BILL ANALYSIS Ó
AB 2321
Page 1
Date of Hearing: April 18, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2321
(Rodriguez) - As Amended March 28, 2016
Majority vote. Fiscal committee.
SUBJECT: Vehicles: registration and transfers of title or
interest: use tax
SUMMARY: Requires the Department of Motor Vehicles (DMV), in
collecting use taxes, to code transactions to specific addresses
when vehicles or vessels are registered to ensure that
remittance of tax revenue by the State Board of Equalization
(BOE) is made to the specific city or county in which the
purchaser resides. Specifically, this bill:
1)Requires the DMV to determine local use taxes owed by the
applicant during registration of a vehicle or vessel according
to specific address data provided by the applicant.
2)Requires the BOE to provide the DMV with a list of state tax
area codes applicable to each jurisdiction, so the DMV can
identify and apply the correct tax area code for the
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applicable local jurisdiction to which the vehicle or vessel
will be registered.
3)Requires the DMV to collect and transmit to the BOE specific
address data provided by applicants to which a purchased
vehicle or vessel will be registered.
4)Requires the BOE to allocate use taxes collected and
transmitted by the DMV directly to the jurisdiction where the
purchaser registered the vehicle or vessel, based on specific
address data provided to the BOE by the DMV.
5)Specifies that data transmitted from the DMV to the BOE shall
be subject to Revenue and Taxation Code (R&TC) Section 7056,
governing confidentiality.
6)Requires the BOE to reimburse the DMV for costs associated
with this bill.
7)Declares the intent of the Legislature that the DMV and BOE
ensure that applicable Bradley-Burns uniform local sales taxes
and local transaction and use taxes are collected and remitted
to the specific jurisdiction where the vehicle is registered.
EXISTING LAW:
1)Authorizes cities and counties to impose a local sales and use
tax (SUT), pursuant to the Bradley-Burns Uniform Local SUT
Law, fixed at 1.25% of the sales price of tangible personal
property (TPP) sold at retail or purchased outside the county
for use within the county. Counties receive 0.25% for
county-wide transportation purposes (restricted to road
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maintenance or operation of transit systems), regardless of
whether the sale occurs in a city or in the unincorporated
area of the county, with the remaining 1% used to support
general operations of the city or county in which it is
collected.
2)Allows use taxpayers and certain sellers without a permanent
place of business to report their local use and sales taxes,
respectively, on a countywide basis, which is allocated to
local jurisdictions through the countywide pool. However, use
tax on transactions of $500,000 or more must be reported
directly to the participating jurisdiction in which the first
functional use of the property is made. [BOE SUT Regulation
1802]
3)Authorizes cities and counties to impose transactions and use
taxes for general or special purposes, at a rate of 0.125% or
multiples of 0.125%, if approved by the requisite threshold of
voters.
4)Requires a person who purchases a vehicle or undocumented
vessel from a person who is not licensed by the DMV as a
manufacturer, remanufacturer, dealer, dismantler, or
lessor-retailer to pay use tax, and any applicable penalties,
to the DMV when registering the vehicle or undocumented
vessel.
5)Specifies that the applicable use tax rate is based on the
address provided to the DMV by the registered owner of the
vehicle or undocumented vessel.
6)Requires the DMV to transmit all use tax and penalty
collections to the BOE at least monthly, according to a
schedule agreed upon by the DMV and BOE, and requires the BOE
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to reimburse the DMV for associated transmission costs.
FISCAL EFFECT: According to the BOE, this bill would not affect
state revenues, but only result in a shift in local use tax from
one local jurisdiction to another. However, administrative
costs will be incurred by the DMV and BOE.
COMMENTS:
1)Author's Statement : The author has provided the following
statement in support of this bill:
AB 2321 is a straightforward bill that ensures
municipalities receive their fair share of taxes collected
on the private sales of vehicles. It accomplishes this by
requiring private vehicle transactions to be assigned
specific tax area location by the DMV, so that the Board of
Equalization can properly identify and allocate the taxes
collected. In 2014, DMV reported approximately $65 million
in activity related to an estimated 2 million private
vehicle and vessel registrations. This bill ensures that
the city where the private sale took place, receive its
portion of the taxes collected. Improving this process will
result in more accurate allocations and may stand to
benefit smaller and disadvantaged cities and unincorporated
county areas.
2)Arguments in Support : Proponents state that the practice to
be enacted by this bill is "already the practice for the
distribution of local voter-approved transaction and use tax
rates. However, the Bradley-Burns portion is treated
differently and is coded only to the county. The end result
is that the BOE allocates the appropriate amount of
Bradley-Burns revenue but to the county pool rather than the
individual jurisdictions where the vehicle or vessel is
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registered."
