BILL ANALYSIS                                                                                                                                                                                                    Ó



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          GOVERNOR'S VETO


          AB  
          464 (Mullin and Gordon)


          As Enrolled  July 21, 2015


          2/3 vote


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          |ASSEMBLY:  |45-31 |(May 14, 2015) |SENATE: |      |(July 13, 2015)  |
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          |ASSEMBLY:  |46-32 |(July 16,      |        |      |                 |
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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,  








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          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  
            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. 









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          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%.  


          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  








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                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 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  








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            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 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  








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            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  
            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  








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            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.  


          GOVERNOR'S VETO MESSAGE:


          This bill would raise, on a blanket basis, the limit on local  
          transactions and use tax for all counties and cities from two  
          percent to three percent.


          Although I have approved raising the limit for individual  
          counties, I am reluctant to approve this measure in view of all  
          the taxes being discussed and proposed for the 2016 ballot.


          Analysis Prepared by:  Oksana Jaffe / REV. & TAX. / (916)  
          319-2098                                             FN: 0001405











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