BILL ANALYSIS Ó
AB 717
Page 1
Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB
717 (Gonzalez) - As Amended May 21, 2015
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|Policy |Revenue and Taxation |Vote:|9 - 0 |
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Urgency: Yes State Mandated Local Program: NoReimbursable: No
SUMMARY:
This bill establishes, for taxable years beginning on or after
January 1, 2016, and before January 1, 2021, a sales and use tax
exemption for diapers designed, manufactured, processed,
fabricated, or packaged for use by toddlers size 3 or under.
FISCAL EFFECT:
1)Minor and absorbable costs to the Board of Equalization (BOE)
to administer the changes to procedures and systems, and
notify affected retailers and other persons.
AB 717
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2)Estimated revenue decreases for the state and local
jurisdictions of $36.3 million per year, $17.0 million of
which is from the General Fund.
COMMENTS:
1)Purpose. According to the author, diapers are a health
necessity for young children, and the tax code should be
updated to make diapers more affordable. The author claims
the high cost of diapers creates public health problems,
causing families to change their children's diapers less
often, leading to unhealthy consequences requiring medical
treatment. Diaper cost can also create a barrier to
employment, as certain families cannot afford the requisite
number of diapers needed to place their children in daycare.
Supporters, led by the American Academy of Pediatrics,
California, notes seven other states exempt diapers from sales
tax.
2)County Opposition. The California State Association of
Counties (CSAC) opposes the bill because it exempts diapers
from all state and local sales and use taxes. Total revenue
losses are estimated to be $36.3 million per year, with local
governments suffering the majority of those losses. CSAC
argues almost half of county revenue is derived from sales and
use tax, and much of that revenue is used to provide local
public safety services, criminal justice and rehabilitation
services, and child welfare services. CSAC has requested AB
717 be further narrowed to apply only to the state portion of
the sales tax on diapers.
3)Cloth: The Tax-Free Alternative? The vast majority of
American families use disposable diapers, not reusable cloth
AB 717
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diapers. Experts appear divided, however, on the relative
environmental benefits of the two. Cloth diapers are
reusable, and therefore do not contribute as much to landfill
waste or manufacturing waste and energy use. However, cloth
diapers are often transported and collected from residences,
creating transportation costs and emissions, and use large
amounts of energy and water for laundering. For tax purposes,
however, consumer use of cloth diapers is treated as a
service, and therefore is not taxed under the sales and use
tax. Diaper services pay sales tax on new cloth diapers, but
that cost is, in effect, spread out over the lifetime of the
diaper for the consumer.
4)Size 3 Bums. This bill provides a sales and use tax exemption
only for diapers size 3 and smaller. According to the author,
the American Academy of Pediatrics defines toddlers as between
1 and 3 years, and the average age of potty training is
approximately 2.5 years. The author further believes it is
reasonable for toddlers to be potty trained at 2 years. This
bill, therefore, targets toddlers 2 years and younger, an age
range that correlates with size 3 diapers and smaller. Size 3
diapers are typically rated for children up to 28 pounds in
weight.
5)Progressive Solution, But Not Targeted. The sales and use tax
is inherently regressive. Those with the lowest incomes pay
the highest percentage of their income in sales and use tax.
To balance the tax's regressivity, various exemptions are
built in to provide relief for certain necessities, such as
food. Allowing an additional exemption for a product like
diapers will undoubtedly help low-income parents, but it will
also provide equal or greater tax relief to higher-income
taxpayers who arguably do not need it. As a result, the
revenue spent on a tax exemption benefits wealthy taxpayers as
much or more than it does those in need. A more targeted
approach, such as subsidies directed at low-income parents,
could produce the same benefit for that population but at
AB 717
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lower cost to the state. The committee may wish to consider
whether a wholesale exemption for a product used by all
parents regardless of income is a prudent use of state and
local resources, and whether a more targeted approach would be
more appropriate.
Analysis Prepared by:Joel Tashjian / APPR. / (916)
319-2081