To address this problem, "AB 2321 proposes that use tax
collections on private party vehicle and vessel transactions
be assigned specific tax area location information by the
DMV?. This fix would provide the BOE the needed information
without the need for substantial change to the current process
or technology."
3)Bradley-Burns Uniform Local Sales and Use Tax Law : Currently,
the BOE collects SUT on a 7.5% statewide base rate, composed
of a state portion and a local portion for cities and
counties. The local portion is referred to as the
Bradley-Burns Local SUT (Bradley-Burns) and is fixed at 1.25%
of the sales price of TPP. Of the 1.25%, cities and counties
receive 1% to support general operations, with the remaining
0.25% designated for countywide transportation purposes.
The use tax is imposed in lieu of the sales tax for the
privilege of the property's storage, use, or other consumption
in California. The use tax is generally imposed on
out-of-state purchases brought into California, but also
applies in private party transactions of vehicles and vessels.
4)Countywide Pool Process : For use tax transactions that cannot
be easily identified to a specific location, the BOE generally
distributes the local portion through countywide pools. Under
this process, local use tax revenues are prorated into pools
for each city in the county and the unincorporated area of the
county, at a ratio based upon each jurisdiction's total share
of local SUT revenues generated in the county. For example,
if the unincorporated area of the county generates 8% of the
county's total taxable sales, it will receive 8% of the
countywide pool.
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The countywide pool accounts for about 12% of the total local
SUT reported, with use tax accounting for the majority of the
pooled revenues. Taxpayers who report use tax allocated
through the countywide pool include out-of-state sellers who
ship merchandise directly to California consumers,
construction contractors for materials used, long-term lessors
of equipment and other tangible personal property, and private
sellers of vehicles and vessels. The BOE has always used the
countywide pool process for allocating the local use tax
generated by private party vehicle and vessel transactions,
the largest component of county pool use tax revenues.
5)Transaction and Use Tax Law : Cities and counties are
authorized to impose additional transactions and use taxes,
known as district taxes, subject to a vote of the people.
General purpose taxes require majority voter approval and
special purpose taxes require two-thirds voter approval.
Generally, district taxes may be imposed in 0.125% increments,
up to a total of 2%. As of April 1, 2016, 31 California
counties, 132 cities, and 7 towns impose SUT higher than the
base rate due to voter approval of additional district taxes.
Unlike allocation of the Bradley-Burns through the countywide
pool process, however, the BOE allocates district taxes
directly to the city or county in which it is imposed.
6)Role of the DMV : Existing law requires the purchaser of a
vehicle or vessel in a private party transaction to pay use
tax, including both Bradley-Burns and applicable district
taxes to the DMV during registration of the vehicle or vessel.
The DMV then transmits all use tax collections to the BOE.
For the purposes of allocating Bradley-Burns, the DMV codes
taxes collected from the applicant to the county in which the
vehicle is being registered. The BOE then remits the taxes to
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the county of jurisdiction for distribution through the
countywide pool. The DMV collects approximately $70 million
annually in Bradley-Burns revenue on behalf of the BOE.
For purposes of allocating district taxes, the DMV codes taxes
collected from the applicant to the specific city or county
jurisdiction in which the vehicle is being registered.
This bill proposes that the DMV code, and the BOE remit,
Bradley-Burns revenues in a process similar to that
established for district taxes, so that the 1% of
Bradley-Burns revenues can be directly allocated to fund
general purposes in the specific city or county it is paid.
7)Shifting Tax Revenues : As noted in the BOE's staff analysis,
this bill would result in a shift of revenues between local
government jurisdictions. For example, if a used car is
purchased in the City of Sacramento for $3,000, the table
below uses hypothetical countywide pool percentages to
illustrate how the provisions of this bill could increase
allocation of Bradley-Burns for the City of Sacramento, but
reduce allocation of Bradley-Burns for other cities and the
unincorporated area in Sacramento County:
---------------------------------------------------------------
|Jurisdiction| Countywide | Direct | Indirect | Change |
| | Pool | Allocation | Allocation | |
| | Percentage | under this | under | |
| | | bill | current law | |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
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|Unincorporat| 10% | $0 | $3.00 | -$3.00 |
|ed | | | | |
|Sacramento | | | | |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Citrus | 13% | $0 | $3.90 | -$3.90 |
|Heights | | | | |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Elk Grove | 18% | $0 | $5.40 | -$5.40 |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Folsom | 19% | $0 | $5.70 | -$5.70 |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Galt | 9% | $0 | $2.70 | -$2.70 |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Isleton | 4% | $0 | $1.20 | -$1.20 |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Rancho | 9% | $0 | $2.70 | -$2.70 |
|Cordova | | | | |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
|Sacramento | 18% | $30 | $5.40 | +24.60 |
| | | | | |
| | | | | |
|------------+------------+------------+-------------+----------|
| Total | | $30.00 | $30.00 | |
| | | | | |
| | | | | |
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---------------------------------------------------------------
The author of this bill states that more accurate allocations
may stand to benefit smaller and disadvantaged cities and
unincorporated county areas. In order for smaller cities and
unincorporated county areas to increase their allocation of
Bradley-Burns under this bill, it must be assumed that a high
volume of private party transactions of vehicles and vessels
occur in such jurisdictions, at a value that exceeds what
these jurisdictions would otherwise be allocated from sales
made across the county. It is unclear how revenues will shift
as a result of this bill.
