BILL ANALYSIS Ó AB 464 Page 1 Date of Hearing: April 29, 2015 ASSEMBLY COMMITTEE ON LOCAL GOVERNMENT Brian Maienschein, Chair AB 464 (Mullin and Gordon) - As Amended April 6, 2015 SUBJECT: Transactions and use taxes: maximum combined rate. SUMMARY: Increases the countywide transactions and use tax combined rate cap from 2% to 3%, statewide. FISCAL EFFECT: None COMMENTS: 1)Bill Summary. This bill increases the countywide transactions and use tax combined cap from 2% to 3%. Instead of addressing the needs of each county and city on an individual basis as the Legislature has done in the past, this bill will uniformly increase the statutory cap for all counties and provide more flexibility to local governments to raise revenue. This bill does not impact voter thresholds for specific or general purpose transactions and use taxes in existing law, and voters still have the final say in approving or voting down a local transactions and use tax measure. AB 464 Page 2 This bill is sponsored by the San Mateo County Transportation Authority. 2)Author's Statement. According to the author, "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? This bill 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, saving 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. This bill grants local governing bodies, and the people living within them, the much needed flexibility to raise additional funds for important programs and services." 3)Transactions and Use Taxes. Existing law authorizes cities and counties to impose transactions and use taxes in 0.125% increments in addition to the state's 7.5% sales tax provided AB 464 Page 3 that the combined rate in the county does not exceed 2%. Transactions and use taxes are taxes imposed on the total retail price of any tangible personal property and the use or storage of such property when sales tax is not paid. These types of taxes may be levied as general taxes (majority-vote required), which are unrestricted, or special taxes (two-thirds vote required), which are restricted for a specified use. The Transactions and Use Tax law authorizes the adoption of local add-on rates to the combined state and local sales tax rate. The law has been amended multiple times to authorize specific cities, counties, special districts and county transportation authorities to impose a transactions and use tax, if voters approve the tax. Prior to 2003, cities lacked the ability to place transactions and use taxes before their voters without first obtaining approval by the Legislature to bring an ordinance before the city council, and, if approved at the council level, to the voters. This was remedied by SB 566 (Scott), Chapter 709, Statutes of 2003. SB 566 also contained provisions to increase a county's transactions and use tax cap because of the possibility that certain counties were going to run out of room under their caps, if cities within those counties approved transactions and use taxes. Because of the interaction between city-imposed and county-imposed transactions and use taxes, the concern that counties will run into the 2% cap still applies today. Currently, the Counties of Alameda, Contra Costa, Los Angeles, and San Mateo have reached the 2% limit, and the Counties of Marin, San Diego, and Sonoma are near the 2% limit. According to the Board of Equalization, as of April 1, 2015, there are 202 local jurisdictions (city, county, and special purpose entity) imposing a transactions and use 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 AB 464 Page 4 purpose taxes and 30 are special purpose taxes. 4)Exemptions to the 2% Cap. The Legislature has previously granted exemptions to the 2% statutory cap for transactions and use taxes to support countywide transportation programs for Los Angeles, Alameda, and Contra Costa counties. AB 1086 (Wieckowski), Chapter 327, Statutes of 2011, allowed a one-time exemption for Alameda County from the 2% transactions and use tax combined rate cap. AB 210 (Wieckowski), Chapter 194, Statutes of 2013, extended the authority for Alameda County to adopt an ordinance imposing a transactions and use tax from January 1, 2014, to December 31, 2020, and allowed Contra Costa County to adopt an ordinance imposing a transactions and use tax in the same manner as Alameda County. SB 314 (Murray), Chapter 785, Statutes of 2003, originally enacted provisions that authorized the Los Angeles County Metropolitan Transportation Authority (MTA) to impose a 0.5% transactions and use tax, not subject to the 2% cap for no more than six and one-half years, for specific transportation projects and programs. The authority to put a tax measure on the ballot was never used. AB 2321 (Feuer), Chapter 302, Statutes of 2008, modified those provisions to allow MTA to impose a transactions and use tax for 30 years. SB 767 (De León), pending in the Senate Appropriations Committee, and AB 338 (Hernández), pending in the Transportation Committee, would both authorize MTA to impose an additional countywide 0.5% transactions and use tax. Additionally, AB 1324 (Skinner), Chapter 795, Statutes of 2014, allowed the City of El Cerrito to adopt an ordinance to impose a transactions and use tax not to exceed 0.5% for general purposes that would, in combination with other taxes, exceed the statutory limit of 2%. AB 464 Page 5 5)Arguments in Support. Supporters argue that this bill will eliminate the piecemeal approach to exceeding the 2% cap and will provide local agencies with another funding option so they can provide high quality public services to their residents. 6)Arguments in Opposition. Opposition argues that this bill increases the cost of doing business and imposes a regressive tax on disadvantaged communities. 7)Double-Referral. This bill was heard in the Revenue and Taxation Committee on April 13, 2015, and passed with a 5-3 vote. REGISTERED SUPPORT / OPPOSITION: Support San Mateo County Transportation Authority [SPONSOR] Alameda County Transportation Commission American Federation of State, County, and Municipal Employees California State Association of Counties California State Council of Laborers California Tax Reform Association AB 464 Page 6 California Transit Association Metropolitan Transportation Commission Santa Clara Valley Transportation Authority Self Help Counties Coalition Service Employees International Union Opposition Air Logistics Corporation California Manufacturers and Technology Association California Tank Lines, Inc. California Taxpayers Association Family Business Association Kern County Taxpayers Association AB 464 Page 7 National Federation of Independent Business Orange County Business Council Orange County Taxpayers Association Superior Tank Wash Inc. West Coast Leasing, LLC West Coast Lumber & Building Material Association Analysis Prepared by:Misa Lennox / L. GOV. / (916) 319-3958