BILL ANALYSIS Ó
AB 160
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Date of Hearing: May 20, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
160 (Dababneh) - As Amended May 5, 2015
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|Policy |Public Safety |Vote:|7 - 0 |
|Committee: | | | |
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| |Revenue and Taxation | |9 - 0 |
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Urgency: No State Mandated Local Program: YesReimbursable:
Yes
SUMMARY:
This bill expands the list of crimes for which forfeiture of
assets and prosecution of criminal profiteering may be sought,
and expands the tax applicable to certain counterfeit goods. In
summary, this bill:
1)Adds piracy and insurance fraud to the list of offenses that
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may be considered criminal profiteering, and expands the
definition of "organized crime" as it relates to criminal
profiteering to include pimping and pandering, counterfeiting,
piracy, embezzlement, securities fraud, insurance fraud, grand
theft, money laundering, and forgery.
2)Adds the sale of counterfeit label or illicit label goods to
the definition of "retail sale" or "sale at retail" under the
tax code, thereby subjecting wholesale or other non-retail
sales and purchases of those counterfeit goods to sales and
use tax.
FISCAL EFFECT:
1)Minor and absorbable costs to state and local law enforcement;
minor and absorbable costs to the Board of Equalization (BOE)
to administer the tax.
2)Estimated GF revenue increase of approximately $1.1 million
per year based on California's pro rata share of total
seizures of counterfeit label and illicit label goods in the
United States and the taxable value of those goods.
COMMENTS:
1)Purpose. According to the author, AB 2681 (Dababneh),
Statutes of 2014, granted BOE increased authority to assess
taxes on individuals convicted of trafficking in counterfeit
goods, and this bill further increases this authority by
allowing law enforcement to seize assets acquired directly and
immediately from the proceeds of illegal activity including
piracy, insurance fraud, and counterfeiting. AB 160 also
authorizes BOE to assess taxes on the sale of property
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containing counterfeit labels and illicit labels.
Supporters, including the California District Attorneys
Association, believe California's "little RICO" statute is
limited by the comparatively few crimes that can trigger asset
forfeiture. Whereas the federal RICO statute lists over 150
crimes that can trigger forfeiture, California's statute list
only 33.
2)Criminal Profiteering Asset Forfeiture. Criminal profiteering
asset forfeiture is a criminal proceeding held in conjunction
with the trial of the underlying criminal offense, during
which the court determines whether the defendant's assets were
the ill-gotten gains of criminal profiteering. As a practical
matter, the prosecution must assemble its evidence for the
forfeiture matter simultaneously with the evidence of the
crime.
3)Wholesale Sales Tax. Under current law, sales taxes are
imposed on the "retail sale" or "sale at retail" of tangible
personal property. As a result, retail sales of counterfeit
goods and stolen intellectual property in the form of tangible
personal property is subject to sales tax to the same extent
as the retail sale of legitimate goods. Wholesale possession
or transportation of goods for resale is typically not subject
to sales tax, though wholesale possession or transportation of
counterfeit goods became subject to sales tax under AB 2681
(Dababneh), Statutes of 2014. This bill would subject the
wholesale possession or transportation for resale of goods
containing counterfeit labels and illicit labels to sales tax.
3)Buyers of Counterfeit Goods. Several academic studies have
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shown that consumers often buy counterfeit goods because they
cannot afford the legitimate products but want the brand or
style affinity that comes with those products. In some cases,
such brand affinity can serve to increase the underlying value
of the brand even though another party profits from the sale
of the good. This is particularly true in cases where a
consumer buys a counterfeit product with the hope of later
"upgrading" that product to the authentic item.
In recent years, the ability of manufacturers to counterfeit
products has improved substantially. This may lead certain
consumers to mistake the counterfeit for the authentic
product. Under this scenario, sellers of counterfeit goods
may limit legitimate sales, undercutting the investment and
labor of legitimate manufacturers and retailers.
4)Tax on Criminality. Taxes are frequently used to encourage or
discourage certain behavior, though it is unusual to subject
illegal or criminal activity to taxation. For example,
tobacco is subject to high excise taxation in order to
discourage its use, but marijuana is not subject to any excise
tax. One reason for abstaining from taxing criminal activity
is that it may legitimize or destigmatize the activity.
Another reason is that the incremental disincentive created by
taxation may be overshadowed by the severe penalties that
otherwise befall criminal activity, such as jail time,
forfeiture of property, and fines.
Given the strong disincentives already in place, it is unclear
what effect an additional sales tax would have on the sale of
goods containing counterfeit labels and illicit labels.
Furthermore, though BOE has attempted to estimate the taxable
value of counterfeit goods seized in California, it is unclear
whether much of this revenue will ever be recovered once
criminal fines, court costs, and legal fees have first been
satisfied.
AB 160
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Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081