generally be remitted to the State Board of Equalization
(BOE).<1>
3)Requires local government agencies, including school districts
and public schools, to pay a SUT on their purchases of TPP.
---------------------------
<1> As an alternative to reporting use tax directly to the BOE,
existing law allows purchasers to report use tax on their state
personal income tax returns or their state corporation franchise
or income tax returns.
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However, sales of TPP to the federal government are generally
exempt from the SUT.
4)Allows a credit against the use tax to the extent that a
purchaser has paid a retail sales or use tax on the TPP in
another state, political subdivision thereof, or the District
of Columbia prior to the TPP's storage, use, or other
consumption in California.
FISCAL EFFECT: The BOE staff estimates that this bill will
result in an annual General Fund revenue loss of $37 million in
fiscal year (FY) 2015-16 and $76 million in FY 2016-17.
COMMENTS:
1)The Author's Statement . The author has provided the following
statement in support of this bill:
"AB 89 exempts public schools from the state sales and use tax.
This would include receipts from items purchased by a K-12
public school or a K-12 public school district subject to the
sales tax.
"Reforming and updating the current tax system will allow
taxpayer dollars to remain in the local school districts and
directly invest in the education of our children.
"This bill will help local schools provide better resources
and materials inside the classroom by allowing them to retain
all of their funds without being forced to pay the state tax."
2)An Overview of SUT . California's SUT Law imposes a sales tax
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on retailers for the privilege of selling TPP, absent a
specific exemption. The tax is based upon a retailer's gross
receipts from TPP sales in California. The SUT Law also
imposes a mirror "use tax" on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax is imposed on the purchaser; and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must generally be
remitted to the BOE. According to the Department of Finance,
the SUT Law contains separately identifiable state tax GF
expenditures worth about $13 billion in FY 2014-15. Examples
of these include food, prescription medicines, gas,
electricity, and water, farm equipment, fuel sold to common
carriers, and rental of linen supplies.
3)The Proposed SUT Exemption . This bill proposes to provide a
partial 3.9375% SUT exemption for any item purchased by a
public school or a school district for use by that school or
district. Thus, a purchase of office supplies, medical
supplies, playground equipment, or a copy machine would
qualify for the exemption. Generally, the sales and use tax
applies to purchases of TPP. The author may wish to amend the
bill to replace the word "items" with TPP, to be consistent
with existing law.
4)School Districts : Existing law does not define the term "K-12
public district," but provides definitions for elementary,
unified, and high school districts. Since this bill refers to
"K-12 school district" and "K-12 public school," it is unclear
to Committee staff which schools and districts would qualify
for the proposed SUT exemption. The author may wish to
consider amending this bill to clarify the eligibility of
schools and districts.
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5)Slippery Slope: Where Does One Draw the Line ? A sales tax is
considered to be a "consumption" tax, meaning that it is
theoretically imposed on consumption of TPP. Under existing
law, all public, non-profit and volunteer organizations pay
sales or use tax for their purchases, with an exception of
only voluntary thrift stores. Some government entities, such
as libraries and "volunteer fire departments", for example,
have asked for similar exemptions in the past. The
Legislature, however, decided that such exemptions would set a
"slippery slope" precedent insofar as it is difficult to
determine which of the purchases would be considered more
worthy than others for a tax exemption. Where should the
Legislature draw the line when providing the SUT exemption
only for certain government entities and not others? For
example, what is the rationale of exempting purchases made
only by school districts and public schools, and not community
colleges?
6)Proposition 30 . In general, Proposition 30 increased the
marginal tax rate for those making above $250,000 and
increased the statewide sales tax rate from 7.25% to 7.5%.
Proposition 30 was estimated to increase General Fund (GF)
revenue by about $6 billion per year, which would primarily be
used to restore funding to California's public school system.
As noted in the Governor's Budget Summary, the budget for FY
2014-15 provides $61.6 billion in Proposition 98 funding, an
increase of $6.3 billion over the 2013 budget act level.
Thus, new revenues, provided in part because of the passage of
Proposition 30, have translated into additional funding for
California's K through 12 school system.
7)Proposition 98 Uncertainty . Proposition 98 requires that a
minimum amount of funding be allocated to K-14 education
programs each year. The calculation of that amount is based
on various formulas and different factors, including the
amount of GF revenue. As such, a significant decrease in GF
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revenue, as proposed by this bill, could potentially reduce
the amount of funding allocated to schools under the
Proposition 98 guarantee. And, while the proposed SUT
exemption could help K-12 public schools, it would provide no
benefit to community colleges that would receive less GF
funding.
8)Partial Exemptions: Administrative Complications . As noted
by the BOE staff in its analysis, most exemptions apply to the
total applicable SUT. The administration of partial
exemptions is challenging for both retailers and the BOE.
9)Prior Legislation .
a) AB 1077 (Mountjoy), of the 2001-02 Legislative Session,
would have provided for a similar SUT exemption. AB 1077
was held on this Committee's Suspense File.
b) AB 2636 (Leonard), of the 2001-02 Legislative Session,
would have provided a SUT exemption for the sale and the
use of instructional materials purchased by any public
school, public school district, or county office of
education, including any charter school, serving
Kindergarten and Grades 1 to 12. AB 2636 was held on this
Committee's Suspense File.
c) SB 546 (McClintock), of the 2001-02 Legislative Session,
would have provided a SUT exemption for the sale of and the
use of textbooks purchased by a K-12 public school or
school district, or an accredited private school, or sold
to a student of an accredited private school or institution
of higher education. SB 546 failed passage in the Senate
Revenue and Taxation Committee.
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d) SB 1064 (Polanco), of the 2001-02 legislative session,
would have provided a SUT exemption for the sale of and the
use of TPP purchased for educational purposes by any K-12
public school or school district. SB 1064 was never heard
by the Senate Revenue and Taxation Committee.
REGISTERED SUPPORT / OPPOSITION:
Support
Board of Equalization
Small School Districts' Association
Opposition
None on file
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098
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