8)Setting a New Precedent : The countywide pool process is not
prescribed in statute, but in BOE regulations, and has been
upheld by the courts as "an accounting technique which is
reasonable, [and] subserves the interests of all cities and
counties" (City of San Joaquin v. State Board of Equalization
(1970) 9 Cal.App.3d 365). The City of San Joaquin had argued
that the pooling process failed to allocate taxes levied by
cities in connection with construction contracts on a
transaction for transaction basis, resulting in the BOE giving
taxes belonging to one local jurisdiction to another.
However, the Court found that while the pooling process does
result in one city's sales taxes being allocated to other
jurisdictions, that city also shares in the sales tax revenues
of other cities. Additionally, by having its SUT ordinance
administered by the BOE, under an administrative contract
agreed upon by both parties, the city gains a tremendous
economic advantage. Thus, the city has not necessarily
sustained a loss of tax income from the BOE's accounting
practice.
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According to the BOE, the countywide pool process allows for
efficient administration of both SUT when a sale cannot be
easily identified with a permanent place of business or a
specific location in the state. However, the BOE has allowed
for some of the use tax revenue previously allocated through
the countywide pool process to be directly allocated to the
city or county in which it is imposed. For example, the BOE
has determined that a retailer must report the local use tax
directly to the jurisdiction of first functional use when the
transaction totals $500,000 or more. Since the BOE currently
has the regulatory authority to decide when use the countywide
pool process best serves taxpayers, the Committee may wish to
consider whether requiring the direct allocation of use taxes
from private party transactions on vehicles and vessels should
be first evaluated via the regulatory process.
9)Administrative Issues : According to the BOE, the codes
provided to the DMV to identify the specific city or county
jurisdiction in which the vehicle is being registered for
purposes of allocating district taxes are different from the
codes the BOE would have to provide the DMV for purposes of
allocating Bradley-Burns directly. For example, a city has a
specific tax area code for purposes of identifying
Bradley-Burns, but a separate tax area code for purposes of
identifying the district taxes collected within that city.
Thus, new information would have to be shared between the DMV
and BOE to carry out the provisions of this bill.
The relationship between the DMV and BOE is established by an
interagency contract. The most recent contract was entered
into on July 1, 2015 and expires on June 30, 2016. While the
terms of subsequent contracts can be updated to require the
BOE to share tax rate codes with the DMV so the DMV can inform
the BOE where Bradley-Burns revenues should be directly
allocated, these additional duties on both agencies will like
raise administrative costs of the contract. The contract is
collectively paid for by the General Fund, local jurisdictions
imposing Bradley-Burns, and local jurisdictions imposing
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district taxes. Although certain local jurisdictions may
recover more Bradley-Burns revenues as a result of this bill,
the cost will be borne by all local jurisdictions across the
state.
10)Author's Amendments : Following discussions with BOE staff,
the Author's office has suggested the following amendments to
avoid duplicative language and clarify the practical effect of
this bill:
a) Shift language amending Part 1 of R&TC pertaining to
Sales and Use Tax Law to Part 1.5 of R&TC pertaining to
Uniform Local Sales and Use Taxes;
b) Correct references to "local sales taxes" to "local use
taxes";
c) Strike the requirement for the DMV to utilize all
available tools to determine the applicable tax rate, as it
is already ongoing practice to do so;
d) Strike the requirement for transmitted data to be
subject to R&TC Section 7056, as the confidentiality of
transmitted data is already protected under current law;
e) Strike the requirement that the DMV transmit address
data to the BOE, as the BOE would not need address data for
allocating use tax pursuant to this bill;
f) Add language specifying that the DMV transmit tax area
codes and the amount of use tax attributable to those tax
area codes to the BOE for proper direct allocation; and,
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g) Correct a drafting error that omitted a provision of
this bill from R&TC Section 6293.
11)Double Referral : This bill was double-referred to the
Assembly Committee on Transportation, which passed this bill
on April 4, 2016, with a vote of 16-0. For additional
discussion of DMV administration related to this bill, please
refer to the analysis prepared by the Assembly Committee on
Transportation.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Association of Counties
League of California Cities
MuniServices
Opposition
None on file
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Analysis Prepared by:Irene Ho / REV. & TAX. / (916) 319-2098