BILL NUMBER: SB 1445	INTRODUCED
	BILL TEXT


INTRODUCED BY   Senator Hertzberg

                        FEBRUARY 19, 2016

   An act to add Chapter 3.8 (commencing with Section 6305) to Part 1
of Division 2 of the Revenue and Taxation Code, relating to
taxation.



	LEGISLATIVE COUNSEL'S DIGEST


   SB 1445, as introduced, Hertzberg. Taxation.
   The Sales and Use Tax Law imposes a tax on retailers measured by
the gross receipts from the sale of tangible personal property sold
at retail in this state, or on the storage, use, or other consumption
in this state of tangible personal property purchased from a
retailer for storage, use, or other consumption in this state.
   This bill would state legislative findings regarding California's
tax climate and would state that the intent of the bill is to make 3
changes to the taxation within the state, including broadening the
tax base by imposing a modest sales tax on services. This bill would
also establish the Retail Sales Tax on Services Fund in the State
Treasury and state the intent of the Legislature that moneys in the
fund would be appropriated to, among other things, provide tax relief
to middle- and low-income Californians to offset the effect of a
sales tax on services, among other purposes.
   Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  The Legislature finds and declares all of the
following:
   (a) California has long been known as the land of opportunity, but
for many of its residents the future is receding. Inequality
continues to rise -- even though California has one of the most
progressive tax structures in the nation. Protecting middle class
Californians is critical to our future.
   (b) California's tax collections are heavily dependent on the
income of its top earners. This has led to dramatic revenue swings
year over year. During the dot-com economic boom of the 1990s through
the early part of the 21st century, state revenues soared by as much
as 20 percent in a single year only to fall precipitously during the
dot-com bust. More recently, when the great recession hit, a 3.6
percent decline in California's economy resulted in a 23 percent
plunge in General Fund revenues which resulted in a loss of over $20
billion annually to the General Fund.
   (c) This revenue instability has caused California's residents to
suffer. Essential services, including health care and child care for
families, were cut at a time when they were needed most. In addition,
the state cut billions of dollars to education, including adult
education, which could have helped families recover from the
recession. Relying on this outdated system to support California's
needs is dangerous fiscal policy.
   (d) An underlying problem is that, while California's economy has
evolved, its tax system has failed to keep up with the times. Over
the past 60 years, California has moved from an agriculture- and
manufacturing-based economy to a service-based economy. As a result,
state tax revenues have become less reliant on revenues derived from
the Sales and Use Tax on goods and more reliant on revenues derived
from the Personal Income Tax. In 1950, the Sales and Use Tax
comprised 61 percent of state General Fund revenues; today, it
accounts for about 30 percent. The Personal Income Tax accounted for
12 percent of the General Fund in 1950; today, it accounts for almost
70 percent.
   (e) It is the intent of this act to:
   (1) Increase opportunities for California residents and businesses
and promote upward mobility for Californians with middle class tax
relief, more stable education and higher education systems, and new
jobs through business growth.
   (2) Realign the state's outdated tax code with the realities of
California's 21st century economy.
   (3) Substitute a new, revenue neutral personal income tax
structure for the existing structure.
   (4) Ensure that out-of-state corporations that do business in
California contribute their fair share to California's economy.
   (f) The intent of this act is to make three broad changes to the
tax code:
   (1) Provide tax relief to middle- and low-income Californians
while simplifying the personal income tax and maintaining
progressivity and also mitigating the reliance on top income earners,
which currently contributes to revenue instability.
   (2) Broaden the tax base by imposing a modest sales tax on
services. These changes would more fairly apportion taxes between
goods and services and would produce more stable revenues. Local
jurisdictions would not be authorized to increase sales tax on
services, as they now can do with the sales tax on goods. Health care
services, education services, child care, rent, interest, and
services represented by very small businesses would be exempted from
the sales tax on services, and offsetting tax relief would be
provided to middle- and low-income California families.
   (3) Enhance the state's business climate and incentivize
entrepreneurship and business creation by lowering the corporate
income tax on small businesses, exempting very small businesses from
the sales tax on services, and significantly reducing the minimum
franchise tax.
  SEC. 2.  Chapter 3.8 (commencing with Section 6305) is added to
Part 1 of Division 2 of the Revenue and Taxation Code, to read:
      CHAPTER 3.8.  RETAIL SALES TAX ON SERVICES FUND


   6305.  (a) The Retail Sales Tax on Services Fund is hereby created
in the State Treasury.
   (b) All amounts of tax required to be paid to the state under this
chapter shall be paid to the board in the form of remittances
payable to the board. The board shall transmit the payments, less
refunds and costs of administration, to the Treasurer to be deposited
into the Retail Sales Tax on Services Fund.
   (c) It is the intent of this act that the moneys in the fund would
be appropriated to:
   (1)  Provide tax relief to middle- and low-income Californians to
offset the effect of the sales tax on services.
   (2) Assist in securing greater stability for California's
infrastructure, its workforce, and its health care and education
systems, including higher education.
   (3) Enhance California's business climate and incentivize and
protect small businesses.