BILL ANALYSIS Ó
AB 2678
Page 1
Date of Hearing: April 11, 2016
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Sebastian Ridley-Thomas, Chair
AB 2678
(Gray) - As Introduced February 19, 2016
2/3 vote. Fiscal committee.
SUBJECT: State designated fairs: funding
SUMMARY: Requires taxable sales and purchases within a "state
designated fair" to be segregated on the Sales and Use Tax (SUT)
return and also mandates that 30% of the state's General Fund
(3.9375%) SUT revenues derived from those segregated sales and
purchases be deposited in the Fair and Exposition Fund (Fund).
Specifically, this bill:
1)Provides that, for purposes of the SUT Law, the return shall
segregate the seller's gross receipts and the property's sales
price when the place of sale or use in this state is within a
"state designated fair" or any real property of a "state
designated fair" leased to another party.
2)Defines a "state designated fair" by reference to Business and
Professions Code (B&PC) Sections 19418, 19418.1, 19418.2, and
AB 2678
Page 2
19418.3.
3)Requires the State Board of Equalization (BOE) to develop a
form for this purpose.
4)Provides that notwithstanding any provision of the
Bradley-Burns Uniform Local SUT Law or the Transactions and
Use Tax Law, this bill shall not apply to any tax levied by a
county, city, or district pursuant to either of those laws.
5)Provides that, except as otherwise specified, 30% of all SUT
revenues, less refunds and costs of administration, that were
segregated shall be transferred to the Fund in the State
Treasury. Specifically, the moneys shall be deposited into
the separate account in the Fund specified in B&PC Section
19606.1.
6)Provides that any amounts deposited into the separate account
shall be continuously appropriated and allocated as provided
in B&PC Section 19606.1, except that any amounts transferred
to the Fund pursuant to B&PC Section 19606.1(g) shall be
allocated in accordance with B&PC Section 19620.2.
EXISTING LAW:
1)Establishes the Fund. The Fund is charged with, among other
things, allocating money to support the network of California
fairs.
2)Requires certain license fees from satellite wagering to be
deposited into a separate account in the Fund. These moneys
are continuously appropriated for specified fair-related
AB 2678
Page 3
purposes, including the payment of expenses incurred in
establishing and operating satellite wagering facilities at
fairs.
3)Defines a state designated fair as the California Exposition
and State Fair in the City of Sacramento and those fairs
specified in B&PC Sections 19418.1 (district agricultural
associations), 19418.2 (county fairs), and 19418.3 (citrus
fruit fairs) that may receive financial support or are
otherwise governed by B&PC Section 19400 et seq. (governing
horse racing). These fairs are also collectively referred to
as the "network of California fairs."
4)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.
5)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 BOE.
FISCAL EFFECT: The BOE estimates that this bill would result in
annual General Fund SUT losses of $20 million.
COMMENTS:
1)The author has provided the following information in support
of this bill:
AB 2678
Page 4
AB 2678 will provide a stable and reliable source of
funding for California's fairs and offer much needed help
for specific fair-related purposes and projects on
fairgrounds.
Over the past 75 years, there has been a designated funding
source for fairs from which the state has made significant
investments in promoting the business operations and
improving the infrastructure of California's fairs.
Without state funding, these properties will continue to
deteriorate and in their demise create public safety
issues. The reality is that, through sales tax, the
network of California fairs is currently a huge revenue
generator for the state of California. Without funding to
maintain the infrastructure, what were once valuable state
assets may become state liabilities.
2)This bill is supported by the California Fair Network, which
notes the following:
Western Fairs Association and the California Fairs Alliance
recognize that the California Fair Network is the only form
of local government that does not receive a portion of the
sales taxes generated on their property. More than 12
million Californians attend their hometown fair each year,
creating jobs, tax income, and building community pride and
harmony throughout the state. Additionally, another 20
million Californians attend non-fair events at fairgrounds
each year, most with a non-profit or charitable element.
As it currently stands, none of the resulting
locally-generated dollars come back to assist fairgrounds
with infrastructure or operating needs.
3)The BOE notes the following in its staff analysis of this
AB 2678
Page 5
bill:
a) Interim events are held on state designated fairgrounds :
"In addition to the various annual fairs, other events
held on the designated fairgrounds include motorized
racing, craft fairs, doll shows, gun shows, home and garden
shows, harvest festivals, farmers' markets, cultural
festivals and concerts, motor home, RV, and boat shows, and
more. Events may also include corporate events, private
dinner parties, and wedding receptions.
"According to the author's office, this bill's segregated
reporting requirements are intended to apply to all events
and activities that are held on the state designated
fairgrounds.
"Taxpayers making sales at events held on state designated
fairgrounds would need to segregate these sales when filing
their sales and use tax returns. Taxpayers who hold a
seller's permit for a permanent place of business and who
make sales both at events at state designated fairs and
events held at other locations, would need to segregate
those sales made at state designated fairs. BOE staff
would need to know what events and activities occur at
state designated fairs to instruct taxpayers to properly
report their sales and purchases at these locations."
b) California Exposition and State Fair (Cal Expo) hosts
AB 2678
Page 6
private venues : "While Cal Expo hosts the annual
California State Fair, it is also home to Bonney Field, a
large sports and entertainment venue that includes food and
beverage concessions and merchandise sales. Additionally,
Raging Waters is a water park located within Cal Expo's
grounds with dining and snack areas. However, it is not
clear whether sales transactions made at Bonney Field or
Raging Waters would be subject to the proposed segregation
reporting requirements. Would these restaurants and snack
areas be required to segregate their food and beverage
sales?
