BILL ANALYSIS Ó
AB 717
Page 1
ASSEMBLY THIRD READING
AB
717 (Gonzalez)
As Amended January 21, 2016
Majority vote. Tax levy
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|Committee |Votes|Ayes |Noes |
| | | | |
| | | | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+-----+----------------------+--------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bloom, Bonilla, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, Eduardo | |
| | |Garcia, Holden, | |
| | |Jones, Quirk, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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AB 717
Page 2
SUMMARY: Establishes a temporary sales and use tax (SUT)
exemption for diapers designed, manufactured, processed,
fabricated, or packaged for use by infants and toddlers,
designated size 3 or under. Specifically, this bill:
1)Sunsets automatically on January 1, 2022.
2)Provides that, notwithstanding existing law, the state shall
not reimburse any local agency for SUT revenues lost as a
result of this exemption.
3)Takes immediate effect as a tax levy, but only becomes
operative on the first day of the first calendar quarter
commencing more than 90 days after this bill's effective date.
EXISTING LAW:
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the retailer's gross receipts from TPP
sales in this state.
2)Imposes a complimentary use tax on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax is imposed on the purchaser, and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must generally be
remitted to the State Board of Equalization (BOE).
FISCAL EFFECT: According to the Assembly Appropriations
Committee:
AB 717
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1)Minor and absorbable costs to the BOE to administer the
changes to procedures and systems, and notify affected
retailers and other persons.
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:
The author has provided the following statement in support of
this bill:
It is time for California's tax code to reflect the
fact that diapers are an absolute health necessity for
young children. By updating our tax code to
accurately identify diapers as a necessity of life we
can also make them more affordable. The high price of
diapers has a cost for public health and our economy.
Diaper need puts families in the position of changing
their children's diapers less often which has
unhealthy consequences ranging from diaper rash to
infections requiring medical treatment. It also
creates a barrier between parents and gainful
employment when families cannot afford the number of
diapers required by childcare providers.
Assembly Revenue and Taxation Committee staff comments:
1)What would this bill do? This bill would temporarily provide
a complete SUT exemption for all diapers made for infants and
AB 717
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toddlers, designated size 3 or under. The proposed exemption
would apply to both disposable and non-disposable diapers
alike.
2)The diaper dilemma: By some estimates, up to 95% of United
States families use disposable diapers. Nevertheless,
environmental and health concerns have persuaded some parents
to purchase cloth diapers that can be reused. Experts,
however, are divided on whether reusable diapers are more
environmentally friendly. According to WebMD, research
suggests that both disposable and cloth diapers impact the
environment negatively - albeit in different ways. Disposable
diapers require more raw materials to manufacture and generate
more solid waste for landfills. Cloth diapers, on the other
hand, use up large amounts of electricity and water for
laundering. Thus, the American Academy of Pediatrics takes no
position in the ongoing debate regarding the relative merits
of cloth versus disposable diapers.
3)How are diapers currently taxed? Current law does not provide
a SUT exemption for diapers. The BOE notes, however, that
businesses providing diaper services, where cloth diapers are
furnished in connection with the recurring service of
laundering the diapers, are considered "consumers" of the
diapers they provide. Thus, the tax applies only to the
diaper service's purchases, and the business's diaper rental
receipts are not subject to SUT.
4)An inherently regressive tax: The SUT has been widely
criticized as a regressive exaction that most heavily impacts
those least able to pay. For example, a survey by the Nevada
Legislative Counsel Bureau long ago concluded that in the case
of a retail sales tax with food exempt, "the lowest income
group would experience the highest ratio of tax to income . .
. ." (Survey of Sales Taxes Applicable to Nevada 59 (Bull.
No. 3, May, 1948).) Others, however, contend that a degree of
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progressivity is provided via the various exemptions built
into most state SUT laws (i.e., for certain necessities of
life such as food, housing, and medical care).
Proponents of this bill might argue that an exemption for
diapers would further promote a degree of progressivity in an
already regressive tax regime. Critics, however, might
contend that SUT exemptions are a blunt instrument for
affecting social policy. While this bill would provide
meaningful financial relief to low-income parents struggling
to make ends meet, it would also provide relief
indiscriminately to wealthy consumers who might not even
notice the exemption. In addition, critics might question why
diapers are being singled out for preferential tax treatment
as opposed to other items of TPP indispensable to raising a
child (e.g., car seats, cribs, baby clothes, bottles,
strollers, etc.).
Analysis Prepared by:
M. David Ruff / REV. & TAX. / (916) 319-2098
FN:
0002585