BILL ANALYSIS Ó
AB 464
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 464
(Mullin) - As Amended April 6, 2015
Majority vote. Nonfiscal.
SUBJECT: Transactions and use taxes: maximum combined rate
SUMMARY: Increases the maximum combined rate of all
transactions and use taxes (district taxes) that may be levied
by authorized entities within a county from 2% to 3%.
EXISTING LAW:
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1)Authorizes cities and counties, under the Bradley-Burns
Uniform Local Sales and Use Tax (SUT) Law, to impose local
SUT. [Revenue & Taxation Code (R&TC), commencing with Section
7200.]
2)Provides counties and cities, under the Transactions and Use
Tax (TUT) Law and the Additional Local Taxes Law, with the
authority to impose district taxes under specified conditions.
(R&TC Section 7251 and 7280.)
3)Provides that counties and cities may impose a district tax
for general purposes and special purposes at a rate of 0.125%,
or multiple thereof, if the ordinance imposing the tax is
approved by the required percentage of voters in the city or
county. (R&TC Section 7285.)
4)Provides that the combined rate of all district taxes imposed
in accordance with the TUT law in any county may not exceed
2%. (R&TC Section 7251.)
5)Exempts from the 2% cap the counties of Alameda, Contra Costa,
and Los Angeles, as specified.
6)Allows a county to establish a transportation authority to
impose district taxes under the Public Utilities Code (PUC)
and authorizes a county board of supervisors to designate a
transportation-planning agency to impose a district tax.
Requires that district taxes imposed under the PUC conform to
the administrative provisions contained in the TUT Law.
7)Requires cities and counties to contract with the State Board
of Equalization (BOE) to perform all functions in the
administration and operations of the ordinances imposing the
Bradley-Burns local taxes and district taxes.
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FISCAL EFFECT: No impact on General Fund revenues.
COMMENTS:
1)Author's statement . The author has provided the following
statement in support of this bill:
"Current law allows cities and counties to impose transaction
and use taxes, also known as district taxes, at a rate of up
to two percent of total sales. This cap is quickly reached
when both cities and counties impose their own district taxes.
It is particularly problematic for counties because if one
city within a county has reached the cap, then the county is
precluded from raising additional district taxes. Similarly,
cities that have already reached the cap are constrained when
seeking additional funding for programs and services over and
above the cap.
"The two percent cap was implemented more than a decade ago, in
2003. Since then several bills have gone through the
Legislature to create individual exceptions to the cap. Most
of these bills were eventually signed into law, begging the
policy question: If raising the cap is good for individual
jurisdictions, then should we consider simply lifting it
statewide? AB 464 does exactly this, and as a result it would
not only make the policy statewide, but it would reduce the
amount of piecemeal one-off bills going through the
Legislature on the subject, savings state resources.
"Throughout California, districts are reaching the current cap,
and funding for services, including transportation, education
and public safety, is declining. This bill gives local
jurisdictions the freedom to seek voter approval for district
tax increases by raising the cap from two to three percent.
If the proposed tax goes for a specific purpose, it would
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require a two-thirds majority vote of the people living within
the jurisdiction before going into effect. In other
instances, when a jurisdiction proposes a general purpose tax,
a majority vote would be required. AB 464 grants local
governing bodies, and the people living within them, the much
needed flexibility to raise additional funds for important
programs and services."
2)Arguments in support . The proponents of this bill state that
in many communities "throughout the state, local agencies are
considering options for financing improvements in
infrastructure, parks, public safety, and other local
programs." However, many agencies "are precluded from
considering the option of an additional transactions and use
tax due to the 2 percent cap on the combined rate." The
proponents note that the Legislature previously has considered
"a number of measures that offered limited exceptions to the
two-percent cap in certain California communities" and argue
that perhaps "it is the appropriate time to consider a broad
increase in the transactions and use tax cap." The proponents
also assert that "the existing two-percent cap on local sales
tax severely limits local government's ability" to fund new
and existing transportation and other vital local services
since "many jurisdictions are already at or are near that
threshold." Increasing the cap from 2% to 3% "would provide
local governments throughout the state with more flexibility
to use sales tax measures as a strategy to support a growing
scope of local needs." Finally, the proponents note that this
bill "gives local jurisdictions the freedom to seek voter
approval for a local tax increase with local accountability."
3)Arguments in opposition . The opponents state that "California
already has the highest sales and use tax rate in the country,
with a combined minimum state and local sales tax rate of 7.5
percent." Moreover, "local governments may impose additional
transactions (sales) and use taxes, known as district taxes,
generally capped at 2%." The opponents argue that this bill
would increase the cost of conducting business in California,
impose a regressive tax on disadvantaged communities, and
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raise the sales tax rate to 11% in some areas.
4)Background . The TUT law authorizes the adoption of local
add-on rates to the combined state and local sales tax rate.
Under existing law, cities and counties may impose a TUT (a
district tax) for general or special purposes, subject to
voter approval, provided that the combined countywide rate of
tax does not exceed 2% (with the exception of the Counties of
Alameda, Contra Costa, and Los Angeles). These taxes may be
imposed either directly by the city or county, or through a
special purpose entity established by the city or county.
Counties may also create a transportation authority to impose
district taxes under the PUC or designate a transportation
planning agency to impose a district tax, subject to the
applicable voter approval requirements. District taxes
imposed under the PUC must conform to the administrative
provisions contained in the TUT Law, including the requirement
to contract with the BOE to perform all functions related to
the administration and operation of the ordinance.
