BILL ANALYSIS Ó
AB 1561
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Date of Hearing: April 4, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1561
(Cristina Garcia) - As Amended March 28, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use taxes: exemption: sanitary napkins:
tampons
SUMMARY: Establishes a sales and use tax (SUT) exemption for
sanitary napkins and tampons. Specifically, this bill:
1)Provides that, notwithstanding existing law, the state shall
not reimburse any local agency for SUT revenues lost as a
result of this exemption.
2)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:
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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: The BOE estimates that this bill would reduce
state and local revenues by $20 million annually.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
AB 1561 is a bipartisan effort to make menstrual products
exempt from the sales and use tax at both the state and
local level. California women pay over 20 million dollars
annually for taxing tampons and sanitary napkins, which are
essential health items for women. As a state we should not
be taxing women for being born women. The tax is
especially unjust for women who are low-income or homeless
who struggle to pay for these basic necessities each month
for the majority of their adult life. Menstrual products
need to be more accessible and eliminating the tax on
tampons and sanitary napkins is an important first step in
making them more affordable. California's tax code exempts
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health items like walkers, medical identification tags, and
prescription medication, including Viagra. Tampons and
sanitary napkins are not exempt even though women do not
have the choice to ignore their periods and are far from
being luxuries items. When these items are labelled as
"feminine hygiene" products, it makes people forget that
the FDA regulates both products as medical devices. These
is no equivalent health product that is used only by one
gender on a monthly basis for 40 years of life. Across the
world, countries as well as select states in the US are
organizing to repeal the sales tax on feminine hygiene
products. California should continue to be a leader by
addressing the gender inequality in our tax code and exempt
menstrual products.
2)Supporters of this bill note the following:
Women on average spend $1,400 dollars more a year for the
price of goods than males. While paying more for the price
of goods, women make 79 cents on the dollar when compared
to men. Women pay at least 20 million dollars annually in
sales and use taxes on feminine hygiene products to the
State of California. To date, feminine hygiene products in
5 states (Maryland, Massachusetts, Minnesota, Pennsylvania
and New Jersey) are exempted from sales and use taxes.
Feminine hygiene products are a basic necessity for women;
therefore, these products should be considered a "necessity
of life" under California law and should be exempt from
state sales and use taxes. AB 1561 will end a long
standing tax on women.
3)This bill is opposed by the California State Association of
Counties, which notes:
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After the past thirty years of changes to sales and use tax
allocations, counties now receive almost half of sales and
use tax revenues. About two-thirds of that revenue is
constitutionally dedicated to providing local public safety
services and federal and state programs, including social
services, incarceration, and rehabilitation. The State
Board of Equalization estimates an annual loss of revenue
[of] $20 million annually will result if AB 1561 is
enacted.
We respectfully request that the proposed sales and use
taxes exemption is limited to only the state share so that
vital dollars continue to flow to critical service needs.
We have no concern with the state's share being exempt to
promote the goals of AB 1561 as statewide policy.
4)The BOE notes the following in its staff analysis of this
bill:
a) Terms should be defined : "The difficulty with both
administering and complying with new exemptions is
determining the sales that qualify for the exemption under
the statutory language. This bill provides no definitions
for the products proposed to be exempted. Women use other
products for menstrual hygiene purposes that may not fall
within the commonly understood term, 'sanitary napkin' or
'tampon,' such as cloth menstrual pads and feminine
protection cups. As the bill progresses, staff will work
with the author to clearly define these terms consistent
with the author's intent."
b) Certain care providers and hospitals would additionally
benefit from the proposed exemption : "Since sales of these
products to these service enterprises are currently subject
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to tax, this bill would provide an additional benefit to
these entities that purchase these products for their
clients or patients."
5)Committee Staff Comments
a) What is a "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 revenues).
b) How is a 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. Second, there is generally no control over the
amount of revenue losses associated with any given tax
expenditure. Finally, it should also be noted that, once
enacted, it takes a two-thirds vote to rescind an existing
tax expenditure absent a sunset date. This effectively
results in a "one-way ratchet" whereby tax expenditures can
be conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy or cost, without a
supermajority vote.
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c) An overview of the SUT Law : California's SUT Law
imposes a sales tax on retailers for the privilege of
selling TPP, absent a specific exemption. The tax is based
upon a retailer's gross receipts from TPP sales in
California. The SUT Law also imposes a mirror "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 BOE.
