BILL ANALYSIS
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THIRD READING
Bill No: AB 2060
Author: Charles Calderon (D)
Amended: 8/18/10 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 4-1, 7/1/10
AYES: Walters, Alquist, Ashburn, Padilla
NOES: Wolk
SENATE APPROPRIATIONS COMMITTEE : 11-0, 8/12/10
AYES: Kehoe, Ashburn, Alquist, Corbett, Emmerson, Leno,
Price, Walters, Wolk, Wyland, Yee
ASSEMBLY FLOOR : 77-0, 6/1/10 - See last page for vote
SUBJECT : Sales tax exemption: fixed price contract
SOURCE : Associated General Contractors
California Landscape Contractors Association
Engineering and Utility Contractors Association
Golden State Builders Exchange
DIGEST : This bill exempts fixed price contracts with
government entities from any future increases of state
sales and use taxes, including any extension of the one
percent increase enacted last year that is currently set to
expire on July 1, 2011.
ANALYSIS : Existing law generally imposes a sales and use
tax on the sale or purchase of tangible personal property
CONTINUED
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(TPP) at a combined base rate of 8.25 percent (6.25 percent
state and two percent local). During last year's Third
Extraordinary Session, AB 3 X3 (Evans), Chapter 18,
Statutes of 2009-10, was signed into law, providing for a
one percent increase in the state General Fund portion of
the sales and use tax until July 1, 2011. This bill did
not provide for an exemption for fixed price contracts
entered into prior to the increase. In the past, however,
legislation providing for increases to the sales and use
tax has provided exemptions for all fixed price contracts
(not just contracts with government entities). Existing
law also includes a general exemption from any local
district tax increases for fixed price contracts, under
specified criteria.
This bill provides a general exemption from any future
sales and use tax increases for fixed price contracts
entered into with government entities if that contract was
entered into prior to the operative date of that tax
increase. This exemption specifically applies to (1) fixed
price contracts to furnish a government entity with TPP;
(2) fixed price construction contracts to provide materials
and fixtures to a government entity; and (3) specified
leases of TPP. This exemption would not apply to contracts
that include a provision if either party has a right to
terminate the contract. For purposes of this exemption,
"fixed price" also means a contract for a "guaranteed
maximum price," which is a contract for a price specified
in a contract for actual costs plus a fixed fee, but
subject to a maximum price. This bill applies to all
future increases enacted after the effective date of the
bill and for any extension of the one percent increase that
is scheduled to expire on July 1, 2011.
This bill defines "government entity" as the State of
California, or any city, county, or city and county,
community college district, school district, county
superintendent of schools, or special district in this
state.
Comments
Purpose of the bill . This bill is co-sponsored by several
contractors associations, for the purpose of protecting
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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.
Background
Existing law imposes a sales tax on transactions involving
TPP. 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 one percent SUT 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 the Department of Transportation had awarded
for the Bay Bridge.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According the Senate Appropriations Committee, this bill
will not have an impact on current state revenues, since
its provisions only apply prospectively. Future revenue
impacts, however, would depend upon the dollar amount of
fixed price contracts with the state, and the size of any
proposed sales and use tax increases. For every $100
million in fixed price contracts, for example, the state
revenue impact would be $1 million in foregone revenue for
a one percent increase.
The Board of Equalization notes that based upon the value
of fixed price contracts with the Department of
Transportation in 2008 alone, the impact would be
approximately $1.91 million.
SUPPORT : (Verified 8/18/10)
Associated General Contractors (co-source)
California Landscape Contractors Association (co-source)
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Engineering and Utility Contractors Association (co-source)
Golden State Builders Exchange (co-source)
American Fence Association, California Chapter
Associated Builders and Contractors of California
California Concrete Contractors Association, Inc.
California Fence Contractors' Association
California Legislative Conference of the Plumbing, Heating
and Piping Industry
California Nevada Cement Association
California Taxpayers' Association
Engineering Contractors' Association
Flasher/Barricade Association
Marin Builders' Association
National Electrical Contractors Association, California
Chapters
Pacific Rim Drywall Association
State Building and Construction Trades Council of
California, AFL-CIO
Western Home Furnishings Association
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Blakeslee, Block, Blumenfield, Bradford,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Lieu, Logue,
Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava,
Nestande, Niello, Nielsen, Norby, V. Manuel Perez,
Portantino, Ruskin, Salas, Saldana, Silva, Skinner,
Smyth, Solorio, Swanson, Torlakson, Torres, Torrico,
Tran, Villines, Yamada, John A. Perez
NO VOTE RECORDED: Tom Berryhill, Audra Strickland, Vacancy
DLW:mw 8/18/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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