BILL ANALYSIS Ó AB 2678 Page 1 ASSEMBLY THIRD READING AB 2678 (Gray) As Amended , 2016 2/3 vote ------------------------------------------------------------------ |Committee |Votes|Ayes |Noes | | | | | | | | | | | | | | | | |----------------+-----+----------------------+--------------------| |Revenue & |9-0 |Ridley-Thomas, | | |Taxation | |Brough, Dababneh, | | | | |Gipson, Mullin, | | | | |O'Donnell, Patterson, | | | | |Quirk, Wagner | | | | | | | |----------------+-----+----------------------+--------------------| |Agriculture |7-0 |Dodd, Gallagher, | | | | |Gray, Irwin, | | | | |Jones-Sawyer, Quirk, | | | | |Salas | | | | | | | |----------------+-----+----------------------+--------------------| |Appropriations |14-0 |Gonzalez, Bloom, | | | | |Bonilla, Bonta, | | | | |Calderon, Daly, | | | | |Eggman, Eduardo | | | | |Garcia, Roger | | | | |Hernández, Holden, | | | | |Quirk, Santiago, | | AB 2678 Page 2 | | |Weber, Wood | | | | | | | | | | | | ------------------------------------------------------------------ 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 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 19418.3, excluding any fair located in the County of Los Angeles. 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. AB 2678 Page 3 5)Provides that any revenues deposited into the Fund under this bill shall not be allocated to any fair located in the County of Los Angeles. 6)Provides that any revenues deposited into the Fund under this bill shall only be allocated to a state-designated fair if nonmanagement employees at that fair, or nonmanagement employees at any real property of that fair that is leased to another party, are provided the following working conditions: a) The employee receives a meal period of at least 30 minutes for a work period of more than five hours per day, unless the work period per day of the employee is less than six hours and the meal period is waived by mutual consent of both the employer and the employee; b) The employee receives a second meal period of at least 30 minutes for a work period of more than 10 hours per day, unless the work period per day of the employee is less than 12 hours, the second meal period is waived by mutual consent, and the first meal period was not waived; c) Any work in excess of eight hours in one workday, any work in excess of 40 hours in any one workweek, and the first eight hours worked on the seventh day of work in any one workweek is compensated at the rate of at least one and one-half times the regular rate of pay for an employee; d) Any work in excess of 12 hours in one day is compensated at the rate of at least twice the regular rate of pay for an employee; and, AB 2678 Page 4 e) Any work in excess of eight hours on any seventh day of a workweek is compensated at the rate of at least twice the regular rate of pay for an employee. 7)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 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 AB 2678 Page 5 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: According to the Assembly Appropriations Committee: 1)BOE will incur minor administrative costs to notify affected retailers, modify tax returns, prepare special forms, prepare a special publication, and answer inquiries from taxpayers and the general public. 2)Ongoing annual General Fund revenue loss in the range of $17 million. COMMENTS: 1)The author has provided the following statement 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 deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the AB 2678 Page 6 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)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 16 X2 (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 16 X2 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 SUT revenues derived from these AB 2678 Page 7 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. Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0003335 AB 2678 Page 8