BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 680 |Hearing | 5/6/15 |
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|Author: |Wieckowski |Tax Levy: |Yes |
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|Version: |2/27/15 |Fiscal: |Yes |
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|Consultant|Grinnell |
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SALES TAXES: EXEMPTIONS: MOTOR VEHICLES
Enacts a sales tax exemption for the sale of qualified vehicles
to out-of-state residents.
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, or otherwise exempt.
When a sale of taxable property occurs in California, the sales
tax applies regardless of whether the taxpayer lives in
California, or subsequently moves the property out of state,
with some exceptions, like sales of property to members of the
military or sales of airplanes to common carriers. Sales tax
also applies when the seller delivers the property in
California, regardless of whether the purchaser transports it
outside this state, and whether it's actually transported.
The sales tax doesn't apply when an in-state retailer sells an
item which is subsequently shipped and used outside the state
because federal and state law considers the taxpayer's use of
the item interstate commerce; however, the use tax in the
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destination state may apply. Taxpayers must ship the product
directly to the purchaser through its own delivery vehicle,
another means it owns, or through a common carrier to enjoy the
exemption. Additionally, California does not impose the sales
tax if title to the property sold passes to the purchaser at a
point outside this state, regardless of the extent of the
retailer's participation in California.
Proposed Law
Senate Bill 680 exempts from both state and local shares of the
sales tax purchases of new automobiles and accessories for
permanent use outside the state. To be eligible, the purchaser
must:
Move the vehicle out-of-state within 30 days,
Obtain from the Department of Motor Vehicles a one-trip
permit for driving or moving the vehicle to a point outside
the state,
Provide the purchaser with an exemption certificate,
The measure requires the exemption certificate to:
Identify the vehicle, seller, and purchaser,
State that the vehicle will be removed from the state
within 30 days of the date of purchase,
Provide that the vehicle will be licensed and registered
outside the state for permanent use there.
The measure defines its terms, including "qualified motor
vehicle" to apply solely to vehicles never before sold, which
would exclude most vehicles because dealers purchase them first
from manufacturers. The bill would take effect immediately as a
tax levy.
State Revenue Impact
Pending.
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Comments
1. Purpose of the bill . According to the author, "SB 680
encourages tourism and stimulates local economies in California
by providing an incentive to out-of-state purchasers of vehicles
produced in California. The bill exempts from sales tax the
purchase of a new vehicle purchased in the state by an
out-of-state purchaser if the purchaser moves the vehicle to a
permanent location outside of the state within 30 days, receives
a one-trip permit from the Department of Motor Vehicles, and
receives an exemption certificate from the Board of
Equalization. It is expected that that the addition of a
non-resident sales tax exemption would be revenue neutral to the
state. By implementing the exemption, the state could receive
an increase in revenue due to an increase in the number of
non-residents now willing to take delivery of their vehicles in
California, with those non-residents spending money on hotels,
restaurants, tourism, and other complementary goods."
2. Who benefits ? Any purchaser of a new automobile must pay
the sales tax regardless of where they live unless they take
delivery outside the state. State and local agencies use sales
tax revenues for general purposes, with at least 0.25 dedicated
to transportation purposes. Under SB 680, purchasers entering a
state to purchase a vehicle could do so tax-free, so long as
they supply information that states that the vehicle will be
moved out of state, and then licensed and registered in another
state. As such, a California resident would pay a tax on the
same transaction that a nonresident would not. While the
measure may draw additional sales to the state, it would result
in a revenue loss to the extent that nonresidents are currently
entering California to make these purchases. Additionally,
Tesla is the only company that's currently known to directly
sell vehicles it manufactures, and likely the only sales that
will qualify for the bill's exemption, so the tax benefit will
accrue to individuals who have sufficient income to purchase one
of their vehicles. However, SB 680 may be an appropriate tax
exemption to the extent that the purchaser doesn't use the
vehicle in California, and therefore doesn't create demands on
its transportation infrastructure.
