BILL ANALYSIS �
AB 303
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Date of Hearing: May 27, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 303 (Knight) - As Amended: May 24, 2011
Policy Committee: Revenue and
Taxation Vote: 8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill establishes a partial sales and use tax (SUT)
exemption for specified business equipment. Specifically, this
bill:
1)Establishes a SUT exemption for tangible personal property
(TPP) that is used by a qualified person, as defined, and is
involved in a new trade or business. Limits the exemption to
manufacturing.
2)Provides that the exemption shall not apply with respect to
any tax levied:
a) By a county, city, or district under the Bradley-Burns
Uniform Local SUT Law or the Transactions and Use Tax Law;
and,
b) Under Revenue and Taxation Code (R&TC) Sections 6051.2,
6051.5, 6201.2, and 6201.5, or pursuant to Section 35 of
Article XIII of the California Constitution.
3)Goes into immediate effect as a tax levy.
4)Sunsets on January 1, 2017.
FISCAL EFFECT :
The Board of Equalization estimates revenue losses of $3.6
million in fiscal year (FY) 2011-12, $3.8 million in FY 2012-13,
and $4.1 million in FY 2013-14.
AB 303
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COMMENTS
1)Purpose . The author states that AB 303 seeks to address the
challenging business environment in California and that with
over 2.3 million Californians jobless (as of February 2011),
more must be done to keep people working and businesses out of
the red. Increased investment in research and development
allows businesses to remain competitive and employ working
individuals. The author notes that Forbes Magazine recently
laid out a map of businesses relocating across the nation and
California, by far, showed the most businesses leaving the
state. The author argues that California's businesses are
struggling to keep out of the red due to the overextended tax
burdens and regulations that government has placed on their
day to day business and AB 303 will help alleviate the high
costs of doing business in this state.
2)Background. The overall statewide sales and use tax rate of
7.25% is made up of several components. These are a 5% rate
for the General Fund, a .25% rate dedicated for repayment of
the Economic Recovery Bonds, a .25% rate for local health and
welfare programs, a .5% rate for local public safety services
and a 1% rate for local government, including county
transportation services. This bill would provide an exemption
for the 5% state rate.
3)Will the SUT exemption lead to job growth? Prior to January
1, 2004, California had a similar tax incentive known as the
Manufacturer's Incentive Credit (MIC). The MIC was enacted in
response to the state's economic downturn during the late 80's
and early 90's. During this time, the state lost about
300,000 jobs with a 45% reduction in aerospace jobs alone.
The MIC expired on January 1, 2004 after the Employment
Development Department (EDD) found that jobs on the preceding
January 1 did not exceed the total manufacturing jobs in
California on January 1, 1994 by more than 100,000. EDD
stated that from January 1, 1994 to January 1, 2002, the total
net increase in manufacturing employment was 35,150.
4)Opposition . The California Tax Reform Association, states
that their primary concern with this bill is substantial
revenue loss. As a matter of tax policy, they understand the
argument in part, and would suggest that this policy
substitute for single sales factor and other corporation tax
breaks (e.g. loss carry-backs) in a revenue-neutral manner.
They also question the exemption for research property,
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insofar as research and development already receives tax
credits which are the highest of any state in the country.
5)Relevant Legislation. Several bills were introduced in the
2009-10 Legislative Session to provide a similar tax exemption
for certain TPP:
a) AB 1719 (Harkey) contained provisions nearly identical
to this bill. AB 1719 was held in Committee on Revenue and
Taxation.
b) AB 1812 (Silva) would have provided a partial SUT
exemption, beginning January 1, 2011, for specified TPP.
AB 1812 was held in Committee on Revenue and Taxation.
c) AB 2280 (Miller) would have provided a complete SUT
exemption for all manufacturing equipment. AB 2280 was
held in Committee on Revenue and Taxation.
d) SB 1053 (Runner) would have provided a partial SUT
exemption for TPP used in manufacturing and qualified
research and development activities by manufacturers and
software publishers and affiliates. SB 1053 was held in
the Senate Committee on Revenue and Taxation.
In addition, there have been 15 bills in the last three
sessions on this general topic.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081