BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2060
                                                                  Page  1

          Date of Hearing:   May 28, 2010

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                   AB 2060 (Calderon) - As Amended:  May 18, 2010 

          Policy Committee:                              Revenue and  
          Taxation     Vote:                            9-0

          Urgency:     No                   State Mandated Local Program:  
          No     Reimbursable:              

           SUMMARY  

          This bill exempts certain sales related to fixed price contracts  
          from future sales tax rate increases. Specifically, the bill:

          1)Applies to fixed-price contracts signed before the operative  
            date of the rate increase involving the sale or lease of  
            tangible property.

          2)Applies to all fixed-price contacts involving sales to  
            governmental agencies, or to contracts between private  
            entities when the seller is a small business (defined as a  
            business with gross receipts of less than $1 million and net  
            income of less the $250,000). 

           FISCAL EFFECT  

          1)No direct or immediate effect since the bill would apply only  
            to future sales tax increases.

          2)However, if the state were to raise the sales tax in a future  
            year and the enacting legislation did not have a general  
            exemption for fixed price contracts, this bill could result in  
            revenue reductions potentially exceeding $2 million. 

           COMMENTS  

           1)Rationale  . This bill is co-sponsored by several contractors  
            associations, for the purpose of protecting contractors with  
            fixed price contracts from bearing the cost of a sales and use  
            tax rate increase that cannot be passed on  to their  
            customers.








                                                                  AB 2060
                                                                  Page  2


           2)Background  .  Existing law imposes a sales tax on transactions  
            involving tangible personal property. The sales tax is  
            collected by the seller at the time of the transaction and  
            remitted to the Board of Equalization. Historically,  
            legislation enacting sales tax increases has contained  
            provisions that exempt fixed price contracts that had been  
            entered into prior to the effective date of the legislation  
            from the rate increase. However, the legislation enacting the  
            1% sales and use tax increase beginning in April 2009 did not  
            include this exemption. Due to the nature of a fixed price  
            contract, the contractor may not pass the increase on to the  
            customer, and must bear the full out-of-pocket cost of the  
            rate increase. This became an issue last year with respect to  
            fixed price contracts that CalTrans had awarded for the Bay  
            Bridge 
           
          3)Related legislation  . AB 1523 (Calderon), of the current  
            Legislative Session, would have relieved parties who entered  
            into a fixed price contract or a fixed price lease before the  
            recently enacted 1% SUT increase.  AB 1523 was held in the  
            Assembly Appropriations Committee.  

           Analysis Prepared by  :    Brad Williams / APPR. / (916) 319-2081