BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2678 |Hearing |6/22/16 |
| | |Date: | |
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|Author: |Gray |Tax Levy: |No |
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|Version: |5/31/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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State-designated fairs: funding
Requires retailers at state-designated fairs to segregate
revenue from sales; allocates 30% of this revenue to the
Secretary of Agriculture for allocation for specified fair
projects.
Background
State law imposes the sales tax on every retailer engaged in
business in this state that sells tangible personal property,
and requires them to collect the appropriate tax from the
purchase and remit the amount to the Board of Equalization
(BOE). Sales tax applies whenever a retail sale is made, which
is basically any sale other than one for resale in the regular
course of business. Unless the person pays the sales tax to the
retailer, he or she is liable for the use tax, which is imposed
on any person consuming tangible personal property in the state.
The use tax rate is the same rate as the sales tax rate, and
must be remitted on or before the last day of the month
following the quarterly period in which the person made the
purchase. The current rate is 7.50%, but beginning January 1,
2017, the sales and use tax rate decreases to 7.25% (Proposition
30, 2012. The rate breakdown is detailed below). Additionally,
cities and counties may increase the sales and use tax rate up
to 2% for either specific or general purposes pursuant to the
California Constitution's vote requirements.
AB 2678 (Gray) 5/31/16 Page 2
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|Rate |Jurisdiction |Purpose/Authority |
| | | |
|-------+--------------------+--------------------------------|
|3.9375%|State (General |State general purposes |
| |Fund) | |
| | | |
|-------+--------------------+--------------------------------|
|1.0625%|Local Revenue Fund |Realignment of local public |
| |2011 |safety services |
| | | |
| | | |
| | | |
| | | |
|-------+--------------------+--------------------------------|
|0.50% |State (Local |Local governments to fund |
| |Revenue Fund) |health and welfare programs |
| | | |
|-------+--------------------+--------------------------------|
|0.50% |State (Local Public |Local governments to fund |
| |Safety Fund) |public safety services |
| | | |
|-------+--------------------+--------------------------------|
|1.25% |Local (City/County) |City and county general |
| | |operations. |
| |1.00% City and | |
| |County | |
| | | |
| |0.25% County |Dedicated to county |
| | |transportation purposes |
| | | |
|-------+--------------------+--------------------------------|
|7.25% |Total Statewide | |
| |Rate | |
| | | |
-------------------------------------------------------------
Many items are fully exempted from the sales and use tax in this
state (prescription drugs, food, poultry litter), while others
are exempted from the state sales tax, but not the local share,
such as farm equipment and machinery, diesel fuel used for
AB 2678 (Gray) 5/31/16 Page 3
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farming and food processing, teleproduction and postproduction
equipment, timber harvesting equipment and machinery, and
racehorse breeding stock.
While parts of the sales and use tax are allocated for specific
local purposes, BOE deposits all revenue generated from the base
state sales use tax rate into the General Fund, which the
Legislature then allocates to specific purposes annually in the
Budget Act. Seeking to enhance funding for fairs in California,
groups supporting the state's fairs want to dedicate revenue
from sales at fairs for fair purposes.
Proposed Law
Assembly Bill 2678 provides that retailers must segregate sales
of tangible personal property on the real property of a state
designated fair, as defined, when filing returns to BOE. The
measure applies to sales on property at a state-designated fair
but leased to another party, as well as to any use tax due
resulting from the use of property at a state fair. However,
the measure neither affects the allocation of revenues from the
city and county general operations (Bradley-Burns), nor local
transactions and use taxes. Additionally, AB 2678 does not
apply to fairs in Los Angeles County.
BOE must allocate 30% of revenue required to be segregated by
the bill less refunds and administration costs to the Fair and
Exhibition Fund, which the bill creates in the State Treasury.
The bill does not supersede requirements in the California
Constitution and current law directing revenue from the sales
and use tax on diesel fuel to flow to transportation purposes,
or sales and use taxes currently flowing to the Local Revenue
Fund to fund public safety purposes, and does not count towards
estimates used by BOE to determine the excise tax rate on motor
vehicle fuels calculated pursuant to the fuel tax swap.
The bill continuously appropriates these funds to the Secretary
of Food and Agriculture for:
Capital outlay to California fairs for fair projects
involving public health and safety,
Fair projects involving major and deferred maintenance,
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Fair projects necessary due to any emergency,
Projects that are required by physical changes to the
fair site,
Projects that are required to protect the fair property
or installation, such as fencing and flood protection, and
For the acquisition or improvement of any property or
facility that will serve to enhance the operation of the
fair.
However, the bill allows the Secretary to allocate an
unspecified portion of the funds subject to California fairs for
general operational support. The bill states legislative intent
that these moneys be used primarily for those fairs whose
sources of revenue may be limited for purposes specified in the
bill.
AB 2678 prohibits the Secretary from allocating funds to fairs
in Los Angeles, and additionally limits allocation of funds to
state-designated fairs unless nonmanagement employees at that
state-designated fair, or nonmanagement employees at any real
property of that state-designated fair that is leased to another
party, have the following working conditions:
The employee receives a meal period of not less than 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.
The employee receives a second meal period of not less
than 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 of both the employer and the employee, and the
first meal period was not waived.
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 no less than one
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and one-half times the regular rate of pay for an employee.
Any work in excess of 12 hours in one day is compensated
at the rate of no less than twice the regular rate of pay
for an employee.
Any work in excess of eight hours on any seventh day of
a workweek is compensated at the rate of no less than twice
the regular rate of pay for an employee.
