BILL ANALYSIS
SUSPENSE - VOTE ONLY
SENATE REVENUE & TAXATION COMMITTEE
Senator Michael J. Machado, Chair
AB 2533 - Leno
Amended: April 17, 2006
Hearing: June 28, 2006 Tax Levy Fiscal: Yes
SUBJECT: Expands the sales and use tax exemption for
original works of art under specific
circumstances.
EXISTING LAW
Provides an exemption for sales of original works of art
which are purchased by:
A governmental entity or any nonprofit organization
operating a museum under contract for a governmental
entity.
A nonprofit organization, qualified for exemption
from state income tax that purchased the work of art
for display in a museum open to the public, as
specified, either operated by the purchaser or another
nonprofit organization qualified for exemption.
Any person donating to the above governmental
entity or nonprofit organizations. The transfer must
occur and be documented as specified.
In general, the exemption provided to the above described
governmental entity or nonprofit organizations, applies
only to original works of art which are purchased to become
part of the permanent collection of either a museum, a
qualified nonprofit organization that is required to loan
out its art for display to museums, or a governmental
entity which purchases or commissions art for display in
public places.
AB 2533-Leno
Page 3
Exempts purchases of museum pieces only for:
San Diego Aero-Space Museum
California Science Center
Purchases of display pieces replaced due to
destruction by calamity
Defines original works of art by the BOE as: "tangible
personal property which has been created as a unique object
intended to provide aesthetic pleasure to the beholder
and/or to express the emotions of the artist." The form of
this art includes but is not limited to: visual art, a work
of calligraphy, a work of graphic art, crafts, or mixed
media.
THIS BILL
Exempts from the sales and use tax the lease of original
works of art, if both the lessor and lessee are nonprofit
organizations qualified for exemption from state income
tax. Provides that in order for the art collection to be
considered part of the permanent collection of the lessee
the lease term must be at least 35 years.
Provides that the exemption would apply to works of art
that are purchased and become part of the permanent
collection of a governmental entity that leases from
another governmental entity art for public display.
Clarifies that purchases of clothing, costumes, dresses,
and personal adornment that are works of art and would be
exempt from tax.
FISCAL EFFECT:
The BOE only estimates the revenue loss for one location
AB 2533-Leno
Page 3
pursuant to an agreement. The following is the estimate
for the city and county of San Francisco. As noted below,
the revenue loss would grow due to expected contracts in
other cities and counties.
$3.5 million x 8.5% Tax Rate in San Francisco County =
$297,500
--------------------------
| |Revenue | |
| |Loss | |
| | | |
| | | |
| | | |
|-------+----------+-------|
|Year 1 | $ | |
| | 38,250 | |
| | | |
|-------+----------+-------|
|Year 2 | | |
| | 29,750 | |
| | | |
|-------+----------+-------|
|Year 3 | | |
| | 25,500 | |
| | | |
|-------+----------+-------|
|Year | |each |
|4-15 | 17,000 |year |
| | | |
|-------+----------+-------|
| | $ | |
| |297,500 | |
| | | |
--------------------------
One of the stated goals of the agreement in the above
example is to establish a model for future lease
agreements. It is reasonable to assume that future revenue
impacts would be based on each specific lease agreement.
Therefore, it is difficult to estimate with any certainty,
the revenue impact of future agreements of this kind.
COMMENTS:
AB 2533-Leno
Page 3
A. Purpose of the bill
The sponsor of the amendment is the California Historical
Society. The purpose of this measure is to allow leases of
works of art, including dresses and costumes, between
certain nonprofit organizations to be exempt from tax. The
leases will be based on a collection sharing agreement, of
not less than 35 years, that allows museums to share parts
of their art collections that may not be on display, due to
the size of the museum, type of collection, or for other
reasons, and share them with museums with larger space or
similar collections. Structured as a lease, these sharing
agreements allow the nonprofit organizations to retain
title to their pieces while generating funds to support
other exhibits and programs, provide continuing educational
material, and enhance the overall enjoyment and
appreciation of art.
B.What transactions are currently exempt?
The Board has made previous determinations regarding what
constitutes a work of art. One annotation suggests that a
utilitarian object, such as a dress, could be considered to
be a work of art if it is an original work designed to have
significant artistic value. It must be hand-crafted by, or
under the direction of, an artist or master craftsman,
rather than mass produced. If the aesthetic value of the
dress is greater than the practical value, then it may be
considered a work of art due to its uniqueness and extra
effort to "provide aesthetic pleasure to the beholder
and/or to express the emotions of the artist."
Additionally, the Board has decided that tangible personal
property used by an artist in an "assemblage" was
considered to be "mixed media," and exempt as an original
work of art. Depending on the exhibit, it is possible for
a dress to be exempt if part of an assemblage. According
to the sponsor of this bill, most of the pieces involved in
the collection sharing agreement are from the 19th and
early 20th century.
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C.Clothing that has historical value.
A lease or purchase of historical clothing that has
historical value may still not be exempt from the Sales and
Use Tax Law. The exemption provided by section 6365 is
intended to cover a work of art and is not a blanket
coverage of all items purchased or leased by a museum. In
other words, any dress, costume, or clothing must first
meet the definition of an original work of art.
Support and Opposition
Support:California Historical Society
California Association of Museums
---------------------------------
Consultant: Colin Grinnell
06/27/06 10:06