The SUT represents the state's second largest source of
General Fund (GF) revenues. Nevertheless, the past 60
years have seen a dramatic reduction in the state's
reliance on the SUT and a corresponding increase in its
reliance on personal income tax revenues. In fiscal year
(FY) 2014-15, SUT revenues were estimated to comprise 23%
of the state's GF revenues, down from nearly 60% in FY
1950-51.
d) What accounts for the state's reduced reliance on SUT
revenues ? The SUT Law was enacted in a very different era.
In the 1930s, California's economy was largely dominated
by manufacturing, and residents mostly bought and sold
tangible goods. Thus, in establishing the base for a new
consumption tax, it made sense to impose the tax on sales
of TPP, defined as personal property that may be "seen,
weighed, measured, felt, or touched." Over the past 80
years, however, California's economy has seen dramatic
growth in the service and information sectors, resulting in
a significant erosion of the SUT base. For example, the
Commission on the 21st Century Economy noted that spending
on taxable goods represented 34.6% of personal income in
2008, down from 55.4% in 1980. As a result, tax experts
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and economists from across the political spectrum argue
that California should expand its SUT base.
It could be argued that, while well-intentioned, additional
SUT exemptions further erode an already shrinking SUT base.
This, in turn, increases fiscal pressures to maintain or
even increase California's relatively high SUT rate. High
rates arguably promote non-compliance and encourage
out-of-state purchases, placing California retailers at a
competitive disadvantage. High rates also risk impacting
consumer decision-making, which runs counter to widely
accepted principles of sound tax policy.
e) What would this bill do ? This bill would provide a
complete SUT exemption for both sanitary napkins and
tampons. In addition, the author has expressed her intent
to extend this exemption to both menstrual cups and
menstrual sponges.
f) 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 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
sanitary napkins and tampons would further promote a degree
of progressivity in an already regressive tax regime.
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Proponents might also note that, to reduce the regressive
nature of the SUT tax, exemptions have been enacted for
numerous necessities of life, including food and
prescription medications. Critics, however, might contend
that SUT exemptions are a blunt instrument for affecting
social policy. While this bill would provide financial
relief to low-income women struggling to make ends meet, it
would also provide relief indiscriminately to wealthy
consumers who might not even notice the exemption.<1>
g) Taking a different tact : A recent editorial in the New
York Times noted that even without being taxed, tampons and
pads are unaffordable for some individuals. As a result,
the editorial noted that policymakers around the country
are offering different proposals for ensuring that women
have access to these products. Specifically, New York City
Councilmember Julissa Ferreras-Copeland is working on
legislation to require all public schools in the city to
provide free tampons and pads in restrooms. Moreover, in
Congress, Representative Grace Meng of New York introduced
legislation allowing individuals to pay for feminine
hygiene products with their health care spending accounts.
("End the Tampon Tax." Editorial. New York Times 8 Feb.
2016, page A24.)
h) Absence of a sunset date : In its current form, this
bill's proposed tax expenditure lacks an automatic sunset
provision. This Committee has a longstanding policy
favoring the inclusion of sunset dates to allow the
Legislature periodically to review the efficacy and cost of
such programs. The author may wish to consider the
addition of an appropriate sunset provision.
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<1> The author's office notes that women in California pay
roughly $7 per month on sanitary napkins and tampons. Applying
the statewide average SUT rate of 8.335%, purchasers are paying
roughly $0.58 per month in SUT on these products.
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REGISTERED SUPPORT / OPPOSITION:
Support
ACT for Women and Girls
American Academy of Pediatrics, California
Asian Pacific Islander American Public Affairs Association
Bayer
Black Women for Wellness
California Asian Pacific Chamber of Commerce
California Grocers Association
California Latinas for Reproductive Justice
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California Primary Care Association
California Retailers Association
California Women's Law Center
City of West Hollywood
Community Action Fund of Planned Parenthood of Orange and San
Bernardino Counties
Conscious Period
Equal Rights Advocates
Forward Together
NARA Pro-Choice California
National Association of Social Workers, California Chapter
National Center for Youth Law
National Council of Jewish Women
Physicians for Reproductive Health
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Planned Parenthood Action Fund of the Pacific Southwest
Planned Parenthood Action Fund of Santa Barbara, Ventura, & San
Luis Obispo Counties
Planned Parenthood Advocates Pasadena and San Gabriel Valley
Planned Parenthood Affiliates of California
Planned Parenthood of Mar Monte
Planned Parenthood Northern California Action Fund
State Board of Equalization
State Board of Equalization Member Fiona Ma
Target
URGE: Unite for Reproductive & Gender Equity
Walmart
Opposition
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California State Association of Counties
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098