BILL ANALYSIS Ó AB 464 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 464 (Mullin and Gordon) As Amended June 17, 2015 Majority vote -------------------------------------------------------------------- |ASSEMBLY: |45-31 |(May 14, 2015) |SENATE: |22-15 | (July 13, 2015) | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: REV. & TAX. 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%. The Senate amendments clarify that the increased 3% cap on the combined rate of all district taxes imposed in a county will apply to taxes and rates authorized to be imposed in the county on or after January 1, 2016. The combined rate of district taxes in a county authorized to be imposed before January 1, 2016, will remain at 2%. EXISTING LAW: 1)Authorizes cities and counties, under the Bradley-Burns Uniform Local Sales and Use Tax (SUT) Law, to impose local SUT. [Revenue and Taxation Code (R&TC) commencing with AB 464 Page 2 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 Sections 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. AS PASSED BY THE ASSEMBLY, this bill increased 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%. AB 464 Page 3 FISCAL EFFECT: None 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 2% 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 2% 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 2% to 3%. If the proposed tax goes for a specific purpose, it would require a two-thirds majority vote of the people living within the AB 464 Page 4 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)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. AB 464 Page 5 Of the 154 city-imposed taxes, 124 are general purpose taxes and 30 are special purpose 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. 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. (AB 23 (Feuer), Chapter 302, Statutes of 2008.) In 2011, a one-time exemption from the 2% TUT combined rate cap was allowed for Alameda County. (AB 1086 (Wieckowski), Chapter 327, Statutes of 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 (AB 210 (Wieckowski), Chapter 194, Statutes of 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 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 AB 464 Page 6 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. 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: 0001043 AB 464 Page 7