BILL ANALYSIS �
AB 780
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Date of Hearing: May 18, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 780 (Calderon) - As Amended: May 10, 2011
Policy Committee: Revenue and
Taxation Vote: 8-0
Urgency: No State Mandated Local Program:
Yes Reimbursable: Yes
SUMMARY
This bill requires a fixed price contract between a government
entity and a contractor to authorize an increased or decreased
payment to the contractor for a change in the contract price
attributable to an increase or decrease in taxes imposed by the
Sales and Use Tax (SUT) Law. Specifically, this bill:
1)Provides that this increase or decrease shall be paid in
accordance with the provisions of the contract governing
payment for changes in the work or, if no provisions are set
forth, payment shall be as agreed to by the parties.
2)Applies only to an increase or decrease in the SUT rate
imposed with respect to specified conditions.
3)Applies only to contracts entered into on and after the
effective date of the bill and shall only apply to an increase
or decrease in the SUT rate that occurs on or after the bill's
effective date.
4)Amends the Transactions and Use Tax (TUT) Law to provide that
the conditions that this bill would apply to the sale or lease
of tangible personal property.
5)Provides that, notwithstanding existing law, the state shall
not reimburse any local agency for any SUT revenues lost as a
result of this bill.
6)Provides that, if the Commission on State Mandates determines
that this bill contains costs mandated by the state,
reimbursement to local agencies and school districts shall be
AB 780
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made according to existing law.
FISCAL EFFECT
1)There will be state reimbursements for mandated costs to local
government. The specific mandate is for any costs that a
local government may incur to change contracts or
administrative systems to make them consistent with the new
law. Because the public contract code applies to a county,
city, city and county, district, public authority, public
agency, municipal corporation or any other political
subdivision or public corporation in the state, the number of
possible mandate claims is large as there are almost 500
cities, 58 counties, 90 community college districts, 1,000
school district and 4,000 special districts, together over
5,000 affected local governments. If each local government
had a claim for $1,000, that would be $5 million in state
reimbursements.
2)The BOE estimates that this bill would have no impact on
existing local government tax revenues, since the provisions
would only apply to future local government tax rate changes.
COMMENTS
1)Purpose . AB 780 would add a provision in the Public Contract
Code to require fixed price contracts between a contractor and
a government entity to authorize payment for a change in the
contract price that is a result of a future increase or
decrease in the state sales and use tax rate.
2)Support . This bill is sponsored by the Associated General
Contractors and the Engineering and Utility Contractors
Association. The sponsors state, "AB 780 provides that, in
the event of a future increase or decrease in the state sales
tax, public works contracts that were bid and entered into on
a fixed price basis prior to the tax change must provide for
an adjustment in the contract to compensate the contractor for
the increase that could not be factored into the contract and
to compensate the public agency in the event of a decrease in
the sales tax."
3)Background : AB 3 X3 (Evans), Chapter 18, Statutes of 2009
temporarily increased the GF SUT rate by 1% effective April 1,
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2009. Unlike prior bills increasing the SUT rate, AB 3 X3 did
not provide an exemption for sales of tangible personal
property obligated pursuant to fixed price contracts entered
into before the rate increase.
4)Related legislation :
a) AB 1523 (Charles Calderon), of the 2009-10 Legislative
Session, would have relieved parties who entered into a
fixed price contract or a fixed price lease prior to the 1%
SUT increase. AB 1523 was held in this committee.
b) AB 2060 (Charles Calderon), of the 2009-10 Legislative
Session, contained provisions nearly identical to those in
this bill. Governor Schwarzenegger vetoed AB 2060, noting:
First, I can understand the impact of new taxes on
businesses and the frustration that contractors may have
when they are not exempted from sales tax increases.
This is one of the reasons I have continued to oppose
raising additional taxes because it slows our state's
economic recovery efforts and dampens job creation.
However, this bill seeks an overly broad and permanent
exemption which effectively shifts the burden of paying
both state and local sales tax increases from the
contractor to the government entity and ultimately, on
California's taxpayers. In addition, I believe this
bill is unnecessary because current law allows an
exemption to fixed-price contracts for city and county
tax increases, and such exemptions have been allowed on
past statewide sales and use tax increases. I believe
this process is appropriate and does not affect district
tax revenues, as this bill would propose to do.
5) There is no registered opposition to this bill.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081