BILL ANALYSIS
AB 1087
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1087 (Ma)
As Amended September 2, 2009
Majority vote
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|ASSEMBLY: |50-28|(June 3, 2009) |SENATE: |23-16|(September 4, |
| | | | | |2009) |
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Original Committee Reference: REV. & TAX.
SUMMARY : Modifies the current sales and use tax (SUT) exclusion
for separately stated transportation charges.
The Senate amendments :
1)Clarify the intent of the Legislature to prohibit a state agency
from entering into any contract with an expatriate corporation
located in a foreign jurisdiction that does not have an income
tax treaty with the United States (U.S.).
2)Revise the definition of an expatriate corporation for purposes
of the California Taxpayer and Shareholder Protection Act of
2003 [Chapter 1.5 (commencing with Section 10286) of Part 2 of
Division 2 of the Public Contract Code]. Specifically, to be
deemed an expatriate corporation, the foreign incorporated
entity must be domiciled in a jurisdiction that does not have an
income tax treaty with the U.S.
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.
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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
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.
4)Prohibits a state agency from entering into any contract with an
expatriate corporation, as defined, or its subsidiary, unless
certain conditions are met.
5)Defines an expatriate corporation as a foreign incorporated
entity that is publicly traded in the U.S. and that meets
specified criteria.
AS PASSED BY THE ASSEMBLY , this bill provided that charges for
transportation are separately stated for purposes of the exclusion
if the charges are stated as a single amount and are not included
within a single amount that combines transportation charges with
other charges.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that the
SUT provisions of this bill would result in an annual increase in
sales tax revenues of $3.8 million, of which $2.5 million would
accrue to the General Fund and the remainder would accrue to
special funds and local funds. The fiscal effect of the newly
added provisions relating to expatriate corporations is unknown.
COMMENTS : 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."
The SUT provisions of this bill are 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
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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.
Committee Staff Notes:
1)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."
2)Existing law also provides that the terms "sales price" and
"gross receipts" include the cost of services that are 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.
3)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,'
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'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."
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0003020