BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2365 |Hearing |6/29/16 |
| | |Date: | |
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|Author: |Gipson |Tax Levy: |Yes |
|----------+---------------------------------+-----------+---------|
|Version: |5/16/16 |Fiscal: |Yes |
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|Consultant|Bouaziz |
|: | |
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Sales and use taxes: exclusion: pawnbrokers: transfer of
vested property
Establishes a temporary sales and use tax exemption to customers
who buy back their property from a pawnbroker after defaulting
on a loan.
Background
California law allows various income tax credits, deductions,
and sales and use tax exemptions to provide incentives to
compensate taxpayers that incur certain expenses, such as child
adoption, or to influence behavior, including business practices
and decisions, such as research and development credits. The
Legislature typically enacts such tax incentives to encourage
taxpayers to do something that but for the tax credit, they
would not do. The Department of Finance is required to annually
publish a list of tax expenditures. Currently, tax expenditures
exceed $57 billion dollars in forgone revenue.
State law imposes a sales and use tax (SUT) on the sale,
storage, or use of tangible personal property unless exempted by
state law. Cities and Counties may increase the SUT rate up to
2% as a transactions and use tax for either specific or general
purposes with voter approval as required by the California
Constitution.
AB 2365 (Gipson) 5/16/16
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The current state SUT is 7.5%, but beginning January 1, 2017,
the state SUT rate on tangible personal property will be 7.25%
and imposed as follows:
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| | | |
| Rate | Jurisdiction | Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
| | | |
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
| |Local Revenue Fund | |
|1.0625%|2011 |Realignment of local public |
| | |safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
| | | |
| 1.25% |Local (City/County) | |
| | | |
| | | |
| |1.00% City and |City and county general |
| |County |operations. |
| | | |
| |0.25% County | |
| | |Dedicated to county |
| | |transportation purposes |
| | | |
| | | |
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State law requires every pawnbroker's loan, for which goods are
received as security, to be evidenced by a written contract, and
AB 2365 (Gipson) 5/16/16
Page 3 of ?
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.
Proposed Law
Assembly Bill 2365 establishes a temporary sales and use tax
exemption to customers that buy back their property from a
pawnbroker after defaulting on a loan. Specifically the bill:
Provides that the terms "sale" and "purchase" do not
include the transfer of "vested property", as defined, by a
pawnbroker to a person who pledged the property to the
pawnbroker as security for a loan.
The transfer occurs no more than six months after title
to the property transferred to the pawnbroker from the
person.
As consideration for the transfer of the property, the
person is required to pay the pawnbroker only the remaining
unpaid balance of the amount borrowed under the loan as of
the date the pawnbroker becomes vested with title to the
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property, together with one of the following:
o For an original loan amount not exceeding
$2,499.99, charges and interest due under the loan
from the date the pawnbroker is vested with title to
the property to the date of the transfer to the person
who pledged the property; or,
o For an original loan amount of $2,500 or more,
charges and interest due in accordance with the last
monthly contractual interest rate, from the date the
pawnbroker is vested with title to the property until
the date of the transfer to the person who pledged the
property.
AB 2365 takes effect immediately and shall remain in effect
until January 1, 2022.
State Revenue Impact
The Board of Equalization (BOE) estimates annual state and local
revenue losses of $33,250.
Comments
1. Purpose of the bill. According to the author, "When a
debtor acquires a loan from a pawn shop, using their personal
property as collateral, their collateral may be seized by the
pawn shop upon default of the debtor. Under current law, when a
consumer defaults and seeks to reacquire their seized
collateral, they must pay a sales tax on the item they are
reacquiring, even though they already have paid the sales tax on
their initial purchase. This bill seeks to provide a sales tax
exemption for consumer purchases of seized collateral and
provide a fair taxing structure for consumers."
AB 2365 (Gipson) 5/16/16
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2. Issue at hand. Pawnbrokers are considered retailers under
the SUT Law as they are in the business of making retail sales.
As such, tax applies to pawnbroker sales to the same extent as
sales by any other retailer in this state. Thus, if a customer
defaults on a pawnbroker loan, the collateral becomes the
pawnbroker's vested property. After title has vested with the
pawnbroker, the customer no longer has any legal right to the
property that would distinguish him or her from any other
customer. Accordingly, when a customer subsequently seeks to
purchase the collateral, the transaction constitutes a taxable
retail sale. According to BOE, both pawnbrokers and customers
are often surprised that the sale is subject to sales tax, and
the additional sales tax sometimes serves as an impediment to
regaining ownership. This bill would eliminate this problem as
long as the customer reacquires the item within six months of
title transferring to the pawnbroker.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 20-0
Assembly Floor 80-0
Support and
Opposition (6/23/16)
Support : State Board of Equalization.
Opposition : Unknown.
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