AB 2678's provisions sunset on January 1, 2022.
State Revenue Impact
BOE estimates that revenue derives from the current base sales
tax rate for California Fairs and Expositions is approximately
$66 million. The bill would require BOE to divert 30% of that
amount into the Fair and Exposition Fund, for approximately $20
million annually.
Comments
1. Purpose of the bill . According to the author "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. The network of California Fairs has faced
many challenges, the most recent being the loss of continuous
fair funding in the 2011-12 Budget due to the state's growing
fiscal problems, thus requiring the fairs to be self-sufficient
as of January 1, 2012. Without further state funding, these
properties will continue to deteriorate and in their demise
create public safety issues. The reality is that, through the
sales tax, the network of fairs is 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. Currently, the state and local fairs are one
of the few public entities that do not receive a portion of the
locally generated sales tax, even though they are major
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contributors to sales tax revenue and create a significant
number of jobs in their communities."
2. Precedent . The Legislature appropriates revenues from the
state's general revenue sources in the Budget Act; the only
current exception is the California Constitution's Article XIX
requirement that taxes derived from the sales of fuels for use
in motor vehicles upon public streets and highways be used for
specified transportation purposes. The state does not dedicate
for specific purposes the revenues from sales of specified
products, or the sale of any product in a specified place, just
as it doesn't dedicate income tax revenues from specific
persons, or all people who live in a specific place. The
Legislature allocates these funds as it sees fit, pursuant to
requirements in the Constitution and federal law. AB 2678 would
set a precedent by requiring a share of the revenue derived from
the sales on state-fair property for fair purposes. The state
must fund many worthy causes, but the bill would place fair
purposes above all other needs, and would invite future bills to
dedicate revenue from specific taxable events. On the other
hand, the bill funds important priorities funded for decades
through horse racing wagering fees, which declined, and
replacement General Fund support which was subsequently
eliminated. Additionally, fairs do not currently receive a
share of the local sales tax. The Committee may wish to
consider whether enhancing funding to fairs as part of the State
Budget is a better way of accomplishing AB 2678's goal.
3. Goose and gander . The California Department of Food and
Agriculture identifies 78 fairs in California: the California
Exposition and State Fair, 52 district agricultural association
fairs, 23 county fairs, and 2 citrus fruit fairs. AB 2678
requires retailers, as well as individuals using property, at
state fairs to segregate taxes collected on state-fair property,
or state-fair property leased to another party. The bill then
directs the Secretary of Food and Agriculture to allocate
revenues to state-designated fairs for specific purposes.
However, the measure doesn't apply in fairs in Los Angeles,
which houses the Los Angeles County Fair held in the City of
Pomona, the 48th District Agricultural Association fair held in
the City of Industry, and the 51st District Agricultural
Association fair held in the City of San Fernando. Another fair
operates in Antelope Valley. The justification for excluding
Los Angeles is unclear.
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4. Application . Under AB 2678, 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. While
not administratively difficult, the measure would apply to more
than just sales at fairs. For example, California Exposition
and State Fair (Cal Expo) also hosts Sacramento Republic soccer
games and other events at 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. In addition to fairs, these properties host many other
events of temporary duration, such as 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, plus corporate events, private
dinner parties, and wedding receptions. The bill's requirements
would apply to retailers making sales during these events too.
5. Who enforces ? AB 2678 sets forth a list of working
conditions that a state-designated fair must meet to qualify for
funding under the measure. However, it isn't clear how the
Secretary will know whether the fair complies with these
specific requirements, or whether funds will be recaptured if a
fair meets the requirements at the time funds are allocated, but
falls out of compliance after that time.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Agriculture 7-0
Assembly Appropriations 14-0
Assembly Floor 75-2
Support and
Opposition (6/16/16)
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Support : Alameda County Fair; Amador County Fair; Butte County
Fair; Calaveras County Fair and Jumping Frog Jubilee; California
Fair Network; California Mid-State Fair; California Mid-Winter
Fair and Fiesta; California State Association of Counties;
Cloverdale Citrus Fruit Fair; Contra Costa County Fair; Del Mar
Fairgrounds/Racetrack; Del Norte County Fair; Desert Empire
Fair; Dixon May Fair; Earl Warren Showgrounds; El Dorado County
Fair; Fiona Ma, CPA, California State Board of Equalization,
Member; Glenn County Fair; Gold Country Fair; Humboldt County
Fair; Kern County Fair; Kings Fair; Lake County Fair; Lake
Perris Fairgrounds; Lassen County Fair; Lodi Grape Festival;
Mariposa Fair; Mendocino County Fair; Merced County Fair;
Monterey County Fair; Mother Lode Fair; Napa County Fairgrounds;
Napa Valley Exposition; National Wine Show Association; Nevada
County Fairgrounds; Placer County Fair; Plumas-Sierra County
Fair; Redwood Empire Fair; Rural County Representatives of
California; Salinas Valley Fair; San Benito County Fair; Santa
Barbara; Santa Clara County Fair; Santa Cruz County Fairgrounds;
Schools' Agriculture and Nutrition Program; Shasta District
Fair; Silver Dollar Fair; Siskiyou Golden Fairground; Solano
County Fair; Sonoma County Fair and Event Center; Sonoma-Marin
Fairgrounds and Event Center; Southern California Fair and
Events Center; Trinity County Fair Association; Tulelake-Butte
Valley Fair; Ventura County Fair; Western Fairs Association
Service Member Board; Yolo County Fair; Yolo County Farm Bureau;
Yuba-Sutter Fair.
Opposition : Unknown.
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