3. Enforcement . A taxpayer purchasing a $60,000 automobile in
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California would normally pay a sales tax between $4,350 and
$6,150, depending on the local jurisdiction where the sales tax
takes place, plus registration fees. This amount is
sufficiently large to for taxpayers to want to avoid it,
although the measure requires the purchaser to supply documents
stating that the vehicle will be used and registered somewhere
else at the time of sale, the measure doesn't have any tangible
enforcement mechanisms to ensure that the purchaser doesn't
subsequently move the car back into California. Current law
requires individuals who accept employment in the state or
establish residency here to register their vehicles with DMV
within 20 days, and current law also requires anyone who doesn't
comply with the terms of an exemption certificate to pay the tax
as if they were the retailer; however, these requirements aren't
robustly enforced, and DMV may not tell BOE when they detect an
unregistered vehicle in California which SB 680 exempts from the
sales tax. The Committee may wish to consider additional
mechanisms to ensure SB 680 doesn't inadvertently lead to tax
evasion, with some options easy to implement, while others are
harder. A simple option would be to require purchasers to
provide an out-of-state driver's license. More difficult but
more robust options could limit certificates solely to
non-California residents who haven't filed a resident tax return
in the past year, either for the year the purchaser buys the
vehicle or annually by directing BOE to compare the names on SB
680 exemption certificates with resident tax returns filed with
the Franchise Tax Board. However, such a cross-checking
requirement would likely trigger implementation costs.
4. Generous . California has increased its tax incentives in
recent years in the hopes of increasing employment and economic
activity in the state. This measure's sponsor, Tesla, has been
the intended recipient of several other efforts, including:
In 2008, Governor Arnold Schwarzenegger and State
Treasurer Bill Lockyer announced that the California
Alternative Energy and Advanced Transportation Financing
Authority would use its existing authority to grant sales
and use tax exemption for normally taxable manufacturing
equipment purchased by Tesla Motors under a sale-leaseback
agreement.
The Legislature expanded the Capital Investment
Incentive Program to include North American Industrial
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Classification System Codes that would have included a
potential Tesla battery factory (AB 2389, Fox, 2014).
SB 1309 (Steinberg, 2014) contained legislative intent
for tax and other incentives for a Tesla battery factory,
but was not enacted. Tesla eventually chose Nevada for the
factory after the state offered $1.3 billion in incentives.
Additionally, the Legislature enacted two other tax measures
that will benefit firms chaired by Tesla CEO Elon Musk:
SB 871 (Committee on Budget and Fiscal Review) extended
the exemption from property tax for solar generation
technology until 2024-25, and
AB 777 (Muratsuchi) enacted a personal property tax
exemption for property used in space flight, which resulted
from the Los Angeles County Assessor's audit of SpaceX.
While SB 680 wouldn't directly reduce taxes for Tesla, it would
provide a significant tax benefit for its potential customers,
which could potentially increase sales for the firm.
5. Sales, not use . State law imposes the sales tax on every
retailer engaged in business in this state that sells tangible
personal property, but also applies the use tax whenever
taxpayers buy taxable property outside the state, but use it in
California. 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. The use tax has the same rate
and applies to the same property as the sales tax. While SB 680
only affects the sales tax, the Legislature has tightened use
tax provisions in recent years:
Extending the period from three months to one year after
purchase that a taxpayer must keep a yacht, plane, or
automobile outside the state use tax free (SBx3 8,
Committee on Budget and Fiscal Review, 2008).
Required businesses and persons with more than $100,000
and not otherwise registered with BOE to do so, and pay any
outstanding use tax (ABx4 18, Committee on Budget, 2009).
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Compelled specified retailers to collect the use tax
when making sales to California residents, the so-called
"Amazon" bill (AB 155, Calderon, 2012).
Support and Opposition 4/30/15
Support : Tesla.
Opposition : Unknown.
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