BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2788 - Portantino
Amended: July 15, 2010
Hearing: August 11, 2010 Tax Levy Fiscal: Yes
SUMMARY: Recasts and Revises Sales and Use Tax Treatment
of Trucks, Truck Tractors, Trailers,
Semitrailers, Trailer Coaches, and Auxilliary
Dollies.
EXISTING LAW provides that when an in-state retailer
sells an item which is subsequently shipped out-of-state
for use outside the state, the sales and use tax does not
apply because the law considers the taxpayer's use of the
item interstate commerce. Taxpayers must ship the product
directly to the purchaser through its own delivery vehicle,
another means it owns, or through a common carrier to enjoy
the exemption.
EXISTING LAW (Revenue & Taxation Code and BOE
Regulation 1620.1) provides guidance for taxpayers
purchasing specified items for use outside the state:
R&T Code 6388 provided that a non-resident purchasing
a new or remanufactured truck, truck tractor, semitrailer
or trailer or any of which has an unladen weight of 6,000
pounds or more, a new or remanufactured trailer coach, or
auxiliary dolly, that is manufactured or remanufactured in
this state and purchased from a dealer outside this state
for delivery in the state and for use exclusively outside
this state does not pay the tax if:
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The taxpayer removes the item within 30
days, and supplies an affidavit that the vehicle
has been moved or driven to a point outside the
state within 30 days.
Supplies an affidavit attesting that the
taxpayer is not a resident of this state and that
he or she purchased the vehicle from a dealer at
a specified location without the state for use
outside this state .
The taxpayer supplies the manufacturer or
remanufacturer written evidence of out-of-state
registration.
R&T Code 6388.5 provides that anyone purchasing only a
new or remanufactured trailer or semitrailer with an
unladen weight of 6,000 pounds or more solely for use
exclusively in interstate, out-of-state, or foreign
commerce does not pay the tax if:
The taxpayer supplies the manufacturer,
remanufacturer, or dealer written evidence of
out-of-state license and registration for the
vehicle.
Supplies an affidavit attesting that the
taxpayer purchased the vehicle from a dealer at a
specified location for use exclusively outside
the state or for use in interstate or foreign
commerce .
To enjoy the exemption, the taxpayer has 30 days from
the date of delivery to remove the item when purchased from
an out-of-state manufacturer, or 75 days when purchased
from a manufacturer in California. The taxpayer must
supply an affidavit that the vehicle has been moved or
driven to a point outside the state within this deadline.
THIS BILL repeals R&T Code 6388, and consolidates the
protections of the two sections into R&T Code 6388.5 to
state that anyone purchasing a new or remanufactured truck,
truck tractor, semitrailer or trailer any of which has an
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unladen weight of less than 6,000 pounds or more, a new or
remanufactured trailer coach, or auxiliary dolly, that is
manufactured or remanufactured anywhere and used inside or
outside the state in interstate or foreign commerce does
not pay the tax if the taxpayer:
Moves or drives the vehicle out of state
within 75 days , and supplies an affidavit that
the vehicle has been moved or driven to a point
outside the state within this deadline.
Supplies the manufacturer,
remanufacturer, or dealer written evidence of
out-of-state license and registration for the
vehicle or an affidavit stating that registration
is not required.
Supplies an affidavit attesting that the
taxpayer purchased the vehicle from a dealer at a
specified location for use exclusively outside
the state or for use in interstate or foreign
commerce .
FISCAL EFFECT:
According to BOE, revenue losses attributable to AB
2788 are minimal.
COMMENTS:
A. Purpose of the Bill
The author provides the following statement:
In today's environment, traditional warehousing of
goods has declined dramatically. Accordingly,
businesses are moving toward Just in Time delivery of
many goods and services and can modify their business
practices to take advantage of the most favorable
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business conditions. The trailers, semi trailers and
dollies referenced in section 6388.5 are used
exclusively in interstate or foreign commerce. Thus,
the ability to move the vehicles may not always occur
in the very tight timeframes currently outlined in
section 6388.5 of the Revenue and Taxation Code
requiring that the vehicles move out of state within
30 days.
Creating parity - allowing all such vehicles purchased
in California and moved outside of California in 75
days - will result in increased sales. The state
would benefit from the incidence of increased revenues
for California based businesses generating increased
sales. Increased sales in turn will reflect more
revenue to the state as a result in higher sales
figures and give those companies located in California
the ability to hire more employees to support the
increased sales.
B. The Long Haul
BOE provided the following background:
"Section 6388 was added to law in 1959 to exempt sales
of new trailer coaches by out-of-state dealers when an
out-of-state resident took delivery in California,
provided the trailer was to be used exclusively
outside the state, delivery was by the California
manufacturer at the manufacturer's California's place
of business, and the trailer was removed from
California within 30 days. The reason for this
exemption was to attract out-of-state purchasers of
California-built trailer coaches. Proponents of the
bill also noted that an incidental benefit would also
accrue to businesses catering to the tourist trade,
since qualified purchasers would be permitted to use
their trailers within California without incurring a
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tax liability for a period of 30 days after accepting
delivery. Proponents also noted that there was no
real tax loss because people were not making any
purchases at the time because they did not want to pay
the tax.
In 1963, this exemption was expanded to include
trucks, truck tractors, semi trailers, trailers and
auxiliary dollies.
In 1970, the exemption was further expanded by
relaxing the requirements for truck trailers. The
requirement of out-of-state use was loosened to allow
in-state use, if exclusively in interstate commerce.
Also, delivery to purchasers by dealers within
California was permitted, provided the dealership was
owned by the manufacturer.
