BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 1210 (Gaines) - Sales and use taxes:  exemption:  school  
          supplies
          
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          |Version: May 4, 2016            |Policy Vote: GOV. & F. 6 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 16, 2016      |Consultant: Robert Ingenito     |
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          This bill meets the criteria for referral to the Suspense File.




          


          Bill  
          Summary: SB 1210 would provide a partial sales and use tax (SUT)  
          exemption for clothing, footwear, school supplies, books,  
          computers, and educational software, subject to specified  
          limits, for two days each August.


          Fiscal  
          Impact: The Board of Equalization (BOE) indicates that this bill  
          would result in an annual General Fund revenue loss of $12  
          million. The agency would incur significant costs to administer  
          the partial SUT exemption (General Fund). These costs have yet  
          to be determined, but would reach at a minimum the hundreds of  
          thousands of dollars annually.







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          Background: Except where a specific exemption or exclusion is provided,  
          current law imposes the SUT on all retailers for the privilege  
          of selling tangible personal property (TPP) at retail in  
          California, or on the storage, use, or other consumption in this  
          state of TPP purchased from a retailer. 
          After the state collects SUT revenue ($48 billion in 2013-14),  
          it allocates the money to various state and local funds. Roughly  
          half-collected from an approximately 3.9 percent rate-goes to  
          the General Fund and can be spent on any state program, such as  
          education, health care, and criminal justice. Another 1.25  
          percent, known as the Bradley-Burns rate, goes to cities and  
          counties for general purposes. Three sales tax funds have  
          uniform state rates and support specified programs-an  
          approximately 1.1 percent rate for 2011 realignment  
          (county-administered criminal justice, mental health, and social  
          service programs); a 0.5 percent rate for 1991 realignment  
          (county-administered health and social services programs); and a  
          0.5 percent rate for city and county public safety programs  
          pursuant to Proposition 172 (1993). Additionally, some local  
          governments levy optional local rates-known as Transactions and  
          Use Taxes (TUTs)-and a small portion of these funds are used for  
          general purposes. As of January 1, 2017, the average statewide  
          SUT rate will be 8.21 percent.


          State law fully exempts many items from SUT (such as  
          prescription drugs, food, and poultry litter), while other items  
          are exempted from the state sales tax, but not the local share,  
          such as farm equipment and machinery, diesel fuel used for  
          farming and food processing, teleproduction and postproduction  
          equipment, timber harvesting equipment and machinery, and  
          racehorse breeding stock. Partial SUT exemptions are difficult  
          for both retailers and the BOE, and complicate return  
          preparation and processing. Moreover, errors attributable to  
          these partial exemptions occur frequently, resulting in  
          additional return processing workload for BOE.




          Proposed Law:  
          This bill would provide an annual two day partial "sales and use  








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          tax holiday" for back to school supplies. Specifically, the bill  
          would (1) provide a General Fund (3.9375 percent rate) SUT  
          exemption for the sale of, and the storage, use, or other  
          consumption in this state of clothing, footwear, specified  
          school supplies, books, computers, and educational computer  
          software, (2) require purchases to be made at the retailer's  
          physical place of business, and (3) apply to transaction  
          beginning at 12:01 a.m. on the second Saturday of August and  
          ending at 11:59 p.m. on the following day each year, beginning  
          in 2017.
          The bill would specify limits for each qualified TPP, which vary  
          by category. The clothing, footwear and books limit is $100. The  
          school supplies limit is $60. The initial $1,000 and $300 are  
          exempt for computers and educational software.




          Staff  
          Comments: The BOE revenue estimate primarily employs spending  
          data from the Census Bureau and the Bureau of Economic Analysis,  
          and excludes all electronic sales (internet), mail order, and  
          other direct selling. The figures are for the entire nation,  
          requiring BOE to assume a California share (12 percent,  
          proportional to population). Collectively, BOE assumes that  
          total annual sales of items impacted by the bill are estimated  
          to be $38 billion. BOE further assumes that two days of sales  
          (plus the impact of people timing their purchases to qualify for  
          the SUT exemption) total $313 million. At the General Fund SUT,  
          the estimated revenue loss would be $12 million.
          BOE notes that partial SUT exemptions complicate tax  
          administration. BOE would incur costs to notify affected  
          taxpayers, modify tax returns, revise regulations and pamphlets,  
          answer inquiries from industry and the public, program changes,  
          audit claimed amounts, revise sales tax returns, and review  
          returns with claimed exemptions. In addition, administrative  
          costs would also be incurred in computer programming, return  
          analysis, and return processing. These costs have yet to be  
          determined, but will reach at a minimum the hundreds of  
          thousands of dollars annually. 












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