BILL ANALYSIS �
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THIRD READING
Bill No: AB 155
Author: Charles Calderon (D), et al.
Amended: 9/9/11 in Senate
Vote: 27 - Urgency
SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 7/6/11
AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu
NOES: Huff, Fuller, La Malfa
SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11
AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg
NOES: Walters, Emmerson, Runner
SENATE FLOOR : 22-12, 9/6/11 (FAIL)
AYES: Alquist, Calderon, Corbett, De Le�n, DeSaulnier,
Evans, Hancock, Hernandez, Kehoe, Leno, Lieu, Liu,
Lowenthal, Negrete McLeod, Padilla, Pavley, Price,
Simitian, Steinberg, Vargas, Wolk, Yee
NOES: Anderson, Blakeslee, Correa, Dutton, Gaines, Harman,
Huff, La Malfa, Runner, Strickland, Walters, Wyland
NO VOTE RECORDED: Berryhill, Cannella, Emmerson, Fuller,
Rubio, Wright
ASSEMBLY FLOOR : 52-20, 5/31/11 - See last page for vote
SUBJECT : Use tax: retailer engaged in business
SOURCE : Author
DIGEST : This bill reenacts past law, and delays
CONTINUED
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implementation of current law, defining retailers that must
collect and remit the use tax.
ANALYSIS : The following discusses amendments which were
placed into the bill on September 9, 2011:
1. The amendments revert the definition of "retailer
engaged in business in the state" to its state before AB
28X1's enactment immediately as an urgency statute. The
amendments also apply the previous definition back to
June 28th, 2011, the effective date of AB 28X1.
However, the bill reenacts AB 28X1's additions to the
definition on:
January 1, 2013, if Congress authorizes states to
collect taxes on sales of goods and services to
in-state purchasers without regard to the location of
the seller by July 1, 2012, and California does not
implement the law by September 14, 2012.
September 15, 2012, if Congress does not enact
any authorization by July 1, 2012.
2. The amendments do not discuss the effective date should
Congress enact a law and California implement it.
Future legislation would likely be needed to amend these
effective dates in such an event.
3. The amendments require the Director of the Department of
Finance to, certify in writing to the Governor, the
Senate Rules Committee, the Speaker of the Assembly, and
the State Board of Equalization on or before August 15,
2012, whether or not federal law is enacted on or before
July 1, 2012.
4. The amendments also increase the small business
exception for affiliate marketing. Instead of retailers
with total sales of $500,000 or more in the state
meeting the definition, the bill applies the definition
only to those with $1 million or more in total sales.
5. The amendments also require retailers that make sales
into this state that meet AB 28X1's definition, but not
the pre-AB 28X1 definition to provide a notification to
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its customers on invoices or similar documentation. The
notification must be confidential, contain specified
contents, and warn customers that use tax may be due on
the purchase, and may be provided electronically. The
notification requirement is satisfied if it includes
prominent notice that directs its customers to its
Internet Web site regarding their use tax obligations.
These retailers must also provide a statement of total
sales to each of its customers to whom it sold tangible
personal property subject to tax in the past year by
March 1st of 2012 and 2013.
Federal Law
The United States Constitution grants the power to Congress
to "regulate Commerce with foreign nations, and among the
several states, and with the Indian Tribes;" a provision
widely known as the Commerce Clause (Article I, Section 8).
If Congress fails to regulate interstate commerce wholly
or in part, the United States Supreme Court has asserted
consistently that the Constitution still precludes states
from doing so, known as the "dormant" or "negative"
Commerce Clause. Additionally, the 14th amendment states
that no state may "deprive a person of life, liberty, or
property without due process of law."
The United States Supreme Court has issued several
decisions interpreting these parts of the Constitution to
guide states seeking to tax firms engaged in multi-state
commerce. Under the foundational 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; however, the taxpayer must have
nexus, the tax must be fairly apportioned and
non-discriminatory, and a fair relationship between the tax
and the services provided must exist. The Court clearly
stated that its holding applied to income taxes, franchise
taxes, and sales and use taxes.
Initially, the Court provided that a firm did not require
physical presence to trigger nexus. A firm having
employees or independent contractors is enough to trigger
the use tax collection requirement, thereby creating the
theory of "agency nexus" in Scripto, Inc. v. Carson , 362
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U.S. 207 (1960). Seven year later, the Court clarified
that states could not compel collection of the use tax from
a firm that only shipped into a state by mail or common
carrier in National Bellas Hess v. Department of Revenue ,
386 U.S. 753 (1967). The Court subsequently refined its
view of use tax nexus in Quill Corp. v. North Dakota , 504
U.S. 278 (1992), relying on National Bellas Hess , holding
that states compelling retailers without physical presence
in the state to collect and remit use taxes complied with
the Due Process Clause, but violated the Commerce Clause.
