BILL ANALYSIS
AB 2060
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2060 (Charles Calderon)
As Amended August 20, 2010
Majority vote
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|ASSEMBLY: | |(June 1, 2010) |SENATE: |26-0 |(August 25, |
| | | | | |2010) |
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(vote not relevant)
Original Committee Reference: REV. & TAX.
SUMMARY : Requires fixed price public contracts to include
authorization to increase payments to private contractors for
future sales tax rates.
The Senate amendments recast the Assembly version of the bill
to:
1)Require fixed price public contract to authorize a change in
the contract price due to tax adjustments, including any
extension of the 1% increase set to expire on July 1, 2011.
2)Specify that the tax adjustments apply to the following:
a) The gross receipts from the sale, storage, use, or
consumption of tangible personal property;
b) The gross receipts from the sale, storage, use, or
consumption of materials and fixtures; and,
c) A lease of personal property that is a continuing sale
and for which the lessor has lease obligations.
3)Exclude contracts with termination rights.
4)Define the following terms:
a) "Fixed price" means either of the following:
i) The price or prices specified in the contract or
lease, and the contract or lease does not authorize an
AB 2060
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increase or decrease in price due to an increase or
decrease in the sales and use tax rate; or,
ii) The prices or price specified in the construction
contract is a lump sum price or a stated unit price or a
guaranteed maximum price, and the construction contract
does not authorize an increase or decrease in price due
to an increase or decrease in the sales and use tax rate.
b) "Government entity" means 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.
EXISTING LAW :
1)Imposes a sales and use tax on the sale or purchase of
tangible personal property at a combined base rate of 8.25%.
2)Includes a general exemption from any local district tax
increases for fixed price contracts, as specified.
AS PASSED BY THE ASSEMBLY , this bill exempted certain sales
related to fixed price contracts from future sales tax rate
increases.
FISCAL EFFECT : 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.
COMMENTS : This bill, as passed by the Assembly, exempted
tangible property purchased under an executed fixed price
contract by a small business, from future increased sales and
use tax rates. This bill was substantially amended in the
Senate to require fixed price public contracts to increase
AB 2060
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payments to private contractors for future sales tax rates.
This bill, as amended in the Senate is inconsistent with
Assembly actions.
A fixed price public contract protects the governmental entity
against an unplanned increase in costs. Under a fixed price
contract, the contractor assumes all of the cost variation risk
and reward. If the cost exceeds the contract price, the
difference comes out of the contractor's pocket. Allowing
private contractors to adjust the contract price for tax
increases after the contract has been awarded to the lowest
bidder requires the governmental entity to reimburse the
contractor for any unforeseen financial liability resulting from
a sales tax increases and increases costs to the governmental
entity. Further, this bill includes the proposed extension of a
one percent sales tax set to expire on July 1, 2011, as part of
the tax adjustment.
This bill applies to public, not private contracts. Current law
does not prevent a contractor from entering into a fixed price
contract that provides for a change order allowing for a
contract price to be adjusted for future sales and use tax rate
increases.
Analysis Prepared by : Joanna Gin / B.,P. & C.P. / (916)
319-3301
FN: 0006734