BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 1486 - Furutani
Amended: May 21, 2009
Hearing: July 8, 2009 Tax Levy Fiscal: Yes
SUMMARY: Classifies certain non-profits as "consumers" so
that they are exempt from the sales tax
collection of certain goods.
EXISTING LAW
Generally, the sales tax is imposed on all retailers
for the privilege of selling tangible personal property at
retail in this state.
The sales tax is imposed on a retailer's gross
receipts from the retail sale of tangible personal property
in this state, unless the sale is specifically exempt from
taxation by statute. This tax is imposed on the retailer
who may collect reimbursement from the customer if the
contract of sale so provides. The Sales and Use Tax Law
provides no general statutory exemption from the sales or
use tax merely because the seller or the purchaser is
engaged in charitable activities, is a nonprofit
organization, or enjoys certain privileges under property
tax statutes or income tax statutes.
Under the law, every retailer or any other person that
makes three or more retail sales of tangible personal
property of a kind the 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
tangible personal property under a "consumer" reporting
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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.
The "consumer" reporting status is primarily intended
to minimize reporting burdens placed on smaller businesses
and entities, while minimizing the associated revenue loss
that can accompany a complete exemption from the tax. The
law has extended this consumer reporting status to certain
sales by such entities as nonprofit youth groups, PTAs,
nonprofit veterans' organizations, various charitable
organizations, schools and school districts, optometrists,
veterinarians, podiatrists, licensed hearing aid
dispensers, and others with respect to certain products
they sell.
THIS BILL
Until January 1, 2015, an organization described in
Section 501(c) of the Internal Revenue Code is a consumer
of, and shall not be considered a retailer for purposes of
any transfer of tangible personal property to its members,
as defined, if the following requirements are met:
1. The tangible personal property 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, or membership in, the organization.
2. The cost to the member of the organization for the
acquisition of the tangible personal property is not
more than the cost to the nonprofit organization to
obtain and transfer to the member the tangible
personal property, including any applicable sales or
use tax paid by the nonprofit organization.
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3. Reasonable steps are taken by the organization to
ensure that no member is allowed to acquire more than
30 identical items of tangible personal property or to
resell the items to another person.
4. The tangible personal property is not used for
political campaigning or issue advocacy.
The bill would define "member" by reference to
Corporations Code Section 5056.
FISCAL EFFECT:
According to the BOE, since these organizations do not
currently collect the sales and use tax, the administrative
costs associated with this bill would be absorbable and
there would be no revenue loss accrued to the state.
COMMENTS:
A. Purpose of the Bill
This bill is sponsored by the California State Council
of Laborers, to relieve nonprofit organizations from the
burdensome and time-consuming task of maintaining records
and filing sales tax returns for their sales of promotional
items to members, when the sales prices of those
promotional items are no more than the price paid by the
organization.
B. Clarification Needed
The amendment that specifies that the property may not
be used for issue advocacy purposes raises some questions.
Essentially, it appears that provision could be interpreted
to mean that any item containing a logo of a nonprofit
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organization that advocates issues could be excluded from
this bill. For example, would purchases of t-shirts or
hats containing such logos as SPCA, MADD, or the NRA, etc.
be excluded? This should be clarified.
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Support and Opposition
Support:California Nurses Association
California State Council of Laborers
Betty Yee, Chairwoman, State Board of
Equalization
Oppose:None Received
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Consultant: Gayle Miller