BILL ANALYSIS �
AB 686
Page 1
Date of Hearing: April 4, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 686 (Huffman) - As Amended: March 9, 2011
Majority vote.
SUBJECT : Local sales and use taxes: transaction and use taxes.
SUMMARY Decreases the rate at which a county or city may levy,
increase, or extend a transactions and use tax (TUT) from 0.25%,
or a multiple thereof, to a rate of 0.125%, or a multiple
thereof. Specifically, this bill authorizes:
1)A county board of supervisors to levy, increase, or extend a
TUT at a rate of 0.125%, or a multiple thereof, instead of
0.25%, if all of the applicable requirements are satisfied.
2)The governing body of a city to levy, increase, or extend a
TUT at a rate of 0.125%, or a multiple thereof, instead of
0.25%, if all of the applicable requirements are satisfied.
EXISTING LAW :
1)Authorizes local governments to impose, increase, or extend
TUTs (also known as district taxes), under specified
conditions. �Revenue and Taxation Code (R&TC) Part 1.6
(commencing with Section 7251) (TUT Law), and R&TC Part 1.7
(commencing with Section 7285) (Additional Local Tax Law)].
2)Authorizes a county to impose a district tax for general
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote
of the board of supervisors and a majority vote of the
qualified voters of the county. (R&TC Section 7285).
3)Authorizes a county to impose a district tax for special
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote
of the board of supervisors and a two-thirds vote of the
qualified voters in the county. (R&TC Section 7285.5).
4)Authorizes a county to impose a district tax for funding
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libraries at a rate of either 0.125% or 0.25% for a period not
to exceed 16 years. The ordinance proposing the tax must be
approved by the board of supervisors and a two-thirds vote of
the qualified voters of the county. The revenues must be used
exclusively for funding public library construction,
acquisition, programs, and operations within the county.
5)Authorizes a city to impose a district tax for general
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote
of all members of the governing body and a majority vote of
the qualified voters. (R&TC Section 7285.9).
6)Authorizes a city to impose a district tax for special
purposes at a rate of 0.25%, or multiple thereof, if the
ordinance proposing the tax is approved by a two-thirds vote
of all members of the governing body and a two-thirds vote of
the qualified voters. (R&TC Section 7285.9).
7)Provides that the combined rate of all district taxed imposed
in any county may not exceed 2%.
8)Requires cities and counties to contract with the State Board
of Equalization to perform all functions in the administration
and operations of the ordinances imposing the Bradley-Burns
local taxes and district taxes.
FISCAL EFFECT : The Board of Equalization (BOE) staff projects
that, if all of the special taxing jurisdictions in the state
increase a TUT by 0.125%, the annual gain in revenue would be
$770 million in fiscal year (FY) 2012-13 and $818 million in FY
2013-14.
COMMENTS :
1)Author's Statement . The author states that, "Current law
allows cities and counties to propose tax measures to voters
to pay for local services, such as public safety, schools,
roads, parks, or libraries. This bill will allow voters to
approve taxes in smaller increments, giving local governments
flexibility to raise a more targeted amount of money to meet a
specific community need while retaining current requirements
for voter approval of tax measures."
2)Arguments in Support . The Marin County Board of Supervisors,
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the sponsor of this bill, argues that "county governments need
the flexibility to ask their voters for more discrete levels
of revenue augmentations that can be used for locally targeted
needs." The proponents further assert that during "these
times of financial challenges, local agencies need as much
flexibility as possible to adapt to changing circumstances"
and to address "local challenges while still ensuring
appropriate oversight from the voting public."
3)Arguments in Opposition . The opponents argue that fewer
"rates improve the structure of the sales tax and ease
compliance for taxpayers." They state that additional
increments, "half-percents, eights and sixteenths of a percent
complicate the sales tax" and this bill "would further distort
the intention and design of California's local sales tax."
2)The Purpose of this Bill . According to the author, by
allowing local governments to propose tax increases to voters
in smaller increments, AB 686 would provide needed flexibility
and an important tool for local governments to fund local
services, such as police, fire, schools, local transportation
projects, parks and libraries.
3)Background . Under existing law, cities and counties may
impose a district tax, in increments of 0.25%, for general or
special purposes, subject to voter approval, provided that the
combined rate of tax does not exceed 2%. These taxes may be
imposed either directly by the city or county, or through a
special purpose entity established by the city or county.
