BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 717 (Gonzalez) - Sales and use taxes: exemption: diapers
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|Version: January 21, 2016 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: June 20, 2016 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill
Summary: AB 717 would provide a temporary sales and use tax
(SUT) exemption for diapers used by infants and toddlers.
Fiscal
Impact: The Board of Equalization (BOE) indicates that this bill
would result in an annual state and local revenue loss of $35
million, $17 million of which would be General Fund. The agency
would incur absorbable implementation costs.
Background: Except where a specific exemption or exclusion is provided,
current law imposes the SUT on all retailers for the privilege
of selling tangible personal property (TPP) at retail in
AB 717 (Gonzalez) Page 1 of
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California, or on the storage, use, or other consumption in this
state of TPP purchased from a retailer.
After the State collects SUT revenue ($48 billion in 2013-14),
it allocates the money to various state and local funds. Roughly
half-collected from an approximately 3.9 percent rate-goes to
the General Fund and can be spent on any state program, such as
education, health care, and criminal justice. Another 1.25
percent, known as the Bradley-Burns rate, goes to cities and
counties for general purposes. Three sales tax funds have
uniform state rates and support specified programs-an
approximately 1.1 percent rate for 2011 realignment
(county-administered criminal justice, mental health, and social
service programs); a 0.5 percent rate for 1991 realignment
(county-administered health and social services programs); and a
0.5 percent rate for city and county public safety programs
pursuant to Proposition 172 (1993). Additionally, some local
governments levy optional local rates-known as Transactions and
Use Taxes (TUTs)-and a small portion of these funds are used for
general purposes. As of January 1, 2017, the average statewide
SUT rate will be 8.21 percent.
State law fully exempts many items from SUT (such as
prescription drugs, food, electricity, and poultry litter),
while other items are exempted from the state sales tax, but not
the local share, such as farm equipment and machinery, diesel
fuel used for farming and food processing, teleproduction and
postproduction equipment, timber harvesting equipment and
machinery, and racehorse breeding stock. Partial SUT exemptions
are difficult for both retailers and the BOE, and complicate
return preparation and processing. Moreover, errors attributable
to these partial exemptions occur frequently, resulting in
additional return processing workload for BOE.
Proposed Law:
This bill would establish a temporary SUT exemption for diapers
designed, manufactured, processed, fabricated, or packaged for
use by infants and toddlers, designated size 3 or under. The
bill provides that (1) the State shall not reimburse any local
agency for SUT revenues lost as a result of this exemption, and
(2) the exemption shall remain in effect until January 1, 2022.
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Related Legislation: AB 1291 (Hollingsworth, 2001), provided a
SUT exemption for diapers. The bill was held on the Suspense
File in the Assembly Committee on Revenue and Taxation.
Staff Comments: The BOE revenue estimate assumes that 92.5
percent of diapers sold in the State are disposable, while the
other 7.5 percent are cloth. BOE assumes disposable diaper usage
of 6.7 diapers per day. The Department of Finance currently
estimates that there are about 1 million Californians under the
age of two. Put together, BOE estimates that total diaper sales
for newborn to size three totals about $431 million annually. Of
this amount, about $2 million represent sales of cloths diapers.
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