BILL ANALYSIS                                                                                                                                                                                                    ”



                                                                       AB 464


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          ASSEMBLY THIRD READING


          AB  
          464 (Mullin and Gordon)


          As Amended  April 6, 2015


          Majority vote


           -------------------------------------------------------------------- 
          |Committee       |Votes |Ayes                |Noes                   |
          |----------------+------+--------------------+-----------------------|
          |Revenue &       |5-3   |Ting, Gipson,       |Brough, Patterson,     |
          |Taxation        |      |Roger HernŠndez,    |Wagner                 |
          |                |      |Mullin, Quirk       |                       |
          |                |      |                    |                       |
          |----------------+------+--------------------+-----------------------|
          |Local           |5-3   |Gonzalez, Chiu,     |Maienschein, Linder,   |
          |Government      |      |Cooley, Gordon,     |Waldron                |
          |                |      |Holden              |                       |
          |                |      |                    |                       |
          |                |      |                    |                       |
           -------------------------------------------------------------------- 


          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:  


          1)Authorizes cities and counties, under the Bradley-Burns Uniform  
            Local Sales and Use Tax (SUT) Law, to impose local SUT.  








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          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. 


          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.  


          4)Provides that the combined rate of all district taxes imposed in  
            accordance with the TUT law in any county may not exceed 2%.  


          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. 


          FISCAL EFFECT:  None


          COMMENTS:  










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          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 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."








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          2)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  








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            taxes. 


          3)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.  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 are near the 2% limit. 
          4)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 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  








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            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. 


          5)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.  




          Analysis Prepared by:                                               
                          Oksana Jaffe / REV. & TAX. / (916) 319-2098  FN:  
          0000288