BILL ANALYSIS
AB 2078
Page A
ASSEMBLY THIRD READING
AB 2078 (Charles Calderon)
As Amended April 27, 2010
Majority vote
REVENUE & TAXATION 6-3
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|Ayes:|Portantino, Beall, | | |
| |Charles Calderon, Coto, | | |
| |Fuentes, Saldana | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Conway, Harkey, Nestande | | |
| | | | |
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SUMMARY : Implements new notice requirements to improve
administration of the state's use tax. Specifically, this bill
provides that any retailer selling taxable tangible personal
property (TPP), that is not required to collect use tax, shall
provide a notice on its retail Web site or catalogue that
California law imposes use tax on non-exempt TPP purchased from
the retailer, and that the consumer must pay the tax. This
notice must be readily visible.
EXISTING FEDERAL LAW :
1)Authorizes Congress, under the commerce clause of the United
States (U.S.) Constitution, to regulate commerce with foreign
nations, and among the several states. The U.S. Supreme Court
has held that the "negative" or "dormant" commerce clause also
prohibits states from enacting laws that unduly burden
interstate commerce.
2)Provides that, under the "negative" commerce clause, a
retailer must have a "physical presence" in a state before
that state can require the retailer to collect its use tax.
EXISTING STATE LAW :
1)Imposes a sales tax on retailers for the privilege of selling
TPP, absent a specific exemption. The tax is based upon the
retailer's gross receipts from TPP sales in this state.
AB 2078
Page B
2)Imposes a complementary use tax on the storage, use, or other
consumption of TPP purchased out of state and brought into
California. The use tax is imposed on the purchaser , and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must be remitted to
the State Board of Equalization (BOE).
FISCAL EFFECT : Indeterminate. BOE staff note, "To the extent
compliance with this bill is achieved, state and local revenues
could increase. However, it is difficult to determine with any
degree of certainty the amount of any increase."
COMMENTS : The author has provided the following statement in
support of this bill:
According to BOE, over $1 billion in state and local
revenue is lost each year from unreported use tax
associated with out-of-state Internet and mail order sales.
AB 2078 provides an approach for closing this use tax gap.
Specifically, this bill would require non-collecting
retailers to provide a notice on their web site or
catalogue informing consumers that California's use tax
applies to certain purchases and must be paid directly by
the consumer. By taking this simple step, AB 2078 will
promote the fair and effective administration of
California's Sales and Use Tax Law.
Committee Staff Notes
1)The Legal Landscape: There is, under existing law, a certain
degree of ambiguity concerning when a state may legally compel
an out-of-state retailer to collect the state's use tax on
sales to state residents. In Quill Corp. v. North Dakota
(1992), 504 U.S. 298, the U.S. Supreme Court was asked to
decide the constitutionality of a North Dakota law that
imposed a use tax collection obligation on out-of-state
retailers that advertised in the state three or more times in
a single year. The Court invalidated the law, holding that
under the negative commerce clause, a retailer must have a
"physical presence" in a state before that state can require
the retailer to collect its use tax. The "physical presence"
test affirmed in Quill has complicated California's efforts to
AB 2078
Page C
collect its use tax. For example, when a California consumer
purchases a coat from an out-of-state retailer through its
catalog, the consumer's use of the coat in California triggers
a use tax liability. If the out-of-state retailer lacks a
"physical presence" in California, however, California is
constitutionally prohibited from requiring the retailer to
collect the tax. If the consumer fails to remit the tax, the
purchase completely escapes taxation. It is estimated that
this gap in California's sales and use tax system costs the
state nearly $1.1 billion in revenues each year.
2)The Approach Taken by AB 2078: AB 2078 attempts to close
California's use tax gap by requiring non-collecting retailers
to provide a notice on their Web site or catalogue informing
consumers that California's use tax applies to certain
purchases and must be paid directly by the consumer.
3)What Happens if a Non-Collecting Retailer Fails to Comply with
the New Notice Requirements?: Controlling case law clearly
prohibits states from requiring a remote retailer to collect
use tax unless the retailer has a "physical presence" in the
state. It is unclear, however, how a court would look upon
this bill's notice requirements. Moreover, this bill does not
contain any penalties for non-compliance. The author may wish
to amend the bill to provide appropriate penalties should a
non-collecting retailer fail to comply with the new notice
requirements.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0004128