BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 160 |Hearing | 7/15/15 |
| | |Date: | |
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|Author: |Dababneh |Tax Levy: |No |
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|Version: |6/16/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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Criminal profiteering: counterfeit labels: sales and use
taxes
Applies the sales and use tax to goods with counterfeit or
illicit labels held for resale; extends authority for asset
forfeiture to specified crimes.
Background and Existing Law
I. Sales and Use Tax. State law imposes the sales tax on every
retailer engaged in business in this state that sells tangible
personal property, and requires them to collect the appropriate
tax from the purchase and remit the amount to the Board of
Equalization (BOE). Sales tax applies whenever a retail sale is
made, which is basically any sale other than one for resale in
the regular course of business. Unless the person pays the
sales tax to the retailer, he or she is liable for the use tax,
which is imposed on any person consuming tangible personal
property in the state. The use tax rate is the same rate as the
sales tax rate, and must be remitted on or before the last day
of the month following the quarterly period in which the person
made the purchase. The Legislature added the use tax in 1935 in
response to complaints from in-state retailers that California
residents would evade the sales tax it enacted in 1933 by
purchasing property out-of-state, but use it here.
Federal and state law make it a criminal act to willfully
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manufacture, intentionally sell, or knowingly possess for sale
any counterfeit of a mark registered with the Secretary of State
or the Principal Register of the United States Patent and
Trademark Office. Federal law also makes it a criminal act to
traffic in:
Goods and services knowingly using a counterfeit mark in
connection with the goods and services,
Specified products knowing that a counterfeit mark has
been applied to it, the use of which is likely to cause
confusion, a mistake, or deceive someone,
Counterfeit military goods or service, knowing that the
use, malfunction, or failure of which is likely to cause
serious bodily injury or death, disclosure of classified
information, impairment of or significant harm to combat
operations, or to national security or a member of the
armed forces, or
Counterfeit drugs.
Last year, the Legislature provided that for purposes of the
sales and use tax. a sale includes any sale of tangible personal
property with a counterfeit mark by an individual convicted of
selling counterfeit merchandise under state or federal law,
regardless of whether it's for resale (AB 2681, Dababneh, 2014).
The measure essentially applied the sales tax on all the goods
sold by individuals on or before the date they were convicted of
selling counterfeit goods.
II. Asset Forfeiture. In 1982, the California Legislature
passed the California Control of Profits of Organized Crime Act
to punish the activities of organized crime through the
forfeiture of profits acquired and accumulated as a result of
engaging in a pattern of criminal profiteering activity. To
have a pattern of criminal profiteering activity, a person must
engage in at least two incidents with (1) the same or similar
purposes, victims, principals, results, or methods, or (2) were
committed as a criminal activity of organized crime. State law
defines organized crime as conspiratorial and which is either
organized and seeks to provide illegal goods or a specified list
of services, or seeks to conduct other services for profit.
Existing law provides that where a defendant is convicted of a
trademark counterfeiting, the court shall order the forfeiture
and destruction of all of counterfeit marks and all counterfeit
items. The court, with specified exceptions for community
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property vehicles, shall also order forfeiture and destruction
or other disposition of all means of making the marks, and all
other devices for making or transporting the marks used in
connection with the violation.
BOE Chairman Jerome Horton wants to expand AB 2781's extension
of the sales and use tax for goods held for resale that have
counterfeit or illicit marks to account for a recent case where
an individual was selling items labelled as gold bars.
Proposed law.
I. Sales and Use Tax. Assembly Bill 160 expands AB 2781's
extension of the sales tax to sales of goods with counterfeit
marks to also include sales of goods with counterfeit or illicit
labels, as defined in the United State Code. The measure also
makes a conforming change to the definition of "counterfeit
seller."
II. Criminal Law. Assembly Bill 160 adds offenses related to
piracy and insurance fraud onto the list of criminal offenses
for which prosecutors can seek asset forfeiture. The measure
also expands the definition of "organized crime" to include
supplying pimping and pandering, loan-sharking, counterfeiting a
registered mark, the piracy of recording or audiovisual work, or
conducting embezzlement, securities fraud, insurance fraud,
grand theft, money laundering, or forgery for profit.
State Revenue Impact
BOE states that the measure's asset forfeiture provisions
increase revenue by several million dollars annually, while its
counterfeiting offense change results in $1.1 million in annual
revenue.
Comments
1. Purpose of the bill . According to the author, "Criminals
should not profit from their crimes. Unfortunately,
California's asset forfeiture laws for non-drug related crimes,
like financial crimes and other white collar offenses are so
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poorly drafted that they are almost unusable by District
Attorneys and the Attorney General's office. As a result, white
collar victims who sometimes have lost everything due to a
defendant's fraud often cannot collect restitution to make them
whole. Adding more examples of crimes to the definition of
"organized crime" will ensure that prosecutors are able to seize
unlawfully obtained assets. Equally problematic, underground
economy crimes like insurance fraud that drain public resources
from our schools, health services and law enforcement, are not
even included among the list of crimes in which asset forfeiture
is available. As found by the Little Hoover Commission, after
an investigation of over a year, in the current climate, "Crime
Actually Does Pay-- people participate in the underground
economy because the rewards outweigh the risk." (Little Hoover
Committee Report # 226, p. 30.) This bill fixes the internal
inconsistencies in the language of the state's asset forfeiture
laws, and adds certain underground economy crimes to the list of
offenses that can trigger asset forfeiture of criminal profits.
This bill is to make it so that crime no longer pays in
California."
2. Effective ? Criminal law applies sanctions to individuals
who sell counterfeit merchandise, which deprives honest owners
of the economic returns justly due to them for the goods and
services they provide. AB 2681 added to existing criminal law
deterrents against counterfeiting by applying the sales and use
tax to sales of good with counterfeit marks, which AB 160 would
expand to counterfeit and illicit labels. As such, the bill
only affects people convicted of crimes, who are unlikely to
have sufficient income or assets to satisfy the debt, especially
after satisfying criminal restitution orders to those that hold
the rights to the counterfeited trademarks. As such, AB 160 may
only add to the state's accounts receivables, and not to its
revenues. The Committee may wish to consider the tangible
effects of applying the sales and use tax to goods with
counterfeit or illicit labels goods sold for resale.
3. 2/3 . AB 160 increases a tax on any taxpayers for the
purpose of Section III of Article XIIIA of the California
Constitution. As such, Legislative Counsel has assigned the
measure a 2/3 vote key.
4. Incoming ! On June 30th, the Committee on Public Safety
approved AB 160 by a vote of 7-0. The Committee on Governance
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and Finance is hearing the measure as the Committee of second
reference.
Assembly Actions
Senate Public Safety 7-0
Assembly Floor 77-0
Assembly Appropriations 15-0
Assembly Revenue and Taxation 9-0
Assembly Public Safety 7-0
Support and
Opposition (7/9/15)
Support : BOE Chair Jerome Horton; American Federation of State,
County, and Municipal Employees; California Chamber of Commerce;
California College and University Police Chiefs; California
Police Chiefs Association; California District Attorneys
Association; California State Sheriffs' Association; California
Statewide Law Enforcement Association; Independent Insurance
Agents; Liberty Mutual Insurance; Los Angeles Area Chamber of
Commerce; Valley Industry and Commerce Association.
Opposition : None received.
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