BILL ANALYSIS
AB 1486
Page 1
Date of Hearing: May 18, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
AB 1486 (Furutani) - As Amended: April 14, 2009
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Sales and use taxes: consumer status: nonprofit
membership organizations
SUMMARY : Provides that specified tax-exempt organizations shall
be deemed consumers, rather than retailers, with respect to
certain transfers of tangible personal property (TPP) to their
members. Specifically, this bill :
1) Provides that an organization described in Internal
Revenue Code (IRC) Section 501(c) "is a consumer of, and
shall not be considered a retailer within the provisions of
[the Sales and Use Tax Law] for purposes of any transfer
of" TPP to its members, if the following requirements are
met:
a) The TPP bears a logo or other identifying mark of the
organization and is a promotional item or other item
commonly associated with use by a member to demonstrate the
member's association with the organization;
b) The member's cost is not more than the tax-exempt
organization's cost to obtain and transfer the TPP,
including any applicable sales or use tax (SUT) paid by the
organization; and,
c) The organization takes reasonable steps to ensure that
no member is allowed to acquire more than 30 identical
items of TPP or to resell the items to another person.
2) Defines the term "members" by reference to Corporations
Code Section 5056.
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3) Provides that, notwithstanding existing law, the state
shall not reimburse any local agency for any SUT revenues
lost as a result of this bill.
4) Takes immediate effect as a tax levy, but becomes
operative only 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
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)Designates the following entities as consumers, and not
retailers, of specified TPP they use or furnish in the
performance of their professional services:
a) Licensed optometrists, physicians, pharmacists, and
registered dispensing opticians;
b) Licensed veterinarians;
c) Licensed chiropractors;
d) Specified garment cleaning establishments that received
no more than 20% of their total gross receipts from the
alteration of garments during the preceding calendar year;
e) Licensed hearing aid dispensers; and,
f) Producers of X-ray films or photographs used to diagnose
human medical or dental conditions.
4) Provides no general exemption from SUT merely because
the seller or purchaser is engaged in charitable
activities, or is a recognized nonprofit organization.
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5) Provides, under IRC Section 501(c), for the federal
exemption of specified organizations, including
corporations, community chests, or trusts, organized
exclusively for religious, charitable, scientific,
literary, educational, or other specified purposes.
FISCAL EFFECT : The Board of Equalization (BOE) estimates that
this bill would not result in state or local revenue losses.
COMMENTS :
1) The author states:
Assembly Bill 1486 attempts to correct a problem non-profit
entities face when they purchase items to sell, in turn, to
their members. Under current law, if an organization
registered as a 501(c) of the Internal Revenue Code
purchases items to sell to its members and pays the
appropriate sales tax on those items at the time of initial
purchase, the organization is required to also collect
sales tax on the items when it makes a sale to its members.
Non-profit entities are not properly equipped to collect
sales tax on items that they sell to their members.
Furthermore, appropriate sales taxes have already been paid
for the items at the initial point of purchase, thus there
is not a need to collect additional sales tax on items that
are being sold to an organization's membership at or below
cost.
2) Proponents state, "This change will allow a
nonprofit/501(c), if in the event they have already paid
taxes on items purchased, to sell them to their members
without having to act as a tax collector."
3) BOE notes the following in its staff analysis of this
bill:
a) "Under the law, every retailer or any other person that
makes three or more retail sales of [TPP] of a kind the
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retail sale of which is taxable in this state is required
to obtain a seller's permit and report the tax on his or
her sales on a return prescribed by the Board. However,
California's Sales and Use Tax Law places a variety of
retailers making taxable sales of [TPP] under a 'consumer'
reporting status. Under a 'consumer' reporting status, a
qualifying retailer making otherwise taxable sales is not
required to obtain a seller's permit or report tax on those
sales. Rather, the qualifying retailer is only required to
pay tax on his or her cost of the taxable components of the
products he or she sells."
b) This bill only applies to promotional items sold at
cost . "As long as a nonprofit organization only makes
sales of [TPP] described in the bill, then the nonprofit
organization would not need to possess a seller's permit,
file sales tax returns, or remit sales tax on those sales.
However, if a nonprofit organization makes any other sales
of [TPP], or sells the promotional items even slightly
above cost, they would still be required to file sales tax
returns and maintain records to report the proper amount of
tax."
c) Enactment of this bill should not be problematic to
administer . "The bill would simply require the nonprofit
organization to pay tax on its cost of the promotional
items, and would exempt the subsequent sale by the
nonprofit organization from the imposition of sales tax.
Essentially, for the nonprofit organizations' purchases of
promotional items that are sold within the context of this
measure, the application of sales and use tax on the
purchase would be similar to the application of tax to
other items of [TPP] purchased for use by the
organizations, such as pencils, stationary, and office
equipment. The subsequent sale of the promotional items,
however, would be exempt from tax."
4) Committee Staff Notes:
a) What is "consumer" status? : "Consumer" reporting status
is conferred on specified entities to alleviate the burden
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of registering with BOE as a retailer of TPP. At the same
time, consumer status minimizes the revenue losses often
associated with outright exemptions from tax. As noted
above, consumer status has been conferred on a wide range
of entities, including optometrists, veterinarians,
licensed hearing aid dispensers, and others with respect to
certain TPP sales.
b) Applies to all organizations described in IRC Section
501(c) : As noted above, this bill provides that an
organization described in IRC Section 501(c) is a consumer,
and shall not be considered a retailer, with respect to
specified transfers of TPP. IRC Section 501(c)(3), with
which most people are familiar, provides tax exempt status
to corporations, community chests, funds, or foundations
organized and operated exclusively for religious,
charitable, scientific, or other specified purposes. It
should be noted, however, that this bill would confer
consumer status to organizations exempt under other
provisions of IRC Section 501(c) (e.g., labor,
agricultural, or horticultural organizations, business
leagues, chambers of commerce, etc.).
c) Related legislation : Committee staff note the following
related bills also introduced in the current Legislative
Session:
i) AB 659 (Hayashi): Provides that specified garment
cleaning businesses shall be regarded as consumers,
rather than retailers, of TPP they sell, provided those
sales do not exceed 0.5% of their total gross receipts
for the preceding calendar year. AB 659 (Hayashi) is
currently in the Assembly Appropriations Committee.
ii) AB 676 (Jeffries): Designates a qualified
destination management company as a consumer, and not a
retailer, of the TPP it provides a client under a
qualified contract for destination management services.
AB 676 (Jeffries) is set to be taken up today on this
Committee's suspense file.
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iii) AB 1265 (Ma): Designates a qualified itinerant
vendor as a consumer, and not a retailer, of TPP it owns,
except alcoholic beverages. AB 1265 (Ma) is set to be
heard today by this Committee.
d) Potential conflict : AB 676 (Jeffries) seeks to add the
same section to the Revenue and Taxation Code. Should both
bills continue to progress through the Legislature,
amendments should be taken to avoid conflict.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Council of Laborers
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098