BILL ANALYSIS
AB 1486
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1486 (Furutani)
As Amended July 14, 2009
Majority vote. Tax levy.
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|ASSEMBLY: |76-0 |(June 2, 2009) |SENATE: |38-0 |(August 27, |
| | | | | |2009) |
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Original Committee Reference: REV. & TAX.
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.
The Senate amendments modify one of the requirements for
preferential consumer status, by providing that the TPP may not
be distributed for purposes of organized political campaigning
or issue advocacy.
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) Provides, under Internal Revenue Code (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.
AS PASSED BY THE ASSEMBLY , this bill:
1) Provided that an organization described in 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,
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if the following requirements were 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;
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; and,
d) The TPP is not used for political campaigning or issue
advocacy.
2) Defined the term "members" by reference to Corporations
Code Section 5056.
3) Provided that, notwithstanding existing law, the state
shall not reimburse any local agency for any SUT revenues
lost as a result of this bill.
4) Sunsets on January 1, 2015.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : 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
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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."
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."
BOE notes the following in its staff analysis of this bill:
1) "Under the law, every retailer or any other person that
makes three or more retail sales of [TPP] 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 [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."
2) 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."
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Committee staff notes:
1) What is "consumer" status?: "Consumer" reporting status
is conferred on specified entities to alleviate the burden
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. 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.
2) 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.).
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0002324