BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 765 - Dutton
Amended: As Introduced
Hearing: May 13, 2009 Tax Levy Fiscal: Yes
SUBJECT: Grants a Sales and Use Tax Exemption on Sales
Made by a Thrift Store Located on a Military
Installation
EXISTING LAW imposes a sales and use tax on the gross
receipts from the sale of tangible personal property,
unless specifically exempted by statute. Current law
allows for a sales and use tax exemption for sales of used
pieces of clothing, household items, or other retail items
sold by thrift stores operated by nonprofit organizations
provided the purpose of that thrift store is to obtain
revenue for the funding of medical, hospice, or social
services to chronically ill individuals and the other
requirements of the exemption are met. Additionally,
current law also provides a sales and use tax exemption for
charitable organizations qualifying for the property tax
"welfare exemption," and the sales are made principally as
a matter of assistance to purchasers in distressed
financial conditions.
EXISTING LAW treats certain entities as tax-exempt
organizations under Section 23701d of the Revenue and
Taxation code, which is similar to Internal Revenue Code
Section 501 (c)(3). Organizations under Section 23701d
make up the largest category of tax-exempt entities with
approximately 115,000 in California. Exemptions under
Section 23701d are for entities organized and operated for
at least one of the following purposes 1) charitable, 2)
educational, 3) religious, 4) scientific, 5) literacy, 6)
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testing for public safety, 7) fostering national or
international amateur sports competition, and 8) preventing
cruelty to children or animals.
THIS BILL allows for a sales and use tax exemption for
sales of tangible personal property by a nonprofit
organization that operates thrift stores on military
installations, provided the organization is exempt from
taxation under Section 237101d, and its purpose is to
provide financial, educational, and other assistance to
members of the Naval Service of the United States, eligible
family members, and survivors when in need.
FISCAL EFFECT:
BOE estimates per year state revenue losses of
approximately $21,215.
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COMMENTS:
A. Purpose of the Bill
According to the author, "The purpose of this bill is
to amend the tax code in order to exempt the Navy-Marine
Corps Relief Society Thrift Stores in California from state
sales tax. The bill would allow the NMCRS to be included in
a Revenue and Taxation Code Section 6375 with other
nonprofits that operate thrift stores like the Goodwill and
the Salvation Army.
The NMCRS mission statement states that their mission
is "to provide, in partnership with the Navy and Marine
Corps, financial, educational, and other assistance to
members of the Naval Service of the United States, eligible
family members, and survivors when in need; and to receive
and manage funds to administer these programs."
The solution is to add a section (Section 6363.4) to
the Revenue and Taxation Code which would clarify
'nonprofit organization' to mean 'an organization, exempt
from taxation under Section 23701d, that, in partnership
with the Navy and Marine Corps, provides financial,
educational, and other assistance to members of the Naval
Services of the United States, eligible family members, and
survivors that are in need.'"
B. A Specific Entity
The Board of Equalization (BOE) states this bill helps
one entity, the Navy-Marine Corps Relief Society (NMCRS).
Founded in 1904, the NMCRS is a nonprofit-charitable
organization that provides financial relief through
interest-free loans to members of the Navy, Marine Corps,
and their family. THE NMCRS is incorporated in the
District of Columbia, headquartered in Arlington, Virginia,
and operates 28 thrift stores throughout California. The
income realized through the thrift store is allocated to
the NMCRS for use in their financial relief efforts. The
BOE unanimously voted to support this legislation.
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C. Slippery Slopes
This bill provides a narrow sales and use tax
exemption for a specific type of store on military bases
and has received general support from the Legislature in
the past; the revenue associated with the bill is also
relatively small. Sales tax exemptions in general add up
to billions of dollars in state revenue loss per year; if
this bill makes sense for a single thrift store entity on
military bases, the committee may wish to consider if it
makes sense to extend this benefit to other thrift like
thrift stores on other military bases. For that matter,
would it make sense to expand this exemption to all sales
on military bases? What about all sales to veterans?
While the objective of this bill is narrow, it sets a
precedent for future sales and use tax exemptions which
could add up to millions even billions of dollars in
revenue loss per year.
D. Related Legislation
This bill is identical to SB 1450 (Dutton), which
passed on an 8-0 vote in Senate committee on Revenue &
Taxation last year. The Assembly also had an identical
bill, AB 1919 (Silva), which passed out of Assembly Revenue
and Taxation; however, both of these bills failed passage
in Assembly Appropriations last year.
Support and Opposition
Support:Board of Equalization (sponsor)
California Peace Officers' Association
California Police Chiefs Association
Navy-Marine Corp Relief Society
San Diego Military Advisory Council
San Diego Regional Chamber of Commerce
Oppose:California State Associations of Counties
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Consultant: Marisa Lanchester
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