BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 598 |Hearing | 4/8/15 |
| | |Date: | |
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|Author: |Hill |Tax Levy: |Yes |
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|Version: |2/27/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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SALES AND USE TAXES: CONSUMER DESIGNATION: ALL VOLUNTEER
FIRE DEPARTMENTt
Designates volunteer fire departments as consumers for the Sales
and Use Tax.
Background and Existing Law
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
consumer at purchase. Sales tax applies whenever a retail sale
is made, unless it is a resale in the regular course of
business. The Legislature added the use tax in 1935 in response
to complaints from in-state retailers that California residents
would evade the sales tax it enacted in 1933 by purchasing
property out-of-state, but use it here.
Generally, retailers must obtain a seller's permit, and report
to Board of Equalization (BOE) any sales tax collected from
purchasers quarterly on a return. Nonprofits, public agencies,
and charities are generally treated the same way as any other
retailer, and don't have blanket exemptions from collecting and
remitting the tax, unless otherwise exempted. However, state
law designates certain sellers as "consumers," meaning that the
law considers the tax paid when they purchase property, and the
seller neither obtains a permit, nor collects the tax from the
SB 598 (Hill) 2/27/15 Page 2
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purchaser at sale before remitting to BOE.
"Consumers" include:
Licensed medical and veterinary professionals dispensing
specified products during the course of performing
professional services,
Qualified itinerant vendors,
The Department of Transportation's leases and sales of
automobiles, and
Nonprofit organizations that intermittently or
irregularly sell food, nonalcoholic beverages, and other
property made by the organization's members.
Many parts of California rely on volunteer fire departments to
provide fire prevention and emergency response, especially in
rural areas. These departments are mostly comprised of
residents who voluntarily band together to provide these vital
public services, and many have grown over time into present day
fire districts. A volunteer fire department is currently
eligible for the welfare exemption from property tax for
property it owns that's used for departmental purposes. While
some districts are funded and overseen by counties, many
districts must solicit donations and sell items at fundraisers.
However, selling property in California requires registering
with BOE, and collecting and remitting a tax, which can be a
burden for districts that must provide services with less
administrative support than larger agencies. Formed in 1950,
the La Honda Volunteer Fire Brigade wants volunteer fire
departments added to the list of "consumers," thereby removing
requirements the Sales and Use Tax Law places on retailers.
Proposed Law
Senate Bill 598 designates volunteer fire departments as
consumers under the Sales and Use Tax Law for all its sales of
tangible personal property, so long as its profits are solely
and exclusively used to further the department's purposes. To
qualify, a volunteer fire department must:
Pay its members hourly or per incident, not with a
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regular salary,
Have as its purpose the protection of life, property,
and the environment within a designated geographic area
from fires, disasters, and emergency incidents through
education, prevention, training, and emergency response,
Be organized as a tax exempt organization for state and
federal purposes, and
Meet the definition of "volunteer fire department," used
in the welfare exemption from property tax.
State Revenue Impact
According to BOE, SB 598 results in annual state and local sales
and use tax revenue losses of $42,000.
Comments
1. Purpose of the bill . According to the author, "SB 598 is the
winner of my annual 'Ought to Be a Law Contest' winner. All
volunteer fire departments across the state solely rely on
fundraisers to buy lifesaving equipment. The La Honda Fire
Brigade in my district is no different. Their livelihood relies
exclusively on volunteers, from the 14 individuals who serve as
firefighters, to the board members who organize fundraising
efforts like the annual pancake breakfast and crab cioppino
dinner. Unfortunately any fundraisers dealing with selling
hot/prepared food or tangible goods are subject to California
sales tax. SB 598 would simply exempt All-volunteer fire
departments from having to pay sales tax on their fundraising
efforts. All of the money raised would be able to stay with
them. If they are able to raise $1000 at a pancake breakfast -
they will keep the full $1000 and not have to send $92.50 (San
Mateo County has a sales tax rate of 9.25%) to the State.
Everyday these volunteers put their lives on the line and
provide an important resource to the communities they serve. We
should help them any way we can and allowing them to keep all of
their fundraising dollars is an important first step."
2. Why not us ? The Sales and Use Tax Law generally applies
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equal treatment regardless of whether a public or private entity
buys or sells property, and applies its standards to all
retailers regardless of its size. Collecting and remitting the
tax is a burden, but it's necessary to ensure adequate funding
of public services, and promote equity between competitors.
While volunteer fire districts argue that complying with current
requirements diverts funds for better uses, the same could be
said for many other organizations. The Committee may wish to
consider which characteristics, such as size, charitable
purpose, or administrative burden, should qualify an
organization for relief from the collection and remission
requirements.
3. How does this work ? Currently, a volunteer fire department
must obtain a seller's permit from BOE if it wants to sell items
at a fundraiser, and can also obtain a resale certificate. If
the department wants to hold a barbeque fundraiser, it would
show the resale certificate to the supplier when purchasing hot
dogs and hamburgers, and the supplier wouldn't charge the
department the sales tax at purchase. When the department sold
the food at the fundraiser, it would collect from the purchaser
an amount of tax equal to the combined state and local rate for
that jurisdiction times the purchase price, and remit the total
tax amount from all its sales to BOE. The department would have
to collect and remit the tax even if someone donated the hot
dogs and hamburgers. Under SB 598, the department would pay the
supplier the tax instead, and need not collect and remit tax
from its sales at the barbeque fundraiser.
4. Be careful . SB 598's consumer status for volunteer fire
districts is likely appropriate for small departments, but not
for larger, more sophisticated agencies selling more valuable
items, who can more easily comply with collections requirements.
Additionally, it's sensible to relieve a collection burden for
the district conducting occasional fundraiser, but selling
larger items like fire trucks tax free could give rise to tax
avoidance. The Committee may wish to consider placing an annual
cap on the gross receipts of sales of property a volunteer fire
department can have in a year to maintain consumer status.
5. Sunset ? California tax law contains many specific
provisions for specified groups or individuals, and the
Legislature can generally enact them by majority vote of both
houses; however, should a future Legislature wish to limit or
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repeal any of these laws, Section Three of Article XIIIA of the
California Constitution generally requires a 2/3 vote. One way
to compel an assessment in the future of SB 598's effects is to
insert a sunset provision, which repeals the law at a specified
future date. Those seeking to extend the law will have to
convince a future Legislature to extend the provision using
information gathered during the bill's effective period. The
Committee may wish to consider inserting a sunset provision into
SB 598.
Support and
Opposition (4/2/15)
Support : County of San Mateo, La Honda Volunteer Fire Brigade.
Opposition : Unknown.
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