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 ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: May 4, 2016 |Policy Vote: GOV. & F. 6 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: May 16, 2016 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- 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. SB 1210 (Gaines) Page 1 of ? 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 SB 1210 (Gaines) Page 2 of ? 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. SB 1210 (Gaines) Page 3 of ? -- END --