BILL ANALYSIS �
AB 1963
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ASSEMBLY THIRD READING
AB 1963 (Huber)
As Amended May 29, 2012
Majority vote
REVENUE & TAXATION
(vote not
relevant)
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SUMMARY : Requires the Legislative Analyst's Office (LAO) to
submit a report to the Legislature assessing potential changes
to the state income and sales and use tax (SUT) laws to reduce
revenue volatility, diversify revenue sources, and improve
California's economic climate. Specifically, this bill :
1)States that it is the Legislature's intent to reduce General
Fund (GF) revenue volatility, as identified in the January
2005 report by the LAO. Provides that, to achieve this
objective, the Legislature must have an analysis of the
methods by which a reduction in revenue volatility may be
achieved without a reduction or increase in the total
available revenue.
2)Requires the LAO report to include:
a) A review of California's current and historical revenue
volatility, including the percentage of the gross state
product that is made up by the GF budget over a period of
10 years;
b) Proposals for tax reforms that would end California's
revenue volatility, are sum revenue neutral, and do not
require amendments to the California Constitution.
Provides that, to the extent possible, the LAO shall use
dynamic revenue modeling in determining viable proposals;
c) An explanation of the calculations needed to determine
revenue neutrality;
d) An analysis of the effect a reduction of taxation on
individual income would have upon state revenues and
revenue volatility; and,
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e) An analysis of the effect of imposing a tax on the sale
or use of services, concurrent with a reduction of the SUT
rate. Provides that this analysis shall include whether a
credit or exemption to the services tax should apply to the
sale of services between businesses. This analysis shall
also include the positive or negative revenue impact of
excluding the following services from taxation:
i) Necessary or licensed medical services;
ii) Services related to education;
iii) Automotive repair services;
iv) Accounting, auditing, and other services provided by
licensed accountants or licensed accounting firms;
v) Legal services provided by licensed attorneys;
vi) Services related to agriculture and livestock;
vii) Services related to housing, real estate, and
construction;
viii) Services related to banking; and,
ix) Securities and investment management services.
EXISTING LAW imposes:
1)Taxes under the Personal Income Tax Law based upon taxable
income, at specified rates.
2)A sales tax on retailers for the privilege of selling tangible
personal property (TPP), absent a specific exemption. The tax
is based upon the retailer's gross receipts from TPP sales in
this state.
FISCAL EFFECT : Assembly Revenue and Taxation Committee staff
estimates that this bill would have no impact on GF revenues.
COMMENTS : The author has provided the following statement in
support of this bill:
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According to the Legislative Analyst's Office, the basic
elements of California's current state tax system were
put in place in the late 1920s and early 1930s. With
the exception of Prop 13, California's tax system has
remained largely unchanged.
Approximately 80 percent of the state's own-source
revenue comes from three sources: the personal income
tax (PIT), the sales and use tax (SUT) and the
corporation tax (CT), with the largest source of
�General Fund] dollars being derived from the PIT.
As a result, the current tax system has failed to adapt
to a "21st Century" economy where services and
E-commerce play a major role. The �General Fund] has
become heavily dependent upon the PIT, which accounts
for roughly 40 percent of all state revenues and
one-half of General Fund revenues. This is problematic
because most of the PIT is generated by a relatively
small number of taxpayers with the highest incomes, thus
making the PIT revenue stream very volatile - producing
huge surpluses in the good economic times and huge
deficits when the economy take�s] a turn for the worse.
AB 1963 seeks to examine what effect diversifying and
stabilizing the state's revenue stream would have on
stabilizing our manic tax revenue structure.
Assembly Revenue and Taxation Committee Staff Comments:
What does this bill do ? This bill would require the LAO to
submit a report to the Legislature assessing potential changes
to the state's income and SUT laws in order to reduce revenue
volatility, diversify revenue sources, and improve California's
economic climate. The LAO would be required to submit the
report on or before July 1, 2013.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0003934
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