BOE staff can work with the author's office to better
identify the events and activities that would be subject to
the segregated reporting requirements in this bill."
4)Committee Staff Comments
a) General background information : The author notes that,
before 2009, license fees imposed on horse racing wagers
were deposited in the Fund which, in addition to supporting
the annual budget of the California Horse Racing Board,
also supplemented the income of the network of California
fairs. SB 16x2 (Ashburn), Chapter 12, Statutes of 2009, in
turn, shifted the horse racing industry's obligation to
fund fairs through license fees imposed on wagers to the
General Fund. Specifically, SB 16x2 provided an annual
continuous appropriation of $32 million from the General
Fund to support the network of California fairs. This
change was done as part of a package of measures designed
to provide economic stimulus for the horse racing industry.
The author's office notes that, in fiscal year 2011-12,
AB 2678
Page 7
fair funding at the state level was eliminated as part of a
package of budget cuts designed to address the state's
ongoing financial crisis. The author notes, however, that
the 2016-17 budget "currently contains a $3 million
appropriation to support the network of California fairs
and a $4 million allocation for infrastructure needs at
fairgrounds."
b) What would this bill do ? This bill requires taxable
sales and purchases within a state designated fair to be
segregated on the SUT return and also mandates that 30% of
the state's General Fund (3.9375%) SUT revenues derived
from these segregated sales and purchases be deposited in
the Fund. Amounts deposited shall be continuously
appropriated and allocated as provided in B&PC Section
19606.1. Section 19606.1, in turn, provides for the
allocation of moneys for the following purposes:
i) Servicing bonds issued for constructing or acquiring
improvements at a fair's racetrack inclosure, satellite
wagering facilities, health and safety repair projects,
or handicapped access compliance projects at fairs;
ii) For payment to the State Race Track Leasing
Commission to be pledged for the repayment of debt
necessary to construct a racetrack grandstand at the 22nd
District Agricultural Association fairgrounds;
iii) For the payment of expenses incurred in establishing
and operating satellite wagering facilities at fairs;
iv) For the support of an equipment and operating fund
to produce and display a consolidated California signal
at satellite wagering facilities and fairs;
AB 2678
Page 8
v) For health and safety repair projects at fairs,
including fire and life safety improvement projects,
California Code of Regulations compliance projects, and
long-term deferred maintenance projects; and,
vi) For the development and payment of revenue
generating projects, the establishment of pilot projects
to restructure the current fair system, and for projects
realizing a cost savings for more efficient utilization
of existing fair resources.
c) The benefits and perils of earmarking : Proponents of
this bill might argue that earmarking specified SUT
revenues would provide a stable and much-needed source of
funding for state fairs. Opponents, however, might contend
that the practice of earmarking restricts the Legislature's
ability to fund vital state programs in a holistic manner
through the annual budgetary process. Specifically,
opponents might argue that this bill elevates specific fair
funding needs above other vital programs designed to
address basic human necessities, such as health and social
services. In addition, this bill would potentially
establish a precedent for future dedicated funding
legislation.
d) Suggested administrative amendment : This bill requires
the BOE to develop a form to segregate sales and purchases
of property sold or used at a state designated fair. The
BOE notes, however, that the existing SUT return could be
modified to add an additional line to report these
transactions separately. In determining how best to
implement this bill, BOE staff would like the option of
either modifying the existing SUT return or creating a
supplemental form to capture the required information. As
AB 2678
Page 9
such, the BOE has suggested administrative amendments in
its staff analysis to provide this flexibility.
e) Potential amendments suggested by the Author : The
Author's office has suggested two potential amendments to
this bill. The first would add a five-year sunset date, to
clarify that this funding mechanism is temporary and
subject to future review by the Legislature. The second
amendment would redirect segregated revenues for allocation
under B&PC Section 19620.2, to clarify that the funds will
be used for vital fair maintenance and infrastructure
needs.
f) Double referral : This bill has been double referred to
the Assembly Committee on Agriculture.
g) Legislative history :
i) AB 700 (Krekorian), of the 2009-10 Regular Session,
would have required 20% of the state's General Fund SUT
revenues, remitted by specified taxpayers, be deposited
into a newly established Creative Industries and
Community Economic Revitalization Fund for specified
purposes. AB 700 died in the Assembly Committee on
Appropriations.
ii) AB 1365 (Karnette), of the 2007-08 Regular Session,
would have required all SUT revenues derived from the
sale of art be allocated to the California Arts Council.
AB 1365 was held in the Assembly Committee on
Appropriations.
AB 2678
Page 10
REGISTERED SUPPORT / OPPOSITION:
Support
Alameda County Fair
Calaveras County Fair
California Fair Network
California Fairs Alliance
California Mid-State Fair
California State Association of Counties
Contra Costa County Fair
Del Norte County Fair
Dixon May Fair
Earl Warren Showgrounds
AB 2678
Page 11
El Dorado County Fair
Gold Country Fair
Mariposa 35-A District Fairgrounds
Nevada County Fairgrounds
Placer County Fair Association
Redwood Empire Fair
Rural County Representatives of California
San Mateo County Event Center
Salinas Valley Fair
Santa Barbara County Fair
Silver Dollar Fair
Siskiyou Golden Fairground
Solano County Fair Association
AB 2678
Page 12
Tulelake-Butte Valley Fair
Sonoma-Marin Fair
Ventura County Fair
Western Fairs Association
Yuba-Sutter Fair
7th District Agricultural Association, Monterey County Fair
19th District Agricultural District
26th District Agricultural Association
40th District Agricultural Association/Yolo County Fair
1 individual
Opposition
None on file
AB 2678
Page 13
Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098