BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 640 |Hearing |4/15/15 |
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|Author: |Beall |Tax Levy: |No |
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|Version: |2/27/15 |Fiscal: |Yes |
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|Consultant|Bouaziz |
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SALES AND USE TAXES: CLAIM FOR REFUND: CUSTOMER REFUND
Authorizes a person to irrevocably assign to a customer the
right to file for and receive a refund under the Sales and Use
Tax.
Background and Existing Law
State law imposes a sales tax on retailers for the privilege of
selling tangible personal property, absent a specific exemption.
The tax is based upon the retailer's gross receipts from sales
in this state. The Board of Equalization (BOE) must credit
against any other amounts due from the person from whom the
excess amount was collected or, by whom it was paid.
When a customer remits sales tax to a retailer, but the
transaction is either not taxable or is in excess of the taxable
amount, the retailer must return the amount paid to the customer
or remit it to the state. The customer cannot obtain a refund
directly from BOE.
Proposed Law
Senate Bill 640 authorizes a person to irrevocably assign a
customer the right to file a claim for and receive a refund
under the Sales and Use Tax law. A retailer may make an
irrevocable election to assign a customer the right to file for
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and receive the refund if all of the following conditions are
met:
The amount is in excess of the actual tax owed.
An irrevocable election to assign to the customer the
ability to file for and receive a refund, memorialized in a
signed statement.
A signed statement is submitted to BOE in conjunction
with the customer's claim for refund.
The amount refunded is $50,000 or greater.
State Revenue Impact
According to the BOE, the impact is indeterminable. To the
extent that additional claims involving excess sales tax
reimbursement would be filed, this could result in a state and
local revenue loss.
Comments
1. Purpose of the bill. According to the author, "SB 640 would
streamline the process by which a customer files for and
receives a refund of excess sales tax from the Board of
Equalization (BOE). Currently, the Revenue and Taxation Code
requires the BOE to refund any overpayment of use tax directly
to the purchaser, even though the retailer collected and
remitted the tax. This process is different for excess sales
tax reimbursement. Current statute requires the BOE to refund
excess sales tax only to the retailer that collected and
reported the tax. This creates a situation where the retailer
serves as the middleman between customers and the BOE.
Unfortunately, customers who are rightfully owed a sales tax
refund are not able to access it if the retailer is not willing
or able to file a claim for the refund on their behalf.
Additionally, there have been instances where customers were not
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given the refunds once the retailer received them from the BOE.
SB 640 would allow, under limited circumstances, a retailer to
assign to a customer the right to access their sales tax refund
directly from the BOE. This would shorten the refund process by
approximately two to three months and eliminate processing by
the retailer as the middleman. This bill will enable customers
to receive refunds in a more expeditious fashion and ease the
workload of certain retailers who will no longer be required to
issue refund checks themselves, nor file a claim for refund on
the customer's behalf. SB 640 is a common sense measure that
increases government efficiency and gets California businesses
the money they are owed in a timely manner."
2. Contingency fees. This bill sets up a refund mechanism for
customers who are due large sales tax refunds. There is no
question that BOE should refund amounts, and the bill ensures
direct and expedited refunds to these customers. However,
authorizing a customer the right to file for and collect the tax
directly may have unintended consequences. Much like the
cottage industry that emerged in connection with enterprise zone
tax credits, whereby a third-party received a large portion of
the credit for filing amended tax returns on contingency for the
work done, a similar industry may emerge in connection with
filing a claim for a sales tax refunds.
3. Third time's a charm. In 2013, AB 1412 (Bocanegra, Gatto),
as amended May 24, 2013, would have authorized a retailer to
make an irrevocable election to assign the right to receive a
refund payment of excess tax reimbursement of $50,000 or more to
a single customer. The bill was amended in this Committee to
prohibit contingency fees that are charged or paid in connection
with the election, assignment, or claim for refund relating to
an irrevocable election to assign the right to receive a
specified refund. The bill unanimously passed out of this
Committee, but on September 6, 2013, AB 1412 was gutted and
amended with provisions related to personal income taxation.
In 2014, AB 43 (Bocanegra) passed out of the Assembly and the
Senate Governance and Finance Committee unanimously. The bill
was amended on August 5, 2014, to allow a retailer to assign the
right to file a claim for excess tax reimbursement of $50,000 or
more. The bill was held in the Senate Appropriations Committee.
SB 640 is largely identical to AB 43 (Bocanegra) as amended
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August 5, 2014. The bill permits a retailer to assign a
customer the right to both file a claim and directly receive a
tax reimbursement of $50,000 or more.
4. What about the little guys? SB 640 only applies to customers
entitled to refunds of $50,000 or more, so small businesses and
individual consumers would not be entitled to file a claim for
or receive refunds. Instead, businesses and individuals with
claims below $50,000 would continue to be required to request
that the retailer that incorrectly collected the sales tax file
a claim on their behalf, wait for the retailer to receive the
refund, and then wait for the retailer to refund the customer.
The Committee may wish to consider lowering or eliminating the
minimum threshold to allow more customers to directly receive
refunds entitled by law.
5. Let's get technical. The BOE has proposed the following
clarifying amendments:
On page 3, line 2, after "paid by the" add "single" and
after "person" add "that paid the tax"
On page 4, add new subdivision (e) after line 2 as
follows:
(e)(1) As used in this section, the "person that paid the tax"
means a single "person" as defined by Section 6005.
(2) As used in this section, a "customer" means a single
"person" as defined by Section 6005.
Support and
Opposition (4/9/15)
Support : California Chamber of Commerce; California
Manufacturers & Technology Association; California Retailers
Association; California Taxpayers Association; Ryan;
TechAmerica; TechNet.
Opposition : Unknown
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