BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2365|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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CONSENT
Bill No: AB 2365
Author: Gipson (D), et al.
Amended: 5/16/16 in Assembly
Vote: 21 - Urgency
SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 6/29/16
AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,
Pavley
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
ASSEMBLY FLOOR: 80-0, 5/31/16 (Consent) - See last page for
vote
SUBJECT: Sales and use taxes: exclusion: pawnbrokers:
transfer of vested property
SOURCE: Author
DIGEST: This bill establishes a temporary sales and use tax
exemption to customers who buy back their property from a
pawnbroker after defaulting on a loan.
ANALYSIS:
Existing law:
1)Imposes a sales and use tax (SUT) on the sale, storage, or use
of tangible personal property unless exempted by state law.
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Page 2
2)Requires every pawnbroker's loan, for which goods are received
as security, to 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.
3)Requires 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.
4)Requires 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.
This bill:
1)Establishes a temporary SUT exemption to customers that buy
back their property from a pawnbroker after defaulting on a
loan.
2)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.
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Page 3
3)Requires that the transfer occurs no more than six months
after title to the property transferred to the pawnbroker from
the person.
4)States, 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 property,
together with one of the following:
a) 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,
b) 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.
5)Takes effect immediately and shall remain in effect until
January 1, 2022.
Background
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.
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Page 4
Accordingly, when a customer subsequently seeks to purchase the
collateral, the transaction constitutes a taxable retail sale.
According to the State Board of Equalization, 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 eliminates this
problem as long as the customer reacquires the item within six
months of title transferring to the pawnbroker.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified7/27/16)
California Pawnbrokers Association
State Board of Equalization
OPPOSITION: (Verified7/27/16)
None received
ARGUMENTS IN SUPPORT: 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."
ASSEMBLY FLOOR: 80-0, 5/31/16
AB 2365
Page 5
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley,
Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth
Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto,
Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper,
Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim,
Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis,
Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte,
O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez,
Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting,
Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon
Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119
8/3/16 19:33:35
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