BILL ANALYSIS Ó
AB 464
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CONCURRENCE IN SENATE AMENDMENTS
AB
464 (Mullin and Gordon)
As Amended June 17, 2015
Majority vote
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|ASSEMBLY: |45-31 |(May 14, 2015) |SENATE: |22-15 | (July 13, 2015) |
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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
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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%.
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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
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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.
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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
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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
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