BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2678


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          Date of Hearing:  April 18, 2016


                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                           Sebastian Ridley-Thomas, Chair





                     AB 2678 (Gray) - As Amended April 12, 2016


                                          


                                      SUSPENSE
          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.  









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          2)Defines a "state-designated fair" by reference to Business and  
            Professions Code (B&PC) Sections 19418, 19418.1, 19418.2, and  
            19418.3.  


          3)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.  


          4)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 continuously  
            appropriated and allocated as provided in B&PC Section  
            19620.2.   


          5)Provides for the automatic sunset of this bill's provisions on  
            January 1, 2022.    


          EXISTING LAW:  


          1)Establishes the Fund.  The Fund is charged with, among other  
            things, allocating money to support the network of California  
            fairs.    


          2)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  








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            as the "network of California fairs."  

          3)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.

          4)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).


          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 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  








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               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)Proponents of this bill note 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 the  
            introduced version of this 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.










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               "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  
               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?










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               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,  
               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  








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               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  
               19620.2.  Section 19620.2, in turn, provides for the  
               allocation of moneys for capital outlay to California fairs  
               for fair projects:


               i)     Involving public health and safety;


               ii)    Involving major and deferred maintenance, 


               iii)   Necessary due to any emergency;


               iv)    Required by physical changes to the fair site; and, 


               v)     Required to protect the fair property or  
                 installation, such as fencing and flood protection.


               The money may also be used for the acquisition or  
               improvement of any property or facility that will serve to  
               enhance the operation of the fair.


              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  








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               services.  In addition, this bill would potentially  
               establish a precedent for future dedicated funding  
               legislation.  


              d)   A note on sunsets  :  The author has recently amended this  
               bill to add a five-year sunset date.  It is Committee  
               staff's understanding that this amendment was designed to  
               clarify that this funding mechanism is temporary and  
               subject to future review by the Legislature.   


              e)   Double referral  :  This bill has been double referred to  
               the Assembly Committee on Agriculture.  


              f)   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.  


          REGISTERED SUPPORT / OPPOSITION:











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          Support


          Alameda County Fair


          California Fairs Alliance


          California Mid-State Fair


          Del Norte County Fair


          Earl Warren Showgrounds


          El Dorado County Fair


          Kings Fair


          Lodi Grape Festival


          Mariposa 35-A District Fairgrounds


          Mendocino County Fair


          Nevada County Fairgrounds


          Placer County Fair Association









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          Redwood Empire Fair


          Siskiyou Golden Fairground


          Solano County Fair Association


          Western Fairs Association


          7th District Agricultural Association/Monterey County Fair


          14th District Agricultural Association


          19th District Agricultural Association


          40th District Agricultural Association/Yolo County Fair




          Opposition


          None on file




          Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)  
          319-2098










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