BILL ANALYSIS                                                                                                                                                                                                    






                                                                    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>  


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












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          California State Association of Counties




          Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)  
          319-2098