BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 659
                                                                  Page  1

          Date of Hearing:   May 20, 2009

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Kevin De Leon, Chair

                    AB 659 (Hayashi) - As Amended:  May 11, 2009 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            8-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill provides that specified garment cleaning businesses  
          shall be regarded as consumers, rather than retailers, of  
          tangible personal property they sell, provided those sales do  
          not exceed 0.5% of their total gross receipts for the preceding  
          calendar year.    
           

          FISCAL EFFECT



              1)   The Board of Equalization (BOE) estimates that this bill  
               reduces revenues by $12,257 per year (about $8,000 GF).


             2)   Administrative savings to BOE, probably minor.
           COMMENTS   

              1)   Purpose  . This bill is sponsored by the Board of  
               Equalization, which states that the bill is intended 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."   
               The board also asserts that "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."









                                                                  AB 659
                                                                  Page  2


              2)   Background  . The California sales tax imposed on retail  
               sales of tangible personal property unless specifically  
               exempted. The tax is not normally applied to sales of  
               wholesalers to retailers, but rather is imposed on the  
               retailer at the point of final sale to its customers.  For  
               businesses where sales of tangible property are incidental  
               to their main line of business, the record-keeping  
               requirements associated with these negligible sales can be  
               burdensome.
            In recognition of the burdensome compliance costs for  
            incidental sales, current law allows about 15 different types  
            of businesses that have incidental sales to be treated as  
            consumers for purposes of sales tax obligations. As a result,  
            the purchases they make from the wholesalers are subject to  
            the sales tax, but they are no longer required to collect the  
            tax when they resale the products to their customers. The  
            benefit is that these businesses and the BOE avoid the  
            recordkeeping and auditing burdens on a negligible amount of  
            sales. The "cost" to the state is that it loses the sales tax  
            on the mark up between wholesale and retail price of the  
            products being sold.
          Analysis Prepared by:    Brad Williams / APPR. / (916) 319-2081