BILL ANALYSIS Ó
AB 1561
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Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 1561
(Cristina Garcia) - As Amended April 28, 2016
SUSPENSE
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use taxes: exemption: sanitary napkins:
tampons: menstrual cups and sponges
SUMMARY: Establishes a sales and use tax (SUT) exemption for
tampons, sanitary napkins, menstrual cups, and menstrual
sponges. 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.
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3)Sunsets the statutory exemption on January 1, 2027.
EXISTING LAW:
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
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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
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)The BOE notes the following in its staff analysis of this
bill:
Certain care providers and hospitals would additionally
benefit from the proposed exemption : "Since sales of these
products to these service enterprises are currently subject
to tax, this bill would provide an additional benefit to
these entities that purchase these products for their
clients or patients."
3)This bill is supported by ACT for Women and Girls, which notes
the following:
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California women pay $20 million in taxes on tampons and
sanitary napkins each year. This is not insignificant to
women, especially poor women on a tight budget who struggle
to pay for basic necessities like a box of tampons or pads
every month for their adult life. Women face more expenses
than men and at the same time are paid less. Gender
pricing leads to women paying an average of $1,351 more
than men per year on goods and services. At the same time
women make 79 cents on the dollar when compared to men. The
pay gap and gender pricing make the fact that California's
tax law unfairly targets women that much more unjust.
4)This bill is opposed by the California State Association of
Counties, which notes the following:
We recognize the intent of this measure but unfortunately
AB 1561 would result in a direct loss of revenue for
counties. The State is in its seventh year of economic
growth but many counties are still not realizing the same
level of economic stability compared to pre-recession
standards. At the same time, California's counties are
preparing for the next inevitable downturn and associated
demands on county services.
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 $20
million statewide will result if AB 1561 is enacted.
5)Committee Staff Comments
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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.
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.
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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
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.
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e) What would this bill do ? This bill would provide a
complete SUT exemption for tampons, sanitary napkins,
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.
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>
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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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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) A note on sunsets : In its current form, this bill's
proposed tax expenditure applies for 10 years. This
Committee has a longstanding policy favoring the inclusion
of five-year sunset dates to allow more frequent review of
tax expenditure programs. The Committee may wish to
consider shortening the sunset period for this bill.
REGISTERED SUPPORT / OPPOSITION:
Support
ACT for Women and Girls
Opposition
AB 1561
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California State Association of Counties
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098