BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 120 (Anderson) - Sales and use taxes:  exclusion:  public  
          safety first responder vehicle and equipment
          
           ----------------------------------------------------------------- 
          |                                                                 |
          |                                                                 |
          |                                                                 |
           ----------------------------------------------------------------- 
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Version: May 6, 2015            |Policy Vote: GOV. & F. 6 - 0    |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Urgency: No                     |Mandate: No                     |
          |                                |                                |
          |--------------------------------+--------------------------------|
          |                                |                                |
          |Hearing Date: May 18, 2015      |Consultant: Robert Ingenito     |
          |                                |                                |
           ----------------------------------------------------------------- 


          This bill meets the criteria for referral to the Suspense File.




          Bill  
          Summary: SB 120 would provide a sales and use tax (SUT)  
          exemption for the sale of (1) public safety first responder  
          vehicles, and (2) any required equipment on those vehicles, in  
          excess of $300,000 when purchased by a local public agency.


          Fiscal  
          Impact:  The Board of Equalization (BOE) estimates that the bill  
          would result in an annual revenue loss of $2.95 million, $1.38  
          million of which would be General Fund. BOE's would incur minor  
          administration costs to notify retailers, audit claimed  
          exclusions, and answer inquiries from taxpayers and the general  
          public.


          Background: The SUT is a tax on final sales of tangible personal property,  







          SB 120 (Anderson)                                      Page 1 of  
          ?
          
          
          such as clothing, household furnishings, appliances, and motor  
          vehicles. Intermediate sales of goods (from a wholesaler to a  
          retailer, for example) are not taxed, and in addition, certain  
          individual items are specifically exempted from the SUT. The  
          largest of these tax expenditure programs (TEPs) involve  
          home-consumed food, utilities, prescription medicines,  
          manufacturing equipment, and a variety of agricultural-related  
          goods. California's state-level SUT was established in the 1930s  
          and its local SUT in 1955.
          SUT rates in California differ by county and locality, and range  
          from 7.50 percent to 10.00 percent, depending on whether  
          optional taxes are levied. The current statewide SUT rate is  
          8.42 percent (weighted by sales). This includes:


                 A state rate of 6.50 percent-3.9375 percent for the  
               General Fund, 2.0625 percent for specified local purposes,  
               0.25 percent for schools and community college funding, and  
               0.25 percent to pay off the deficit-financing bonds.


                 A weighted average local rate of 1.88 percent, including  
               0.75 percent for general purposes, 0.25 percent for county  
               transportation purposes, and the remaining 0.92 percent  
               from optional SUTs largely used for transportation.




          Proposed Law:  
          This bill would exempt from the SUT purchases in excess of  
          $300,000 of public safety first responder vehicles, and any  
          required equipment on those vehicles, purchased by a local  
          public agency, as defined.


          Related  
          Legislation: SB 1367 (Anderson, 2014) contained similar  
          provisions to this bill, but did not include the $300,000  
          threshold. The bill failed passage in the Senate Governance and  
          Finance Committee.


          Staff  








          SB 120 (Anderson)                                      Page 2 of  
          ?
          
          
          Comments: Data from the State Controller's Annual Reports  
          indicate that local governments spend an estimated $7 billion  
          annually on fire protection. BOE staff was not able to determine  
          the distribution of spending at the local level. The ratio of  
          fire vehicle and equipment expenditures to the overall fire  
          protection expenditures is about one percent. Assuming that this  
          is reflective of all cities, counties and fire districts in the  
          State, annual statewide first responder vehicle and equipment  
          expenditures would be $70 million. BOE assumed that the average  
          price of a vehicle with auxiliary equipment is $600,000,  
          implying that the average exemption would be $300,000 ($600,000  
          less $300,000). As an order of magnitude, purchases of $300,000  
          and above were estimated to represent half the total  
          expenditures. Hence, estimated purchases exempted under this  
          bill totaled $35 million. Using the current average sales and  
          use tax rate of 8.42 percent, annual revenue loss totaled $2.95  
          million. This measure would not reimburse local governments its  
          portion of sales tax loss.
          Staff notes that the BOE revenue estimate assumes continuation  
          of the quarter-cent SUT increase that was approved by voters as  
          part of Proposition 30. Under current law, this increase will  
          expire at the end of 2016. Assuming the expiration of the  
          temporary tax, the total revenue loss associated with this bill  
          would be $2.86 million. Additionally, BOE's estimate does not  
          assume growth (either in price or quantity of vehicles) in the  
          out-years, which suggests that BOE's revenue estimate could be  
          somewhat understated. 




                                      -- END --