BILL ANALYSIS
AB 711
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 711 (Calderon) - As Amended: May 4, 2009
Policy Committee: Revenue and
Taxation Vote: 6-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires all "qualified businesses" to register with
the Board of Equalization and pay, by April 15, all use taxes
owed for the previous calendar year. The bill also:
1)Defines a qualified business as one which is required to hold
a local business license, is not otherwise required to hold a
sellers permit, and does not already hold a use tax direct
payment permit.
2)States the intent of the Legislature that the revenues
deposited into the General Fund attributable to this measure
be annually appropriated to the Intellectual Property Piracy
Prevention and Prosecution Fund, as established by AB 819
(Calderon).
3) States that the bill will become operative on July 1, 2021,
but only if AB 819 is also enacted.
FISCAL EFFECT
1)BOE estimates that registration will increase use tax
compliance substantially, resulting in annual increases of
about $620 million in sales and use tax receipts, of which
about $400 million would be GF and the remainder would be
special and local funds.
a) At least $50 million of these revenues would be
continuously appropriated by AB 819 to the Intellectual
Property Piracy Prevention and Prosecution special fund.
AB 711
Page 2
b) Intent language in this bill implies that all GF
revenues resulting from the enhanced registration
requirements be deposited into the special fund.
2)BOE also indicates it would incur GF costs of at least tens of
millions of dollars (a more precise estimate is pending) to
identify, notify, and register all affected businesses, and to
process approximately two million additional returns annually.
COMMENTS
1)Background . Sales of tangible personal property are subject to
the sales and use tax in California. The sales tax is levied
on the retailer at the time of sale, and the compliance rate
is generally high since retailers are required by law to
register with the BOE. The use tax is identical to the sales
tax, except it is imposed on the purchaser of tangible
personal property purchase for use in California in instances
where the seller was not required to collect the sales tax -
mostly out-of-state retailers with no nexus in California.
Companies that operate in California that are not retailers
are not currently required to register with the BOE.
With the exception of cars purchases (for which the use tax is
due when the vehicle is registered with the DMV), the use tax
collection rate is very low. BOE estimates that $1.2 billion
in use tax obligations go unreported annually. About
two-thirds of this total is attributable to businesses and
about one-third is attributable to individuals.
2)Purpose . According to the author, this bill is intended to
increase the collection of use taxes owed by businesses,
resulting in annual revenue increases of $620 million to state
and local governments. The increased revenues occur because,
the BOE believes, registration by all businesses will increase
businesses' compliance related to use tax obligations.
This bill is contingent on enactment of AB 819, which would
create a continuous appropriation from the GF of $50 million
to the Intellectual Property Piracy Prevention and Prosecution
Program, for the purpose of providing grants for local law
enforcement and district attorneys to prevent and prosecute
intellectual property piracy.
AB 711
Page 3
3)Issues. This bill contains intent language that "the revenues
deposited into the GF be annually appropriated to the
Intellectual Property Piracy Prevention and Prosecution Fund"
- presumably meaning all new use tax revenues resulting from
this bill would be deposited into the special fund. This
language raises two issues. First, as a practical matter it
not be possible for BOE to precisely estimate the amount of
use taxes collected each year that are attributable to this
bill and how much would have been collected under existing
law. Second, the expanded registration and collection activity
imposed on BOE will be substantial, resulting in tens of
millions in annual costs which would need to be supported by
the GF. Thus, complying with Legislative intent could result
in a significant net loss of resources to the GF at a time
when it is facing massive budgetary shortfalls.
4)Related Legislation: AB 819 (Calderon) will be heard by this
committee today.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081