BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 2060|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: AB 2060
Author: Charles Calderon (D)
Amended: 8/20/10 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:
changes:
transactions and use tax
SOURCE : Associated General Contractors
California Landscape Contractors Association
Engineering and Utility Contractors Association
Golden State Builders Exchange
DIGEST : This bill requires a fixed price contract, as
specified, between a government entity, as defined, and a
contractor to authorize payment for a change in the
contract price that is attributable to an increase or
decrease in the state sales and use tax rate, with the
increase or decrease paid in accordance with the contract
CONTINUED
AB 2060
Page
2
terms or as agreed to by the parties, as prescribed.
Senate Floor Amendments of 8/20/10 allow a purchaser,
including a government entity, to an unconditional right to
terminate a fixed price contract under the local district
tax law and qualify for the district tax fixed price
contract exemption.
ANALYSIS :
I. Sales Tax
Existing law imposes requirements on public entities
with respect to the terms of public contracts. Existing
law also imposes a state sales and use tax on retailers
on the storage, use, or other consumption of tangible
personal property in this state at the combined rate of
8.25 percent of the gross receipts from the retail sale
of tangible personal property in this state.
This bill requires a fixed price contract, as specified,
between a government entity and a contractor to
authorize payment for a change in the contract price
that is attributable to an increase or decrease paid in
the state sales and use tax rate. In other words, this
bill allows contractors who are party to a fixed price
contract to be reimbursed in the event of a future
increase in the state sales and use tax rate and
subsequently require them to reimburse the government
entity who is also party to the fixed price contract in
the event of a future decrease in the state sales and
use tax rate. The provision applies only when the
contractor is obligated by the contract to obtain
tangible personal property. This bill provides that
when either the contractor or the public agency can
cancel the contract, the property is not deemed
obligated.
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.
CONTINUED
AB 2060
Page
3
Comments
Purpose of the bill . 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.
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.
II.Under existing law, a general fixed price contract
exemption is contained in the Transactions and Use Tax
Law (and has been since 1979) for purposes of exempting
all sales of property obligated pursuant to fixed price
contracts from the various city and county tax rate
increases when those contracts are entered into prior to
the operative date of those rate increases. In order to
qualify for this exemption, neither party to the
contract may have the right to terminate the contract.
However, some public agencies enjoy a unilateral right
to cancel a contract. As such, existing law would not
allow contractors the benefit of an exemption from a
district tax rate increase.
The amendments of August 20, 2010 change the application
of the "deemed obligated" requirements to those
contracts entered into before a district tax rate
increase where the purchaser or lessee has an
CONTINUED
AB 2060
Page
4
unconditional right to terminate the contract, thereby
allowing contractors or lessors the benefit of an
exemption from a district sales and use tax rate
increase.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
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 8/20/10)
Associated General Contractors (co-source)
California Landscape Contractors Association (co-source)
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
CONTINUED
AB 2060
Page
5
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 8/23/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****
CONTINUED