BILL ANALYSIS Ó AB 2365 Page 1 Date of Hearing: May 25, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2365 (Gipson) - As Amended May 16, 2016 ----------------------------------------------------------------- |Policy | |Vote:| | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill excludes from the Sales and Use Tax (SUT) Law a pawnbroker's receipts from a transaction where customers buy back their property after defaulting on a loan. This exclusion is operative on taxable years starting on January 1, 2017, and before January 1, 2022. FISCAL EFFECT: Annual state and local revenue loss of approximately $33,000. AB 2365 Page 2 COMMENTS: 1)Purpose. According to the author, AB 2365 provides a fair taxing structure for consumers who are trying to reacquire their seized collateral from a pawn shop. The BOE, who is a sponsor, argues that this bill resolves a confusing area of the law and eliminates a barrier for some customers seeking to regain ownership of their former property. 2)Pawnbrokers and sales tax. Every pawnbroker loan for which goods are received as security must be evidenced by a written contract, and the loan contract must set forth the loan period and the date on which the loan will become due and payable. Pawnbrokers are required by law to retain every article pledged for the duration of the applicable loan period. If any pledged article is not redeemed during the loan period and the customer and pawnbroker do not mutually agree in writing to extend the loan period, the pawnbroker must notify the customer within one month after the loan period expires. This notice works to extend the right of redemption for a period of 10 days from the date of mailing or electronic transmission of that notice. If any pledged article is not redeemed within the 10-day notice period, the pawnbroker becomes automatically vested with title to the pledged article. The pawnbroker may then sell or dispose of the property as he or she wishes. Pawnbrokers are considered retailers under the SUT Law as they are in the business of making retail sales of tangible personal property (TPP). As such, tax applies to pawnbroker sales to the same extent as sales by any other retailer of TPP in this state. When a customer seeks to repurchase the collateral, the transaction constitutes a retail sale. AB 2365 Page 3 Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081