BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 28X1|
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THIRD READING
Bill No: AB 28X1
Author: Blumenfield (D)
Amended: 6/14/11 in Senate
Vote: 21
PRIOR VOTES NOT RELEVANT
SUBJECT : 2011-12 Budget Trailer Bill: Use Tax
Collection
SOURCE : Author
DIGEST : This bill clarifies the obligations under
existing law for out-of-state retailers to collect and
remit use tax on sales of tangible personal property to
California residents. Specifically, this bill expands the
statutory definition of "retailer engaged in business in
this state" under Revenue and Taxation Code Section 6203.
ANALYSIS : The amendments in this bill incorporate the
provisions of SB 234 (Hancock); AB 153 (Skinner) and AB 155
(Calderon). Each of these bills passed by its house of
origin in 2011.
California law imposes a use tax on the storage, use, or
other consumption in this state of tangible personal
property (i.e., "goods") purchased from any retailer. The
use tax is imposed on the purchaser at the same rate as the
sales tax and is required to be remitted to the Board of
Equalization (BOE). The most practical way for a state to
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enforce its use tax is to have retailers collect the tax at
the time of sale. It simply is not cost-effective for the
BOE to pursue individual taxpayers for their use tax
liabilities.
The Commerce Clause of the United States Constitution
(Article I, Section 8, Clause 3) states that Congress has
the exclusive authority to manage trade activities between
the states, with foreign nations, and Indian tribes. The
"Dormant" Commerce Clause, implied from the Commerce
Clause, is that states are prohibited from enacting
legislation that improperly burdens or discriminates
against interstate commerce. The courts have determined
that an out-of-state retailer must have a physical presence
or "substantial nexus" in a state in order to compel the
retailer to collect use tax on sales to in-state residents.
This bill clarifies circumstances under which out-of-state
retailers have substantial nexus in California and can be
compelled to collect use tax as follows:
"Long-Arm" Nexus . Any retailer that has "substantial
nexus" in this state for purposes of the commerce clause of
the United States Constitution, and any retailer upon whom
federal law permits the state to impose a use tax
collection duty. This provision clarifies that California
law imposes a collection duty out-of-state retailers to the
full extent permitted by federal law, and is included in SB
234 (Hancock).
Corporate Nexus . Any retailer that is a member of a
commonly controlled group and is a member of a combined
reporting group for income tax purposes that includes
another member that performs services in this state in
connection with tangible personal property be sold by the
retailer. This provision clarifies that an -out-of-state
retailer with subsidiaries in California is required to
collect use tax on sales to California residents, and is
included in AB 155 (Calderon).
Affiliate Nexus . Any retailer entering into an agreement
with a California resident under which the resident, for a
commission or other consideration, directly or indirectly
refers potential customers, whether by a link or an
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Internet Web site or otherwise, to the retailer, provided
the retailer's cumulative sales within the preceding 12
months to customers in California who are referred exceeds
$500,000. This provision requires an out-of-state retailer
that has business relationships with affiliates in
California to collect use tax on sales to California
residents, and is included in SB 153 (Skinner).
FISCAL EFFECT : Appropriation: Yes Fiscal Com.: Yes
Local: No
DLW:do 6/15/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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