BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2078|
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THIRD READING
Bill No: AB 2078
Author: Charles Calderon (D)
Amended: 6/24/10 in Senate
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 3-2, 7/1/10
AYES: Wolk, Alquist, Padilla
NOES: Walters, Ashburn
SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/2/10
AYES: Kehoe, Alquist, Corbett, Price, Wolk, Yee
NOES: Ashburn, Emmerson, Wyland
NO VOTE RECORDED: Leno, Walters
ASSEMBLY FLOOR : 46-28, 5/6/10 - See last page for vote
SUBJECT : Use tax: notification to purchasers: retailer
engaged in bus
SOURCE : Author
DIGEST : This bill provides a rebuttable presumption that
any retailer that is part of a controlled group of
corporations, and that controlled group of corporations has
a component member that is a retailer engaged in business
in this state, as described, is presumed to be a retailer
engaged in business in this state. This bill requires each
retailer that is not required to collect use tax to provide
notification on its retail Internet Web site or catalogue
that tax is imposed on the storage, use, or other
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consumption in this state of the tangible personal property
purchased from the retailer that is not exempt, and is
required to be paid by the purchaser, as provided.
ANALYSIS : The Sales and Use Tax Law imposes a tax on
retailers measured by the gross receipts from the sale of
tangible personal property sold at retail in this state of,
or, and on the storage, use, or other consumption in this
state of, tangible personal property purchased from a
retailer for storage, use, or other consumption in this
state. That law requires every retailer engaged in
business in this state, as specified, and making sales of
tangible personal property for storage, use, or other
consumption in this state to, at the time of making the
sales or, if the storage, use, or other consumption of the
tangible personal property is not then taxable, at the time
the storage, use, or other consumption becomes taxable,
collect the tax from the purchaser.
Federal law, the U.S. Constitution's Commerce Clause,
generally prohibits states from enacting legislation that
improperly burdens or discriminates against interstate
commerce. The question of whether states can compel remote
retailers to collect the use tax has been the subject of
extensive disagreement and litigation. For instance, under
Complete Auto Transit v. Brady , 430 U.S. 274, 97 S.Ct. 1076
(1977), states may tax interstate business without
violating either the Commerce or Due Process clauses if the
taxpayer has nexus, the tax is fairly apportioned and
non-discriminatory, and a fair relationship exists between
the tax and the services provided must. The Court clearly
stated that its holding applied to income taxes, franchise
taxes, and sales taxes.
The Court subsequently refined its view of nexus for
purposes of sales and use taxes in Quill Corp. v. North
Dakota , 504 U.S. 278 (1992). The Court held that
compelling out-of-state retailers to collect and remit
sales and use taxes did not violate the Due Process Clause,
but such a requirement did violate the Commerce Clause.
The Court found that North Dakota's statute compelling a
vendor who advertises three times in a single year or makes
three phone calls soliciting sales in the state to collect
sales and use taxes unduly burdens interstate commerce.
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Since Quill, states have been legally barred from forcing
retailers that lack physical presence in a state from
collecting the use tax. In addition, Current, Inc. v.
State Board of Equalization, 24 Cal.Appt.4th 382 (1994)
affirmed a trial court decision that the imposition of the
use tax on an out-of-state mail order company was invalid
under the Commerce Clause, and that the company was not
rendered liable for the tax by its acquisition by another
company.
Other states have attempted to compel retailers that lack
physical presence in the state to collect and remit sales
and use taxes. New York created a presumption that a
retailer solicits sales in the state if an in-state
affiliate is compensated for referring customers directly
or indirectly to the retailer, stating that "attributional
nexus" exists. The Legislature approved an attributional
nexus measure in California (SBx3 17 [Ducheny],of 2009-10
Sessionn), but Governor Arnold Schwarzenegger vetoed the
measure. Colorado requires non-collecting retailers to
notify customers that sales and use taxes are due on
certain purchases, and that the consumer must file a sales
and use tax return, with failure to comply subject to
penalties. Colorado's legislation also compelled
non-collecting retailers to collect and remit the sales and
use tax if it is part of a controlled group of corporations
with a component member that is a retailer with physical
presence in the state. This bill contains a similar
provision. The Colorado legislation is currently in
litigation, and staff notes that this bill is also likely
to be challenged in court.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis,
it is unknown how many out-of-state retailers would comply
with the requirements of the bill, or how many California
consumers would voluntarily report the use tax as a direct
result of a retailer complying with the notice requirements
in this bill. To the extent compliance with this bill is
achieved, state and local revenues could increase. BOE
notes that annual revenue losses related to unreported use
taxes is over $1 billion, approximately $600 million of
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which is related to consumer purchases and $485 million
related to business-to-business transactions. BOE
estimates that this bill could result in a state and local
revenue gain of about $590,000 related to consumer
purchases, if five percent of business-to-consumer sales
are reported.
SUPPORT : (Verified 8/4/10)
American Federation of State, County and Municipal
Employees
California State Association of Counties
California Labor Federation
OPPOSITION : (Verified 8/4/10)
Billy Fire LLC
California Taxpayers' Association (unless amended)
Cashbag
Coastal Cardiology (unless amended)
Commission Junction (unless amended)
Direct Marketing Association
Fuller Sound/CSS Music/D.A.W.N. (unless amended)
Ebates
HR Jungle
Internet Alliance
Ken-Rockwell.com
Newsblaze
Ogletree's, Inc.
Overstock.com
Palm Desert Chamber of Commerce
Panoptz Inc./7EYE
Performance Marketing Association
Savings.com
Shaaf partnercentric
Software finance & Tax Executives Council
ARGUMENTS IN SUPPORT : The author's office states that
according to the California Board of Equalization over $1
billion in state and local revenue is lost each year from
unreported user tax associated with out-of-state internet
and mail order sales. This bill seeks to close these sales
and use tax collection gap by requiring specified retailers
to provide notice to California consumers that they
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(consumers) are responsible for paying use tax on certain
purchases in an effort to improve the collection of these
taxes in the state.
ARGUMENTS IN OPPOSITION : The opposition states that this
bill attempts to establish constitutional nexus with
out-of-state retailers by creating a rebuttable presumption
that any out-of-state retailer that is part of a controlled
group of corporations with another company that acts as a
retailer in California is, by association, a retailer
engaged in business in this state, thus subjecting them to
the requirement to collect use tax on purchases by
California customers. However, in Current, Inc. v. State
Bd. of Equalization (1994), the California Court determined
that acquisition of an out-of-state retailer by a
California-based retailer does NOT create a sufficient
physical nexus with California to justify the imposition of
a use tax collection requirement under the U.S. Commerce
Clause.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Blakeslee, Blumenfield,
Bradford, Brownley, Caballero, Charles Calderon, Carter,
Chesbro, Coto, Davis, De La Torre, De Leon, Eng, Evans,
Feuer, Fong, Fuentes, Furutani, Galgiani, Hall, Hayashi,
Hernandez, Hill, Huffman, Jones, Lieu, Bonnie Lowenthal,
Ma, Monning, Nava, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Skinner, Solorio, Swanson, Torlakson,
Torres, Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Conway, Cook, DeVore, Emmerson, Fletcher, Fuller, Gaines,
Garrick, Hagman, Harkey, Huber, Jeffries, Knight, Logue,
Miller, Nestande, Niello, Nielsen, Norby, Silva, Smyth,
Audra Strickland, Tran, Villines
NO VOTE RECORDED: Bass, Block, Buchanan, Gilmore, Mendoza,
Vacancy
DLW:do 8/4/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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