BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 138 - Liu
Introduced: February 11, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUMMARY: Increases Maximum Tax Amounts on Products Subject
to Local Graffiti Prevention Tax
EXISTING LAW (AB 3580, Katz, 1990) authorizes local
agencies to enact an ordinance, subject to approval by 2/3
vote of the local electorate, to assess a tax of up to:
Ten cents ($0.10) per container of
aerosol paint, container or other marking
substances, or felt tip markers with a flat or
angled writing surface of a half-inch or
greater.
Five cents ($0.05) per felt tip marker
or any other marking instrument.
EXISTING LAW requires every retailer engaged in the
business of selling products subject to the tax within the
jurisdiction that enacted the ordinance to collect and
remit the tax to the State Board of Equalization (BOE),
which in turn remits the proceeds to the local agency.
Local agencies may only spend proceeds from the graffiti
tax on graffiti prevention and removal, or for educational
programs for at-risk youth to combat graffiti vandalism in
all its forms. However, no local agency has yet enacted
the tax.
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THIS BILL increases the above maximum tax amounts to
fifty cents ($0.50) per aerosol container, container of
other marking substances, and felt tip markers with a flat
or angled writing surface of a half-inch or greater, and
twenty-five cents ($0.25) per felt tip marker or other
marking instrument.
FISCAL EFFECT:
Because no local agencies have ever enacted the tax
under the current law, the fiscal effect depends entirely
on future decisions of local agencies.
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COMMENTS:
A. Author's Statement
According to the Author, "This bill amends the Revenue
and Tax Code, which already allows cities or counties to
ask voters if they want to approve a tax for graffiti
removal. The bill increases the amount that voters can
approve up to 50 cents per spray can and 25 cents per
marker. This bill is sponsored by Los Angeles City
Councilmember Jose Huizar. Current state law allows cities
or counties to place on the ballot a tax up to 10 cents per
spray can or 5 cents for each permanent marker. Funding
must be dedicated to graffiti removal. The Legislature
approved this section nearly 20 years ago, and the maximum
tax amounts should be adjusted to reflect current needs.
Graffiti damages private and public property requires
costly cleanup and harms the quality of life in our
communities. Local governments need additional funding to
combat this crime.
The City of Los Angeles spends $7.6 million each year
from the General Fund on graffiti-fighting efforts.
Reported graffiti incidents in the Los Angeles County
Sheriff's Department patrol area rose from 2,083 in 2002 to
4,274 in 2006. Countywide, officials spent up to $30
million in that period on graffiti removal and tagging
suppression.
The California Department of Transportation in 2007
spent about $5 million on graffiti removal in Los Angeles
and Ventura counties alone.
Local government leaders, law enforcement, and
community groups have worked together to develop successful
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graffiti-prevention programs. Criminal penalties were
increased. Ordinances allow local governments to levy civil
fines against taggers. Nonetheless, problems persist
Local governments need additional funding for graffiti
cleanup efforts, particularly when graffiti endangers a
community's quality of life."
B. Painted in a Corner
The Local Graffiti Tax allows local agencies affected
by graffiti to enact a tax on products presumably used to
create the nuisance to fund efforts to clean up or deter
graffiti, costs that vary by jurisdiction, but range from
$1,500 to $3.8 million per year according to a League of
California Cities survey. Local agency governing boards
must first enact an ordinance, then local voters must
approve the measure by 2/3 vote. The tax gives local
communities who choose to fund graffiti abatement and
prevention efforts the option to tax products used to
create the nuisance, thereby shifting the costs of graffiti
remediation from the general taxpayer onto individuals who
purchase products that may create graffiti. In that
regard, the tax functions like a regulatory fee by applying
only to specific products; however, the Local Graffiti Tax
is a tax, enacted by ordinance and 2/3 vote of the local
electorate. Requirements that bind regulatory fees in
California do not apply; instead, the act authorizing the
tax confines the proceeds for anti-graffiti purposes.
C. Drawing the Line
Opponents to the measure assert that SB 138's
increases in the maximum tax amounts are too much, instead
suggesting lower amounts of $0.25 per aerosol can because
consumers may choose to buy paints over the Internet (where
the sales and use tax may or may not be collected), thereby
penalizing in-state businesses that collect and remit the
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tax by increasing the price of these products by the amount
of the tax. Opponents also argue that SB 138's maximum tax
amount may be too high to pass the incidence of tax onto
consumers, thereby penalizing California businesses instead
of persons who engage in graffiti; tax incidence theory
posits that taxes are paid by consumers or suppliers based
on price elasticities of supply and demand, or whether the
supplier can incorporate the tax in the final price paid by
the consumer without affecting the price or quantity of
goods sold. Opponents add that internet sales provide more
options for consumers, increasing the difficulty to pass
the tax onto the paint purchaser.
D. Of Carts and Horses
SB 138 increases maximum tax amounts for the graffiti
prevention tax; however, BOE points out that no local
jurisdiction has ever enacted the tax, although the
Author's office states that voters defeated proposed
graffiti prevention taxes twice. Should the Legislature
seek to expand an existing, but completely untried tax?
Proponents respond that few local agencies have tried to
enact the tax because the maximum amounts are too low to
generate revenue sufficient to offset graffiti abatement
costs. With higher amounts, more local agencies would have
the incentive to enact the tax. Additionally, because the
tax has never been enacted, potential disputes between
taxpayers and tax enforcement agencies have not yet
occurred. BOE argues in its analysis that the bill's
definitions may give rise to these disputes, and suggest
further clarity in definitions.
E. Brave New World
As part of February's State Budget Agreement (ABx3 3,
Evans), California recently increased its sales and use tax
rate to 6.25%, resulting in a maximum combined state and
local sales tax rate of 10.25% (The City of Southgate
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currently applies this rate). One major component of the
combined rates are locally approved transactions and use
taxes, which are capped at 2%. Last year, the Legislature
enacted AB 2321 (Feuer) which allows the Los Angeles County
Metropolitan Transportation Agency (MTA) to assess an
additional .5% transactions and use tax specifically
exempted from the 2% cap,. MTA-area voters approved in
November, 2008 and will take effect on July 1, 2009. While
opponents point out that the increasing tax rate combined
with a local graffiti prevention tax may result in a
combined tax rate when combined with current economic
conditions that will substantially deter sales of paint,
BOE adds that the measure does not specify whether the
graffiti prevention tax is subject to the 2% cap. BOE
suggests that the tax should not be subject to the cap
because it is not similar to transactions and use taxes
because the tax is applied on each unit sold and not a
percentage of the sales price. The Committee may wish to
consider an amendment to specify that local graffiti
prevention taxes are not subject to the 2% maximum on local
transactions and use taxes.
Support and Opposition
Support:League of California Cities, City of Murieta,
Association for Los Angeles Deputy Sheriffs, and the
Riverside Sheriffs Association.
Oppose:California Taxpayers' Association
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Consultant: Colin Grinnell
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