BILL ANALYSIS Ó AB 724 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 724 (Dodd and Frazier) As Amended April 14, 2016 Majority vote. Tax levy -------------------------------------------------------------------- |ASSEMBLY: | |(May 7, 2015) |SENATE: |39-0 |(August 1, 2016) | | | | | | | | | | | | | | | -------------------------------------------------------------------- (Vote not relevant) ---------------------------------------------------------------------- | | | | | | | | | | | | |COMMITTEE VOTE: |9-0 |(August 23, |RECOMMENDATION: |concur | | | |2016) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ---------------------------------------------------------------------- (Rev. & Tax.) Original Committee Reference: HEALTH SUMMARY: Establishes a sales and use tax (SUT) exemption for tangible personal property (TPP) purchased by the Jimmy Doolittle Air and Space Museum Education Foundation for display AB 724 Page 2 purposes. The Senate amendments delete the Assembly version of this bill and instead: 1)Expand the existing SUT exemption for TPP purchased by specified nonprofit museums for display purposes to include the Jimmy Doolittle Air and Space Museum Education Foundation. 2)Provide that, notwithstanding existing law, the State shall not reimburse any city or county for any SUT revenues lost as a result of this bill. 3)Contain findings and declarations that a special law is necessary and that a general law cannot be made applicable within the meaning of California Constitution Article IV Section 16 because of the unique fiscal pressures experienced by the Jimmy Doolittle Air and Space Museum Education Foundation in promoting this country's aviation history and encouraging patriotic endeavors by providing impactful experiences through interactive aviation exhibits. 4)Provide that this bill shall take immediate effect as a tax levy. EXISTING LAW: 1)Imposes a sales tax on retailers for the privilege of selling 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 AB 724 Page 3 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). 3)Provides a SUT exemption for TPP purchased by the San Diego Air & Space Museum and the California Science Center if the property is purchased and used exclusively for display purposes within the museum, as provided. (Revenue and Taxation Code (R&TC) Section 6366.4) 4)Provides a SUT exemption for original works of art purchased by specified entities, including the state, to become part of the permanent collection of a museum. (R&TC Section 6365) AS PASSED BY THE ASSEMBLY, this bill added district fairs as a type of "community event" in the California Retail Food Code. FISCAL EFFECT: According to the Senate Appropriations Committee, pursuant to Senate Rule 28.8, negligible state costs. COMMENTS: 1)The author has provided the following statement in support of this bill: AB 724 would provide this volunteer supported nonprofit museum the unique opportunity to purchase the fully restored "Shell Lockheed Vega" piloted by General Jimmy Doolittle himself. A generous private donation will cover 50% of the cost of the Vega, and this exemption would allow the nonprofit museum to more easily fundraise money necessary to purchase the remaining 50%. AB 724 will include the Doolittle Museum with other exempt museums and will aid the nonprofit in accomplishing its educational mission. AB 724 Page 4 2)Proponents of this bill note the following: Under existing law, the San Diego Air and Space Museum and the California Science Center's purchases of property used exclusively for display purposes within the museum are exempt from sales and use tax. No other aviation museums are provided the same exemptions. The Jimmy Doolittle Air and Space Museum Education Foundation has an opportunity to add the fully restored 1932 "Shell Lockheed Vega" flown by General Doolittle to its historic aircraft collection. Fifty percent of the aircraft has been donated. The Foundation would like to purchase the remaining 50% but it will be a challenge to raise sufficient funding to make this purchase. Exempting this purchase from sales and use tax will assist them in acquiring this antique aircraft. AB 724 will allow an important piece of aviation history to be displayed for Californians and tourists to enjoy. 3)The BOE notes the following in its staff analysis of this bill: a) Effect of the bill: "Enables the Jimmy Doolittle Air and Space Museum Education Foundation ("Foundation") to purchase museum pieces for display purposes without payment of sales tax reimbursement or use tax." b) Proposed exemption would apply prospectively only: "The bill would take effect immediately upon enactment. Any museum display items the Foundation has purchased or purchases prior to the bill's effective date remain subject to tax. Once enacted, the Foundation's future museum display item purchases (such as the historic aircraft) will receive the exemption's benefit." c) This bill does not materially impact the BOE's tax audit or administrative functions: "Since the bill only affects one museum, its enactment would have an insignificant AB 724 Page 5 impact to the BOE." 4)Committee staff comments: a) Background: The original SUT exemption for the San Diego Aero-Space Museum's purchases of display items was enacted in 1986. In 1988, the SUT exemption was extended to purchases made by the California Science Center. In 1992, legislation expanded the exemption to include sprung instant structures purchased by these entities for use as temporary exhibit housing. This bill, in turn, would expand the exemption to include the Jimmy Doolittle Air and Space Museum Education Foundation. The BOE notes that, based on staff conversations with the Foundation, the museum plans to purchase an aircraft with an estimated value of $1 million. The Foundation has indicated that 50% of the plane's value is being donated, while the Foundation will raise the other 50% to make the purchase. To facilitate this purchase, this bill would exempt from the SUT museum pieces purchased by the Jimmy Doolittle Air and Space Museum Education Foundation. b) Scope of this bill: While this bill is designed to help facilitate the purchase of one historic airplane, the SUT exemption language is not limited to this single purchase. Indeed, the exemption would apply indefinitely to the Foundation's future display purchases, given that the exemption does not contain a sunset provision. In addition, this bill continues the practice of applying the existing SUT exemption in an ad hoc fashion to specifically named museums. Given the inherently laudable purposes served by historical and scientific museums throughout California, the Legislature may wish to consider whether it would be preferable to provide a broad-based exemption to all nonprofit museums open to the public. c) Legislative history: i) SB 1004 (Knight) of 2001, would have provided a SUT exemption for TPP sold to the Flight Test Historical Foundation for its donation to the Air Force Flight Test AB 724 Page 6 Center Museum. SB 1004 was never heard by the Senate Committee on Revenue and Taxation. ii) AB 2475 (Kuehl) of 2000, would have extended the existing SUT exemption to the Museum of Flying. Governor Davis vetoed AB 2475 noting, "Although I recognize that the revenue losses from this bill are minor, I am vetoing the bill based on my concern about the continued erosion of the sale and use tax base through the expansion of exemptions." iii) AB 759 (Maddox) of 1999, would have extended the existing SUT exemption to specified purchases of property used in any museum, science center, or marine institute meeting certain conditions. AB 759 died on the Assembly Appropriations Committee's Suspense File. d) Substantial amendments: This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. This bill, as amended in the Senate is inconsistent with Assembly actions. Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0004856