BILL ANALYSIS                                                                                                                                                                                                    






                                                                    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.

             --------------------------
          <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