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
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|Version: May 6, 2015 |Policy Vote: GOV. & F. 6 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 18, 2015 |Consultant: Robert Ingenito |
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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,
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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
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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.
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