BILL ANALYSIS
AB 676
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Date of Hearing: May 28, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 676 (Jeffries) - As Amended: May 21, 2009
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill provides that qualified destination management
companies (DMCs) shall be regarded as consumers, rather than
retailers, of tangible personal property they sell.
Specifically, the bill:
1)Defines "destination management services" as the provision of
four or more of the following services: transportation,
entertainment, meals, recreational activities, tours,
registration, and staffing.
2)States that a DMC is not doing business as a caterer and does
not provide services for weddings.
3)Sunsets on January 1, 2015
FISCAL EFFECT
The Board of Equalization estimates that the bill will reduce
sales and use tax collections by $360,000 annually, of which
$250,000 would be from the GF and the balance would be from
special funds and local funds.
COMMENTS
1)Background - DMCs . . The Association of Destination Management
Executives (ADME) notes that a DMC is a professional services
company that specializes in the planning and implementation of
events, activities, and tours for travel agencies, corporate
clients and groups. These services include pre-program
planning and design, transportation services, arrangement of
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tours and activities and arrangement of events including theme
parties or awards dinners.
2)Background - sales and use taxes . The California sales tax is
imposed on retail sales of tangible personal property unless
specifically exempted. The tax is not normally applied to
intermediate sales of wholesalers to retailers, but rather is
imposed on the retailer at the point of final sale to its
customers.
Current law allows about 15 entities that purchase products
for resale to be designated as "consumers" and not retailers,
of tangible personal property that they purchase for resale.
These include optometrists, physicians, pharmacists,
veterinarians, and others where the sales are, to varying
degrees, incidental to their main businesses. For these
entities, sales taxes are due when they purchase the product
from the wholesaler, instead of when they resell the products
to their customers. The benefit is that these businesses and
the Board of Equalization avoid the recordkeeping and auditing
burdens on an incidental 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.
3)Purpose . The sponsor of the bill is the Association of
Destination Management Executives (ADME), which represents
DMCs. According to the sponsor, the true object of a DMC's
contract with its clients is services, and any tangible
personal property that is transferred to the client is
incidental to the provision of those services. As such, DMCs
want to be regarded as consumers, rather than retailers of any
transferred tangible personal property under the sales and use
tax law.
It should be noted, however, that the Board of Equalization
fiscal estimate assumes that 20% of DMC receipts are subject
to the sales and use tax - hardly an incidental amount. This
is considerably greater than other entities receiving or
seeking "consumer" status. For example, dry cleaners seeking
consumer status under AB 659 (Hayashi) would only qualify if
their sales of taxable items represented less than 0.5% of
their total receipts.
4)Fiscal pressure There are various types of businesses in
California that receive revenue from sales of both taxable
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items and non-taxable services. The question raised by this
bill - which provides "consumer" status to one type of
business - is whether other types businesses will also seek
"consumer" status - resulting in a potentially substantial
loss of state and local revenues.
5)Related legislation . Several bills have been introduced this
year which provide "consumer status" to specified entities.
These include AB 659 (Hayashi), which provides consumer status
to certain dry cleaners, AB 1265 (Ma), which provides the
status to disabled veteran itinerant venders, and AB 1486
(Furutani), which provides consumer status to selected
non-profit organizations.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081