BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 711 - Calderon
Amended: June 1, 2009
Hearing: July 8, 2009 Fiscal: Yes
SUMMARY: Requires a qualified purchaser to register with
the BOE and report and pay the use tax for the
previous calendar year.
EXISTING LAW
Imposes a use tax on the storage, use, or other
consumption in this state of tangible personal property
purchased from any retailer. The use tax is imposed on the
purchaser, and unless that purchaser pays the use tax to a
retailer registered to collect the California use tax, the
purchaser is liable for the tax, unless the use of that
property is specifically exempted or excluded from tax.
The use tax is the same rate as the sales tax and is
required to be remitted to the Board on or before the last
day of the month following the quarterly period in which
the purchase was made, or on the purchaser's state income
tax return filed with the Franchise Tax Board. Generally,
a use tax liability occurs when a California consumer or
business purchases tangible items for their own use from an
out-of-state retailer that is not registered with the Board
to collect the California use tax.
THIS BILL
Requires "qualified purchasers" to register with
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the Board and report and pay by April 15, the use tax owed
for purchases made during the calendar year. The bill
would define "qualified purchaser" as a person that meets
all of the following conditions:
(1) The person is required to hold a business license as
required by the local ordinance of the city, county, or
city and county in which the person conducts business.
(2) The person is not required to hold a seller's permit
pursuant to this part.
(3) The person is not required to be registered pursuant to
Section 6226.
(4) The person is not a holder of a use tax direct payment
permit as described in Section 7051.3.
The bill would become operative July 1, 2010
FISCAL EFFECT:
The BOE estimated that this bill would raise $620
million in increased revenues for the original version of
this bill. The BOE is looking at the original estimate and
revising it downward; the estimate was not available at the
time this analysis was distributed.
COMMENTS:
A. Purpose of the Bill
This bill is sponsored by the author in order to
increase revenues to the state by requiring larger
businesses that are not already registered, to register
with the Board and remit use tax on their untaxed purchases
from out-of-state retailers. The author states that the
use tax is one of the most costly areas of tax
noncompliance and that both individuals and businesses
underreport and underpay the sue tax. In 2007, businesses
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underreported and failed to pay approximately $775 million
in use taxes.
B. Don't know much about use taxes
The use tax has been in effect since the 1930s but it
is still relatively unknown to California consumers since
most consumers continue to believe that the onus for use
tax collection is on the retailer as is the sales tax.
Furthermore, there are a growing number of
out-of-state internet and mail-order vendors that are
currently not required to collect use tax for the state of
California. In-state retailers, however must collect and
remit sales tax to BOE. There have been multiple efforts
to impose the use tax burden on consumers such as the use
tax line considered in AB 469 (Eng) up for consideration
today in this committee, but it has been a difficult task
to educate consumers on the use tax and individual audits
would not be cost effective.
C. What Businesses know can help them
The current system of use tax has given
out-of-state businesses a significant competitive advantage
over in-state businesses by allowing the former to provide
a 10 percent discount on Internet and mail-order products.
According to BOE, in 2007, $775 million of uncollected use
tax was attributable to business. About 1.3 million
taxpayers not holding a seller's permit were identified.
Of these, more than 800,000 taxpayers reported annual gross
receipts of less than $20,000. BOE staff has estimated
that taxpayers with gross receipts of over $100,000
annually would incur approximately 95% of the use tax
liability. Considering the administrative expense related
to registering 1.3 million taxpayers and processing returns
for many taxpayers that have little to no use tax liability
(see cost estimate on page 4), the author may wish to amend
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the bill to require registration for only those taxpayers
with annual gross receipts from business operations in
excess of $100,000.
D. Local Business Licenses
This bill would require only those taxpayers required
to hold a local business license to register. However, a
random sampling of local jurisdictions disclosed that
business licenses are not required of all businesses. For
example, Santa Clara County does not require businesses
located within the unincorporated area of the county to
hold a business license. Sacramento County does not
require financial institutions, residential facilities,
churches, libraries, and certain agricultural industries to
hold a business license. It is therefore recommended that
this condition be stricken from the bill.
Support and Opposition
Support:CalTax
California Manufacturers and Technology
Association
California Tax Reform Association
Oppose: None Received
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Consultant: Gayle Miller
SB 711 - Calderon
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