Section 6388.5 was added to law in 1974 to extend and
expand the Section 6388 exemption so that a purchaser
may purchase a trailer or semi trailer from a
California dealer - provided the manufacturer
delivered the item directly to the purchaser, and the
purchaser removed the item out of California within 30
days for use exclusively in interstate commerce or
exclusively outside of California.
In 1982, this exemption was further expanded to allow
the trailers or semi trailers to be removed to a point
outside of California within 75 days from delivery if
the item was manufactured in California. Also, any
dealer could make the delivery to the purchaser (not
just the manufacturer as previously required). The
reason behind the 75-days was that one manufacturer
(Utility Trailer Manufacturing Company located in Los
Angeles) had intended to sell 400 trailers to a
purchaser who planned on using them outside
California. The purchaser was concerned that it would
not be possible to meet the conditions of the
exemption at the time which required removal from
California within 30 days from the date of delivery,
given the large number of trailers involved. The
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transaction therefore fell through.
Also in 1982, the exemption was further expanded by
allowing the exemption if the item is used exclusively
in foreign commerce and the other requirements of the
exemption are met. This amendment was sponsored by
Freuhauf Corporation which manufactured container
chassis in California. Its sales to a Korean
steamship company for use in foreign commerce did not
qualify for the exemption, as the law required the use
to be in interstate commerce (not foreign commerce)."
C. Under the Hood
AB 2788 comprehensively revises the sales and use tax
law for specified items and vehicles used outside the sate
or in interstate or foreign commerce. The bill allows
additional purchasers to assert the exemption, broadens the
list of products subject to the exemption, extends
timelines to remove the items, and expands the non-taxable
uses of the vehicles and items. However, it's unclear
whether purchasers comply with current law, or if BOE can
practically enforce it based on its current construction.
Dealers do not collect tax as long as purchasers supply the
proper affidavits, which purchasers do not need to send to
the BOE. Neither dealers nor the BOE knows whether the
information in the affidavits is actually true. Purchasers
could be using the items exclusively on California roads
while claiming use in foreign or interstate commerce, or
not removing the items within the specified timelines, and
no one would be able to tell. Without tangible enforcement
mechanisms, taxpayers have little incentive to comply with
the law, allowing purchasers to use roads and other
transportation infrastructure paid for by the general
California taxpayer.
As this area of tax law has evolved over the last 50
years, and AB 2788 represents the most comprehensive
revision to date, the Committee may wish to consider the
following amendments to ensure compliance with the law in
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the future:
Purchasers must supply BOE with the same affidavits
it provides to the dealer within 30 days of purchase
stating that the taxpayer purchased the vehicle from a
dealer at a specified location for use exclusively
outside the state or for use in interstate or foreign
commerce, and written evidence of out-of-state license
and registration for the vehicle or an affidavit
stating that registration is not required. If a
purchaser does not supply the required affidavits
within 30 days of providing them to the dealer, the
taxpayer shall be subject to a penalty equal to 10% of
the tax.
After the purchaser removes the vehicle from the
state, he or she must submit the affidavit stating
that the vehicle has been moved or driven to a point
outside the state within 75 days to the purchaser and
the BOE within 30 days of removal. The law currently
does not specify when the taxpayer must supply the
affidavit stating this information, and BOE currently
lacks the information necessary to enforce the law.
If BOE finds that the purchaser violated the law by
using the vehicle for in-state commerce or not
removing it before 75 days of the delivery date, he or
she shall be subject to a penalty equal to 100% of the
tax due in addition to the tax.
D. East Bound and Down?
State law and BOE Regulation provides two different
deadlines for taxpayers who purchases trucks and semi
trailers to remove the item before triggering a sales tax
obligation, depending on where the item is manufactured, 30
days for out-of-state and 75 days for in-state purchases.
While consolidating the sections to apply the exemption for
the same list of products make sense, extending the
timeline from 30 days to 75 days for out-of-state purchased
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items removes the preference in existing law for California
manufacturers that justified the initial exemption.
According to the Truck Trailers Manufacturing Association,
Cozad Trailer in Stockton, Utility Trailer in the City of
Industry, Weld-It Company in Los Angeles, and West Mark in
Ceres have either headquarters or manufacturing operations
in California. Additionally, HINO, a division of Toyota,
manufactures some elements of heavy trucks in Ontario,
although final assembly takes place in West Virginia. AB
2788's sponsor, Hyundai Translead, which manufactures
products in Tijuana, Mexico but sells them in San Diego,
counters that none of these firms manufacture products in
California similar to its products, so the in-state
preference is unnecessary and provides no competitive
preference. Hyundai argues that providing the longer
timeline for all purchases regardless of the manufacturer's
location will boost sales, and thereby enhance economic
growth in the state.
The other policy question posed by the bill is the
appropriate length of time a taxpayer needs to reasonably
remove the vehicle before he or she should be considered a
consumer of public services, and the sales tax should
therefore apply. Sponsors state that delays in the process
from inception of the purchase and delivery to the actual
date of interstate travel exist, necessitating a longer
timeline than 30 days. Sponsors add that purchasers by
these items in the hundreds or thousands, and cannot easily
remove them from the state under the current timelines in
law, and often must wait to schedule a load destined for a
location outside of California. In response to fiscal
realities, the Legislature in recent years has moved to
tighten, not loosen, these deadlines, most notably for
taxpayers who used to be able to bring airplanes, vehicles,
and yachts purchased out-of-state for use in California.
Taxpayers did not trigger use tax when bringing these items
into California only 90 days after purchase, until the
Legislature enacted a rebuttable presumption existed that
use tax applied if the taxpayer brought the item into the
state before a one-year period passed (AB 1452, Committee
on Budget, 2008).
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Support and Opposition
Support:California Trucking Association, Hyundai
Translead
Oppose:None Received
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Consultant: Colin Grinnell