In Quill , the Court found that North Dakota's statute
compelling a vendor with no physical presence but who
advertises three times in a single year or makes three
phone calls soliciting sales in the state to collect use
taxes unduly burdens interstate commerce. Quill bars
states from forcing retailers that lack physical presence
in a state to collect the use tax, although recent efforts
are challenging this standard.
State Law
State law imposes the sales tax on every retailer "engaged
in business in this state" that sells tangible personal
property to collect the appropriate tax from the purchase
and remit the amount to the Board of Equalization. Unless
the person pays the sales tax to the retailer, he or she is
liable for the use tax, which is imposed on any person
consuming tangible personal property in the state. The use
tax is the same rate as the sales tax, and must be remitted
on or before the last day of the month following the
quarterly period in which the person made the purchase.
Under Quill , when a California resident purchases tangible
personal property from a retailer that lacks physical
presence in the state online, by mail order, or on a trip
to another state, the obligation rests on the consumer to
remit the use tax due. Californians may remit the use tax
on the income tax form (SB 858, Senate Budget Committee,
2010), after a similar provision sunset after the 2009
taxable year (SB 1009, Alpert, 2003).
On June 28, 2011, Governor Brown signed AB 28X1
(Blumenfield), which added three new definitions to the
list of persons that must collect and remit the use tax.
The measure took effect immediately as a budget trailer
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bill, compelling those firms meeting the new definitions to
collect and remit use taxes on sales made to California
residents.
Prior to AB 28X1, the Sales and Use Tax Law defined a
"retailer engaged in business in this state" as:
Any retailer maintaining, occupying, or using, an office,
place of distribution, sales or sample room, warehouse or
storage place, or other place of business, regardless of
whether the retailer utilizes the above on a temporary or
permanent basis, directly or indirectly, or through a
subsidiary or affiliate.
Any retailer having any representative, agent,
salesperson, canvasser, in-dependent contractor, or
solicitor operating in the state under the authority of
the retailer or its subsidiary for the purposes of
delivering, installing, assembling, or the taking of
orders for any tangible personal property .
Any retailer that derives rental income from leases
within the state.
AB 28X1 added the following definitions to the above list
of persons that must collect and remit the use tax:
Affiliate Nexus : Any retailer entering into an agreement
with a resident of this state under which the resident,
for a commission or other consideration, directly or
indirectly refers potential customers of tangible
personal property, whether by a link or an Internet Web
site or otherwise, to the retailer, if the cumulative
gross receipts or sales price from sales by the retailer
to customers in this state who are referred pursuant to
these agreements is in excess $10,000 during the
preceding four calendar quarterly periods. This
requirement does not apply to retailers with less than
$500,000 in sales to this state.
Corporate Nexus : Any retailer that is a member of a
commonly controlled group, as defined in the Corporation
Tax Law, and a member of a combined reporting group, as
defined, that includes another member of the retailer's
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commonly controlled group that, pursuant to an agreement
with or in cooperation with the retailer, performs
services in this state in connection with tangible
personal property to be sold by the retailer.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Unknown with latest amendments.
ASSEMBLY FLOOR : 52-20, 5/31/11
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Bill Berryhill,
Block, Blumenfield, Bonilla, Bradford, Brownley,
Buchanan, Butler, Charles Calderon, Campos, Carter,
Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes,
Furutani, Galgiani, Gatto, Gordon, Hall, Hayashi, Roger
Hern�ndez, Hill, Huber, Hueso, Huffman, Lara, Bonnie
Lowenthal, Ma, Mendoza, Mitchell, Monning, Pan, Perea, V.
Manuel P�rez, Portantino, Skinner, Solorio, Swanson,
Torres, Wieckowski, Williams, Yamada, John A. P�rez
NOES: Achadjian, Cook, Donnelly, Fletcher, Beth Gaines,
Grove, Hagman, Halderman, Harkey, Jeffries, Knight,
Logue, Mansoor, Miller, Morrell, Nielsen, Silva, Smyth,
Valadao, Wagner
NO VOTE RECORDED: Cedillo, Conway, Garrick, Gorell, Jones,
Nestande, Norby, Olsen
DLW:mw 9/9/11 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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