BILL ANALYSIS Ó
AB 2540
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Date of Hearing: May 9, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2540
(Melendez) - As Introduced February 19, 2016
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Sales and use taxes: exemption: gun safes: trigger
locks
SUMMARY: Establishes a partial sales and use tax (SUT)
exemption for trigger locks and certain gun safes.
Specifically, this bill:
1)Establishes a SUT exemption for "qualified property".
2)Defines "qualified property" as both of the following:
a) A gun safe, as that term is defined in Penal Code
Section 16610, with a cost of $1,000 or less; and,
b) A trigger lock.
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3)Specifies that the exemption shall apply on and after January
1, 2017, and before January 1, 2018.
4)Provides that, notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, the exemption shall not apply with respect to any
tax levied by a county, city, or district pursuant to either
of those laws.
5)Takes immediate effect as a tax levy.
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).
3)Defines a "gun safe" as a locking container that fully
contains and secures one or more firearms, and that meets the
standards for gun safes adopted pursuant to Penal Code Section
23650.
FISCAL EFFECT: The BOE estimates a revenue loss of $3.6
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million.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
It is imperative that the State not only supports an
individual's right to choose to protect themselves and
their families with a firearm, but to also advocate just as
hard for responsible gun ownership.
2)This bill is supported by the Firearms Policy Coalition, which
notes the following:
Given that California law requires that firearms purchasers
provide proof that he or she owns the mandated firearm
safety devices or state approved locking containers, it
only makes sense that the state should also allow for a tax
holiday to encourage gun owners and would-be gun owners to
acquire the best safety products that fit the needs of
their households.
3)This bill is opposed by the California Tax Reform Association,
which notes the following:
The purchase of guns are discretionary items for
recreation, and the purchase of a gun safe is the decision
of a responsible gun owner. There are innumerable products
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which enhance public safety or are built into products for
safety purposes, none of which are exempt from tax. Anyone
with small children in the home will naturally provide for
their children's safety, and a tax exemption will have
little or nothing to do with such an important decision.
4)The BOE notes the following in its staff analysis of this
bill:
a) Partial exemptions complicate administration :
"Currently, most sales and use tax exemptions are applied
to the total applicable sales and use tax. However, a few
partial exemptions in California law only exempt the state
tax portion of the sales and use tax rate. They include
sales and purchases of manufacturing and research and
development equipment, teleproduction equipment and farm
equipment. These partial exemptions complicate return
preparation and processing, and result in more errors."
b) Proposed exemption would apply to a variety of safes :
"Based on the requirements of Penal Code Section 23650,
safes designed to store and protect any valuables,
including documents and jewelry, also would be exempt from
the sales tax. For example, all Liberty safes meet the
standards in Penal Code Section 23650. Therefore, any safe
that can fully contain and secure one or more firearms and
meets the standards for gun safes would qualify for the
proposed exemption, regardless of the purpose for which
they are purchased."
c) State and federal laws require gun safety devices to
accompany every gun sale : "The Aroner-Scott-Hayden
Firearms Safety Act of 1999 prohibits the sale, transfer or
manufacture of a firearm within California unless that
firearm is (1) accompanied by a U.S. Department of Justice
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firearm safety device or (2) the purchaser owns a
qualifying gun safe that meets the Attorney General's
minimum safety standards or is certified as meeting
Underwriters Laboratories Residential Security Container
rating standards by a Nationally Recognized Testing
Laboratory.
"The federal Protection of Lawful Commerce in Arms Act of
2005 requires any licensed importer, manufacturer, or
dealer to provide a secure gun storage or safety device
when selling, delivering, or transferring any handgun to
any person other than another federally-licensed gun
importer, manufacturer, or dealer.
"Since every new gun sale or private party sale is required
to include a storage or gun safety device, this exemption
principally would encourage qualified purchases by
individuals who purchased guns in California prior to 2002
and handguns within the United States prior to 2006."
5)Committee Staff Comments
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
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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.
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.
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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.
e) What would this bill do ? This bill would provide a
partial SUT exemption for both trigger locks and specified
gun safes. The exemption would be available for one year
only - during the 2017 calendar year.
f) A note on operative dates : This bill provides that the
SUT exemption shall become operative on January 1, 2017.
Typically, SUT exemption bills provide for a delayed
operative date depending on the effective date of the
implementing legislation, ensuring that the BOE, as the
administering agency, will have sufficient time to inform
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impacted retailers and accommodate the change in law. As
such, the author may wish to consider the inclusion of
delayed operative language.
g) What exactly are we incentivizing ? Generally, tax
expenditures are provided as a matter of legislative grace
to encourage socially beneficial behavior that likely would
not occur
absent a financial incentive. The BOE, however, notes that
current law already requires gun sales to include a storage
or gun safety device. If the desire to comply with
existing law and protect one's family from accidental harm
are insufficient incentives to purchase a gun safety
device, it is questionable whether a partial SUT exemption
would prove adequate.
h) Related legislation : SB 890 (Gaines), of the current
Legislation Session, proposes a two-day exemption each
September and October for the state portion of the SUT rate
on firearms, ammunition, and hunting supplies purchased by
an individual with a valid hunting license. SB 890 failed
passage in the Senate Committee on Governance and Finance.
REGISTERED SUPPORT / OPPOSITION:
Support
AFSCME, Local 658
Association for Los Angeles Deputy Sheriffs
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Firearms Policy Coalition
Gun Owners of California
Los Angeles County Probation Officers' Union
Los Angeles Police Protective League
Peace Officers Research Association of California
Riverside Sheriffs' Association
Opposition
California Tax Reform Association
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098
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