Counties may also create a transportation authority to impose
district taxes under the Public Utilities Code. As of April
1, 2011, 132 local jurisdictions, including cities, counties,
and special purpose entities, impose a district tax for
general or specific purposes. Generally, a district tax is
imposed at a rate of 0.25%, or 0.25% increments, up to the 2%
limit. Some cities and counties have more than one district
tax, while others have none. Currently, the district tax
rates vary from 0.10% to 1%. Because the combined rate of all
district taxes imposed within a county cannot exceed 2%, the
current maximum combined state, local, and district rate is
10.25% (with the exception of two cities: the City of South
Gate and the City of Pico Rivera that have a combined district
tax rate of 10.75%).
4)New authority for cities and counties to impose a TUT at a
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lower rate. As discussed, cities, counties, and special
districts are authorized to impose a general or special tax
subject to voter approval, up to a total combined rate of 2%.
This bill does not increase the 2% maximum combined rate of
tax nor does it confer onto local governments any new
authority to impose a district tax. What this bill proposes
to do is simply allow local governments to impose a TUT at a
rate of 0.125% rather than 0.25%. The BOE notes that
counties, generally, impose TUTs at a rate of 0.25%, with the
exception of the district tax imposed for library purposes �SB
154 (Thompson), Chapter 88, Statutes of 1997]. However, it
appears that the Legislature set the rate of special tax at
0.25% as a matter of convenience, and not for any particular
policy reason.
5)The 2% Cap . Local governments often find it difficult to make
up for decreases in state revenues with increases in local
revenues because counties have limited authority to raise
revenues, and local special taxes require a two-thirds vote of
the electorate. Furthermore, the interaction between
city-imposed and county-imposed TUTs may cause some counties
to run out of room under the 2% maximum combined rate of tax.
When a city imposes a TUT, that tax counts toward the county's
cap. This bill does not increase the existing 2% threshold
but, by lowering the minimum rate at which a TUT may be
impose, it would provide a local government with flexibility
to fund several small programs instead of one.
6)Will this bill help counties to raise more money? The stated
purpose of this bill is to change counties' ability to raise
funds to fund local services. As discussed, by providing for
a lower rate of tax, this bill would allow local governments
to levy a lesser tax that could support smaller projects and
be more acceptable to the local voters. However, this bill
does not increase the 2% cap, and thus, may be of very little
use to counties that either have already reached (Los Angeles
County), or are close to reaching, the 2% maximum combined
rate limit (for example, Alameda, Contra Costa, and San
Diego).
7)BOE administrative costs and concerns. Cities and counties
are required to contract with BOE to administer district
taxes. If a city or a county were to adopt a district tax at
a lower rate of 0.125%, pursuant to this measure, it would be
required to contract with, and reimburse BOE for, the actual
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administrative costs associated with the new tax. Costs for
preparation and administration of this tax would be
essentially the same as those associated with administering
the 0.25% rate. However, the net revenue from imposing a tax
at a rate of 0.25% versus a tax at a rate of 0.125% would be
cut in half.
The BOE staff also highlights an additional accounting burden on
retailers associated with the new tax rate of 0.125%. While
existing law authorized the imposition of a district tax at a
rate of 0.125% for library purposes, only four counties
currently levy a library district tax - the County of Fresno,
the County of Nevada, the County of Solano, and the County of
Stanislaus. The retailers would be required to update their
computer programs for proper reporting and accounting if this
bill were enacted.
8)Similar Legislation .
AB 1086 (Wieckowski), introduced in the current legislative
session, authorizes any local government entity in the County
of Alameda to impose a TUT in excess of the 2% combined rate
cap to support countywide transportation programs, as
specified. AB 1086 is currently pending in the Assembly Local
Government Committee.
SB 653 (Steinberg), introduced in the current legislative
session, authorizes the board of supervisors of any county or
city and county, to place an ordinance or resolution on the
ballot to propose to the voters a tax including, but not
limited to, a local personal income tax, a local corporate
income tax, and a local sales and use tax. SB 653 is in the
Senate Governance and Finance Committee.
AB 978 (Perez), introduced in the 2009-10 legislative session,
would have authorized cities and counties to impose a TUT at a
rate of 0.125% for funding of economic development projects.
AB 978 was never heard by a policy committee.
SB 264 (Alquist), Chapter 430, Statutes of 2007, authorized the
Santa Clara Valley Transportation Authority to impose a TUT at
a rate of 0.125% for transit facilities and services.
AB 2321 (Feuer), Chapter 302, Statutes of 2008, extended from 6
years to 30 years the period within which a voter-approved
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0.5% local transportation sales tax in Los Angeles County may
be imposed.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Association of Counties
California Tax Reform Association
League of California Cities
The Marin County Board of Supervisors
Opposition
California Taxpayers Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098