BILL ANALYSIS
AB 1087
Page 1
Date of Hearing: May 18, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 1087 (Ma) - As Amended: March 31, 2009
2/3 vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: exclusions: transportation
charges
SUMMARY : Modifies the current sales and use tax (SUT) exclusion
for separately stated transportation charges. Specifically,
this bill:
1)Provides that, if the transportation charges are not
separately stated, or if they are combined with handling or
other charges, then the exclusion for transportation charges
shall not apply, and the transportation charges shall be
included in the measure of tax.
2)Takes immediate effect as a tax levy, but 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
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the gross receipts from sales of TPP in
this state.
2)Imposes a use tax on the storage, use, or other consumption in
this state of TPP purchased from any retailer for storage,
use, or other consumption in this state, absent a specific
exemption.
3)Provides, under the SUT Law, that the terms "gross receipts"
and "sales price" do not include separately stated charges for
transportation from the retailer's place of business or other
point from which shipment is made directly to the purchaser.
However, the exclusion may not exceed a reasonable charge for
transportation "by facilities of the retailer or the cost to
the retailer of transportation by other than facilities of the
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retailer." In other words, in cases where the retailer uses a
common carrier, the exclusion is limited to the retailer's
cost for the transportation.
FISCAL EFFECT : The Board of Equalization (BOE) is currently
working on a revenue estimate for this bill.
COMMENTS :
1)The author states, "AB 1087 will provide much needed
simplicity and clarity for retailers in California and the
Board of Equalization in determining the extent to which
delivery charges are subject to sales tax. With the changes
proposed in this bill, the applicable sales tax can be
collected from the ultimate consumers at the time of the
transaction just as other sales taxes are paid. These changes
will streamline the accounting process for small businesses
and other retailers that offer delivery services to their
customers. They will also greatly ease administrative and
audit burdens for retailers and the Board of Equalization."
2)This bill is sponsored by the California Retailers
Association, which states:
Most retailers charge their customers a flat fee for
delivery of merchandise. (The amount of the fee may be
based on the total purchase price for the merchandise.) In
many instances, the amount the delivery company charges the
retailer exceeds what the retailer charged its customer,
resulting in no tax being due. However, to the extent the
delivery company charges the retailer less than the amount
the retailer charged the customer for the delivery, this
difference is not excluded from the definition of 'sales
price' or 'gross receipts' and is thus subject to sales
tax. At the time the customer is completing the
transaction, the retailer typically has no way of knowing
the exact amount that the delivery company will charge for
the delivery, thus the retailer cannot effectively collect
the proper amount of sales tax from the customer. This
puts retailers in the untenable position of being forced to
pay sales tax out of their pockets that should be paid by
the ultimate consumers.
3)BOE notes the following in its staff analysis of this bill:
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a) Sponsor and purpose . "The sponsor of this bill is the
California Retailer's Association. Its purpose is to
clarify the law as it applies to separately stated
transportation charges and to specify that if the
transportation charges are combined with handling or other
charges, then the charges would become subject to sales or
use tax."
b) How is this different from current interpretations ?
"Currently, if a charge for delivery is combined with a
charge for handling or other service charge, the charge for
the delivery may be excluded from the computation of sales
or use tax as long as the 'postage and handling' or
'shipping and handling' designation is shown on the
retailer's invoice and the actual amount of the postage or
shipping is placed on the package sent to the customer.
This bill would require that in such cases, the postage or
shipping charge be included in the computation of sales or
use tax."
c) This may be consistent with how these charges are
treated by some retailers already . "The application of
sales and use tax to combined shipping and handling charges
have been the source of confusion for a variety of
retailers, and for simplicity purposes, many calculate the
tax based on the entire charge, regardless of whether there
is a separate statement of the actual shipping charge. For
those retailers, this bill would be consistent with their
reporting habits."
4)Committee Staff Notes:
a) Revenue and Taxation Code (R&TC) Section 6011 and 6012
impose SUT on all charges related to the retail sale of
TPP, except those charges specifically excluded. For
example, current law excludes from the definition of "sales
price" and "gross receipts" (i.e., the tax measure) certain
separately stated transportation charges. [R&TC Sections
6011(c)(7) and 6012(c)(7)]. This exclusion, however, may
not exceed "a reasonable charge for transportation by
facilities of the retailer or the cost to the retailer of
transportation by other than facilities of the retailer."
b) Existing law also provides that the terms "sales price"
and "gross receipts" include the cost of services that are
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part of the sale of TPP. In other words, related handling
charges are currently taxable whether separately stated or
not. Moreover, under existing law, a charge for "shipping
and handling" does not constitute a separate statement of
shipping charges, and, if there is no further itemization,
the entire charge would be included in the computation of
tax.
c) To further complicate matters, BOE notes, "Although a
designation such as, 'shipping and handling' or 'postage
and handling' is not regarded as a separate statement of
transportation charges, under the Board's Regulation 1628,
Transportation Charges, the designation 'postage and
handling,' 'shipping and handling,' or similar designation,
coupled with a statement of the actual amount of postage
placed on the package mailed to a customer, constitutes a
separate statement of transportation charges and those
transportation charges are excludable from the measure of
tax."
REGISTERED SUPPORT / OPPOSITION :
Support
California Retailers Association (sponsor)
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098