BILL ANALYSIS
AB 1087
Page 1
Date of Hearing: May 28, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 1087 (Ma) - As Amended: March 31, 2009
Policy Committee: Revenue and
Taxation Vote: 6-1
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill modifies the current sales and use tax exclusion for
transportation charges associated with the delivery of tangible
personal property. It specifically provides that, unless the
transportation charges are separately stated, they will not be
excluded from the sales price for determining sales taxes due.
FISCAL EFFECT
The Board of Equalization estimates the bill would result in
annual increase in sales tax revenues of $3.8 million, of which
$2.5 million would accrue to the GF and the remainder would
accrue to special funds and local funds.
COMMENTS
1)Background. The sales and use tax is imposed on retailers at
the time tangible personal property is sold. The tax is
imposed based on the sales price of the items. In the case of
goods that are shipped to the customer, the "sales price" does
not include separately stated charges for transportation for
shipments to customers. This exclusion is limited to
reasonable transportation costs - or in the case where the
retailer uses a common carrier, the actual charges paid by the
retailer to the shipping company.
A problem has arisen for retailers that charge customers based
on a simplified fee schedule for shipments. Even if the fee
schedule covers the actual shipping charges paid by the
retailer in aggregate, there may be instances where individual
shipment charges do not match the retailer's actual shipment
AB 1087
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costs. In cases where actual shipping costs are less than the
flat fee charged to the customer, a retailer that had excluded
the flat fee from the sales tax had excluded more charges than
are considered reasonable. The retailer is then faced with an
added sales tax liability on the difference between the amount
charged the customer and the actual shipping costs, with no
practical way to recover the amount from the customer.
2)Purpose. This bill is sponsored by the California Retailers
Association for the purpose of simplifying the collections of
the sales tax by retailers for goods that are shipped to the
customer. The sponsor points out that, 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 taxes
from the customer. The sponsor asserts that this puts
retailers in the untenable position of being forced to pay
sales tax out of their pockets that should have been paid by
the ultimate customer.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081