A district tax is imposed on the sale or the storage, use, or
other consumption of tangible personal property in the
jurisdiction that adopted the tax. Generally, a district tax
is imposed at a rate of 0.125%, or 0.125% increments, up to
the 2% limit. Some cities and counties have more than one
district tax, while others have none. Currently, the district
tax rates vary from 0.10% to 1%. The current combined state,
local, and district rates range from 7.50% to 9.5% (with the
exception of Cities of Albany, Hayward, San Leandro, and Union
City in Alameda County; and the Cities of La Miranda, Pico
Riviera, and South Gate in Los Angeles County). According to
the BOE's analysis of this bill, as of April 1, 2015, 202
local jurisdictions, including cities, counties, and special
purpose entities, impose a district tax for general or
specific purposes. Of the 202 jurisdictions, 48 are
county-imposed taxes and 154 are city-imposed taxes. Of the
48 county-imposed taxes, 44 are imposed for special purposes.
Of the 154 city-imposed taxes, 124 are general purpose taxes
and 30 are special purpose taxes.
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5)Existing 2% combined countywide cap . In 1987, the Legislature
imposed a maximum combined rate of 1% on all district taxes
within any county. That rate was incrementally increased -
first to 1.5% in 1990 and then to 2% in 2003.
The Legislature has previously granted exemptions to the 2%
statutory cap for transactions and use taxes to support
countywide transportation programs. For example, in 2008, the
Legislature authorized the Los Angeles County Metropolitan
Transportation Authority to impose a TUT not subject to the 2%
cap. (Chapter 302, Stats. 2008.) In 2011, a one-time
exemption from the 2% TUT combined rate cap was allowed for
Alameda County. (Chapter 327, Stats. 2011.) Subsequently, in
2012, the Legislature extended the authority for Alameda
County to impose a TUT, the rate of which - in combination
with all other district taxes in the county - would exceed the
2% statutory cap. The Legislature also allowed Contra Costa
County to adopt an ordinance imposing a TUT in the same manner
as Alameda County (Chapter 194, Stat. 2013). Additionally, in
2014, the Legislature authorized the City of El Cerrito to
adopt an ordinance proposing the imposition of a TUT that
exceeds the 2% statutory limitation.
At the present time, the Counties of Alameda, Contra Costa,
Los Angeles, and San Mateo have reached the 2% limit. The
counties of Marin, San Diego, and Sonoma Counties are near the
2% limit.
6)Increasing the 2% Cap . In recent years, more and more cities
and counties seek individual legislation to increase the
current statutory 2% cap. This bill is intended to uniformly
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increase the combined statutory cap for all counties to 3%,
instead of addressing the financial difficulties experienced
by various cities and counties on a case-by-case basis.
Local governments often find it difficult to make up for
decreases in state revenues with increases in local revenues
because counties have limited authority to raise revenues and
local special taxes require a two-thirds vote of the
electorate. Furthermore, the interaction between city-imposed
and county-imposed TUTs may cause some counties to "run out of
room" under the 2% maximum combined rate of tax. When a city
or district imposes a TUT, that tax rate counts toward the
county's cap, which means that the county is restricted in its
ability to raise revenues on a countywide basis. Since
levying a tax on a countywide basis is the only way for the
county to support its operations and fund services, including
transportation, an imposition of a new, or extension of an
existing, tax by a city or a district within the county will
directly impact the county's ability to raise revenues. This
bill may help counties that either have already reached, or
are close to reaching, the 2% maximum combined rate limit to
levy or extend a TUT.
Furthermore, cities and districts may also be constrained in
their ability to impose a new or increase an existing TUT in
the counties that have reached the 2% limit. As such, this
bill would provide more flexibility for cities and other
authorized agencies as well and would also drastically reduce
the number of bills seeking to lift the cap on behalf of
individual counties or cities.
7)No change in voting requirements . While this bill increases
the countywide 2% cap, it does not change any of the voting
requirements applicable to the passage of local taxes,
including a TUT.
8)Exporting the burdens of the tax . A TUT imposed in a county
will be partially borne by residents of other jurisdictions.
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The argument for exporting taxes to nonresidents, however, is
justified if nonresidents derive public-service benefits from
a locality where the services are financed by local resident
taxpayers. For example, tourism is an attractive tax
exporting opportunity, where tourists in fact will bear the
burden of the taxes imposed on sales of tangible personal
property in the area. Perhaps residents of certain counties
will be more amenable to levying a new, or increasing an
existing, TUT knowing that the burden of that tax will be
partially borne by non-residents.
9)BOE administrative costs . Cities and counties are required to
contract with BOE to administer district taxes. As noted by
the BOE staff in its analysis, this bill does not increase
BOE's administrative costs. However, to the extent that more
local tax measures are approved by local voters within a city
or county, the BOE will need additional resources to
administer new taxes.
REGISTERED SUPPORT / OPPOSITION:
Support
American Federation of State, County and Municipal Employees
(AFSME), AFL-CIO
California Alliance for Jobs
California State Association of Counties
California State Council of Laborers
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California Tax Reform Association
California Transit Association
Metropolitan Transportation Commission
San Mateo County Transportation Authority
Santa Clara Valley Transportation Authority
Self-Help Counties Coalition
Opposition
California Manufacturers & Technology Association
California Taxpayers Association
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098
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