BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 717 |Hearing |5/11/16 |
| | |Date: | |
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|Author: |Gonzalez |Tax Levy: |Yes |
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|Version: |1/21/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
|: | |
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Sales and use taxes: exemption: diapers
Provides a temporary sales and use tax exemption for diapers
designed, manufactured, processed, fabricated, or packaged for
use by infants and toddlers, designated size 3 or under.
Background
California law allows various income tax credits, deductions,
and sales and use tax exemptions to provide incentives to
compensate taxpayers that incur certain expenses, such as child
adoption, or to influence behavior, including business practices
and decisions, such as research and development credits. The
Legislature typically enacts such tax incentives to encourage
taxpayers to do something that but for the tax credit, they
would not do. The Department of Finance is required to annually
publish a list of tax expenditures. Currently, tax expenditures
exceed $57 billion dollars.
State law imposes a sales and use tax (SUT) on the sale,
storage, or use of tangible personal property unless exempted by
state law. Cities and Counties may increase the SUT rate up to
2% as a transactions and use tax for either specific or general
purposes with voter approval as required by the California
Constitution.
The current state SUT is 7.5%, but beginning January 1, 2017,
AB 717 (Gonzalez) 1/21/16 Page 2
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the state SUT rate on tangible personal property will be 7.25%
and imposed as follows:
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| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| |Local Revenue Fund | |
|1.0625%|2011 |Realignment of local public |
| | |safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.25% |Local (City/County) | |
| | | |
| | | |
| |1.00% City and |City and county general |
| |County |operations. |
| | | |
| |0.25% County | |
| | |Dedicated to county |
| | |transportation purposes |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 7.25% |Total Statewide | |
| |Rate | |
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| | | |
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Proposed Law
Assembly Bill 717 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. AB 717 provides that the state
shall not reimburse any local agency for SUT revenues lost as a
result of this exemption and shall remain in effect until
January 1, 2022.
State Revenue Impact
According to BOE, AB 717 would result in an annual state revenue
loss of almost $17 million.
Comments
1. Purpose of the bill. According to the author, "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."
2. A new tax expenditure. Existing law provides various
credits, deductions, exclusions, and exemptions for particular
taxpayer groups. In the late 1960s, U.S. Treasury officials
began arguing that these features of the tax law should be
referred to as "expenditures," since they are generally enacted
to accomplish some governmental purpose and there is a
determinable cost associated with each (in the form of foregone
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revenues). This bill would create a new tax expenditure,
costing the general fund almost $17 million dollars in foregone
revenue each year. The tradeoff for providing new tax
expenditure, resulting in revenue losses, is higher taxes or
reductions to other services or programs.
3. How is tax expenditure different from a direct expenditure?
As the Department of Finance notes in its annual Tax Expenditure
Report, there are several key differences between tax
expenditures and direct expenditures. First, tax expenditures
are reviewed less frequently than direct expenditures once they
are put in place. This can offer taxpayers greater certainty,
but it can also result in tax expenditures remaining a part of
the tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue losses
associated with any given tax expenditure. Finally, once
enacted, it takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. AB 717 has a 5 year sunset.
4. Regressive tax. The sales tax is considered by most tax
experts to be regressive, meaning that the incidence falls more
on low-income individuals than high-income individuals. While
this bill would provide important financial relief to low-income
parents struggling to make ends meet, it would also provide
relief to wealthy parents, as families of all incomes purchase
diapers.
5. Another way? Existing federal law classifies diapers with
cigarettes, alcohol, and pet food as disallowed purchases under
CalFresh and the California Special Supplemental Food Program
for Women, Infants, and Children. However, both the Head Start
(serving children three to five years old) and Early Head Start
(serving children under three years) programs must provide
diapers and formula to participants who need them. The state
can supplement this benefit by providing TANF, CalWORKs,
CalFresh, and California Special Supplemental Food Program for
Women, Infants, and Children recipients with diapers.
In 2014, AB 1516 (Gonzalez), would have established a young
child special needs supplement of $80 per month within the
CalWORKs program for each child younger than two years of age in
an assistance unit. AB 1516 was held on the Senate
Appropriations Committee's Suspense File. This year's AB 492
(Gonzalez), would provide that necessary supportive services
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would include vouchers in the amount of $50 per month for diaper
products for every child two years of age or younger enrolled in
child care, as specified. AB 492 is currently pending in the
Senate Committee on Human Services. A targeted approach, like
that in AB 492 may aid more low income families, while a sales
and use tax exemption benefits all families, regardless of
income, that purchase diapers.
6. Prior legislation:
AB 1291 (Hollingsworth, 2001), provided a SUT exemption
for diapers. AB 1291 was held on Suspense in the Assembly
Committee on Revenue and Taxation.
AB 5 (Battin, 1998), provided a SUT exemption for baby
diapers, whether disposable or not, and over-the-counter,
nonprescription drugs. AB 5 was never heard by the
Assembly Committee on Revenue and Taxation.
AB 13 (Dickerson, 1998), provided a SUT exemption for,
among other things, products for incontinence, including
disposable and reusable diapers, pads, and briefs. AB 13
was never heard by the Assembly Committee on Revenue and
Taxation.
Assembly Actions
Assembly Revenue and Taxation9-0
Assembly Appropriations 17-0
Assembly Floor 76-0
Support and
Opposition (5/4/16)
Support : 9 to 5 California; ACCESS Women's Health Justice;
Alliance of Californians for Community Empowerment; American
Academy of Pediatrics, California District IX; American
Association of University Women; A Stronger California Network;
Black Women for Wellness; Board of Equalization Member Diane L.
Harkey; Black Women for Wellness; California Employer Law
Center; California Immigrant Policy Center; California Latinas
for Reproductive Justice; California Partnership; California
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Primary Care Association; California Retailer's Association;
California Women's Law Center; California Work and Family
Coalition; Career Ladders Project; Child Care Law Center; City
of Glendale, CA; Common Sense Kids Action; Courage Campaign;
Equal Rights Advocates; Forward Together; Help a Mother Out;
Mujeres Unidas Y Activas; National Center for Youth Law;
National Council of Jewish Women California Policy Advocacy
Network; National Diaper Bank Network; National Domestic Workers
Alliance; Next Generation; Parent Voices; Raising California
Together; San Diego County Taxpayers Association; The Center for
Popular Democracy; TradesWomen Inc.; UC Berkeley Center on
Reproductive Rights and Justice; UltraViolet; Western Center on
Law and Poverty; Women's Foundation of California
Opposition : California State Association of Counties;
California Tax Reform Association.
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