BILL ANALYSIS
AB 659
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Date of Hearing: May 4, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 659 (Hayashi) - As Introduced: February 25, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: consumer: garment cleaner
SUMMARY : Provides that specified garment cleaning businesses
shall be regarded as consumers, rather than retailers, of
tangible personal property (TPP) they sell, provided those sales
do not exceed 0.5% of their total gross receipts for the
preceding calendar year. Specifically, this bill :
1) Designates any person who received no more than 0.5% of
his/her total gross receipts from the sale of TPP during
the preceding calendar year as a consumer, rather than a
retailer, with respect to those sales, provided both of the
following conditions are met:
a) That person operates one or more locations as a pickup
and delivery point for garment cleaning, or provides
spotting and pressing services on the premises but not
garment cleaning, or operates a garment cleaning or dyeing
plant on the premises; and,
b) 75% or more of that person's total gross receipts
represent charges for garment cleaning or dyeing services.
1) Provides that sales tax shall not apply to sales of TPP
when those sales do not exceed the 0.5% limitation set
forth above. However, if a person's TPP sales exceed 0.5%
of his/her total gross receipts during the preceding
calendar year, that person is a retailer of TPP and sales
tax shall apply to the gross receipts from those sales.
2) Provides that, notwithstanding existing law, the state
shall not reimburse any local agency for sales and use tax
revenues lost as a result of this bill.
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3) Takes immediate effect as a tax levy, but only becomes
operative on the first day of the first calendar quarter
beginning more than 90 days after its effective date.
EXISTING LAW :
1) Imposes a sales tax on retailers for the privilege of
selling TPP, absent a specific exemption. The tax is based
upon the gross receipts from sales of TPP in this state.
2) Designates any person who received 20% or less of
his/her total gross receipts from the alteration of
garments during the preceding calendar year as a consumer
of property the person uses in altering new or used
clothing, provided both of the following conditions are
met:
a) That person operates one or more locations as a pickup
and delivery point for garment cleaning, or provides
spotting and pressing services on the premises but not
garment cleaning, or operates a garment cleaning or dyeing
plant on the premises; and,
b) 75% or more of that person's total gross receipts
represent charges for garment cleaning or dyeing services.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
this bill would reduce revenues by $12,257 per year.
COMMENTS :
1) The author states, "This bill is a fiscally responsible
measure. Under current law, it would cost the state more
to enforce this tax than it would actually receive in
revenues. AB 659 relieves small, family-run businesses of
the burden of tracking the number of collar stays and lint
brushes they sell. And AB 659 relieves the state of the
administrative burden of tracking sales taxes on these
small, inexpensive items."
2) Proponents state, "The passage of AB 659 will
tremendously assist dry cleaners in that they will be
relieved of a potential financial and administrative
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burden. Without bill AB 659 dry cleaners are sure to fall
prey to an unrealistic economic policy or regulation. It
would be ridiculous as well as burdensome for a sales tax
to be imposed on such sales transactions as lint rollers
and collar stays because the sale of such items composes a
tiny portion of profits. As you may know, most of the time
those items are given to customers as promotional gifts.
Please understand that dry cleaners would prefer not to
sell or carry those items if it meant that they would have
to pay sales tax and track all transactions for tax
purposes."
1) BOE, which is sponsoring this bill, states:
a) "This bill is sponsored by the Board in order to relieve
dry cleaning establishments from the burdensome and
time-consuming task of maintaining records and filing sales
tax returns for negligible sales of tangible items. Some
dry cleaners make incidental sales of items such as lint
brushes and collar stays simply as a matter of convenience
to customers with very little profit margin, and the burden
associated with complying with the tax law far outweighs
the economic benefit to California."
b) "The bill stems from the Board's education outreach
efforts wherein staff contacted operators of dry-cleaning
establishments to verify that the operators held a
California seller's permit when their clothes cleaning and
alteration operations were such that a permit was required.
In response, representatives from the industry expressed
their understanding that dry cleaners are not required to
hold seller's permits because they provide services and are
consumers of products they use in their clothes cleaning
and alteration activities. Consequently, even though a
small percentage of these establishments make infrequent
sales of inexpensive items, such as lint brushes and collar
stays as a matter of convenience to customers with little
markup, some of the establishments were unaware of their
tax reporting obligations."
c) "The Legislature has recognized the uniqueness of dry
cleaning establishments. Through enactment of a 1983
measure specifically directed towards dry cleaning
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establishments and their charges for alterations (AB 1997,
Stats. 1983, Ch. 605), the Legislature recognized the need
for special tax treatment for this industry. It recognized
that these are traditionally service establishments, rather
than retail outlets, and that most are small businesses
where sales tax compliance costs and necessary
recordkeeping are unduly burdensome. Enactment of this
measure would further support this concept by simply
classifying these establishments as consumers of any
incidental sales of tangible property they make, provided
they do not exceed the limitations set forth in the bill.
As consumers, the dry cleaning establishments would be
required to pay tax on their purchases of any tangible
personal property sold, and the subsequent sales of these
items would be excludable from tax."
1) Committee Staff Comments:
a) This bill's purpose : BOE has sponsored this bill to
relieve garment cleaning businesses from the administrative
hassle of tracking incidental sales of TPP. As long as a
business' TPP sales account for no more than 0.5% of its
total gross receipts, the business shall be considered a
consumer, and not a retailer, of that property. BOE notes
that this bill would eliminate the need to register
hundreds of dry cleaning establishments that sell TPP, but
are currently not registered. As such, BOE estimates that
workload savings would likely more than offset the $12,257
revenue loss estimated for this bill.
b) A precedent for future legislation? : Committee staff
question whether this bill might inadvertently establish a
precedent for future bills. Indeed, there are a number of
businesses in California that receive revenues from both
taxable TPP sales and non-taxable services. Should these
businesses also be considered consumers of TPP they sell,
if those sales are deemed "incidental" in nature? As
California's economy continues to shift toward the
service-sector, might this lead to an erosion of the sales
tax base upon which this state relies for revenues?
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c) What if TPP sales account for 0.6% of a business' gross
receipts? : This bill provides that, if a business' sales
of TPP exceed 0.5% of its total gross receipts, that
business "is a retailer of the [TPP] and sales tax shall
apply to the gross receipts from those sales." Committee
staff understand this to mean that the business shall be
considered a retailer with respect to all sales of
incidental TPP and not just those above and beyond the 0.5%
threshold.
d) Technical amendments : Committee staff recommend the
following technical amendments:
i) On page 2, line 3, replace "receives" with
"received";
ii) On page 2, line 5, replace "receives" with
"received";
iii) On page 2, line 11, delete "those sales of tangible
personal property" and replace with "the tangible
personal property so sold"; and,
iv) On page 3, line 4, replace "exceeds" with "exceed".
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization (sponsor)
Board of Equalization Member Michelle Steel
Korean Drycleaners Association of Northern California (on its
own behalf and on behalf of 108 businesses)
Korean Drycleaners-Laundry Association (on its own behalf and on
behalf of 235 businesses)
San Diego Drycleaners Association (on behalf of 2 businesses)
Opposition
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None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098