BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 464 |Hearing |6/10/15 |
| | |Date: | |
|----------+---------------------------------+-----------+---------|
|Author: |Mullin |Tax Levy: |No |
|----------+---------------------------------+-----------+---------|
|Version: |4/6/15 |Fiscal: |No |
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|Consultant|Bouaziz |
|: | |
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TRANSACTIONS AND USE TAXES:MAXIMUM COMBINED RATE
Increases the countywide transactions and use tax combined cap
from 2% to 3%.
Background and Existing Law
The state sales and use tax rate is 7.50% as detailed below and
is generally imposed on all tangible personal property unless
specifically exempt.
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| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
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| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Fiscal |Repayment of the Economic |
| |Recovery Fund) |Recovery Bonds |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.25% |State (Education |Schools and community college |
| |Protection Account) |funding |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.00% |Local (City/County) |City and county general |
| | |operations. Dedicated to county |
| | |transportation purposes |
| |0.75% City and | |
| |County | |
| | | |
| |0.25% County | |
|-------+--------------------+--------------------------------|
| | | |
| 7.50% |Total Statewide | |
| |Rate | |
| | | |
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Transactions & Use 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
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voters. This was remedied by SB 566 (Scott, 2003), which
allowed cities and counties to impose additional sales and use
taxes, called transactions and use taxes (TUT) up to a uniform
2% cap for both cities and counties, in response to at least
five bills a year seeking to impose the tax. The cap set an
upper limit on the local rate, as California's sales and use tax
rate is very high. The tax must be imposed in increments of
0.125%.
In rare cases, the Legislature allows local agencies to exceed
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, 2011),
allowed a one-time exemption for Alameda County from the 2%
transactions and use tax combined rate cap. AB 210 (Wieckowski,
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. Additionally, AB 1324 (Skinner,
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%.
In 2003, SB 314 (Murray) enacted provisions that authorized the
Los Angeles County Metropolitan Transportation Authority (MTA)
to impose a 0.5% transaction 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,
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 Floor, and AB 338 (Hernández), pending in
the Senate Transportation and Housing Committee, would both
authorize MTA to impose an additional countywide 0.5%
transactions and use tax.
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
and the cities of Albany, Hayward, San Leandro, Union City, La
Miranda, Pico Riviera, and South Gate are above the 2% limit.
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AB 464 seeks to increase the current 2% cap to 3%.
Proposed Law
Senate Bill 464 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%.
State Revenue Impact
None.
Comments
1. Purpose of the bill. 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. This 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 apply the policy statewide, but it would also reduce
the number of piecemeal one-off bills going through the
Legislature, saving state resources.
Throughout California, districts are reaching the current cap,
while funding for important services, like transit and public
safety, is in decline. This bill gives local jurisdictions the
freedom to seek voter approval for district tax increases by
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raising the cap from two to three percent of total sales. If
the proposed tax increase goes for a specific purpose, it would
trigger a two-thirds majority vote of the people living within
the jurisdiction before taking effect. 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. How high is too high? Currently, California has the highest
state sales tax rate in the United States at 7.5 percent,
combined with the 2% cap; the rate in many parts of the state is
9.5%. There are also 7 cities with a combined rate of 10%.
Furthermore, AB 464's language raises the cap to 3%, but does
not apply to the current exceptions to the 2% cap, so several
cities in California could have combined sales and use tax rate
of 11%. According to the California Budget & Policy Center 2015
Issue Brief, Who Pays Taxes in California?, low-income families
spend nearly all of their incomes on basic necessities,
including many goods that are subject to sales tax. In
contrast, higher-income families tend to save a portion of their
incomes or spend more of their incomes on services, which are
not subject to the sales tax. Thus, for California's poorest
families, a higher tax means less money to spend on daily
necessities. The Committee may wish to consider lowering the
cap, applying a sunset, or ensuring past exceptions to the cap
are subject to the new 3% cap.
3. Above the 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
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countywide basis is the only way for the county to support its
operations and fund services, including transportation, an
imposition of a new, or the 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.
4. 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.
Assembly Actions
Assembly Revenue and Taxation 5-3
Assembly Local Government 5-3
Assembly Floor 45-31
Support and
Opposition (6/4/15)
Support : Alameda County Transportation Commission; American
Federation of State, County, and Municipal Employees (AFSCME);
California State Association of Counties; California State
Council of Laborers; California Tax Reform Association;
California Transit Association; City/County Association of
Governments of San Mateo County; Marin County Board of
Supervisors; Metropolitan Transportation Commission; San Mateo
County Transportation Authority; Santa Clara Valley
Transportation Authority; Self Help Counties Coalition; Service
Employees International Union (SEIU); Transportation Authority
of Marin.
Opposition : Air Logistics Corporation; Alliance of Contra Costa
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Taxpayers; California Manufacturers and Technology Association;
California Tank Lines, Inc.; Chemical Transfer Co.; California
Taxpayers Association; Family Business Association; Kern County
Taxpayers Association; Monterey County Farm Bureau; National
Federation of Independent Business; Orange County Business
Council; Orange County Taxpayers Association; San Diego Tax
Fighters; Solano County Taxpayers Association; Superior Tank
Wash Inc.; West Coast Leasing, LLC; West Coast Lumber & Building
Material Association
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