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 --