BILL ANALYSIS �
AB 2059
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Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2059 (Gorell) - As Amended: April 18, 2012
VOTE ONLY
Majority vote. Fiscal committee.
SUBJECT : Sales and Use Tax Law: use taxes: qualified
purchaser program
SUMMARY : Modifies the existing "qualified purchaser program"
(Program), which requires specified taxpayers with at least
$100,000 in annual business gross receipts to register with the
State Board of Equalization (BOE) for use tax reporting.
Specifically, this bill :
1)Modifies the definition of a "qualified purchaser" to
increase, from $100,000 to $500,000, the threshold amount of
annual gross receipts from business operations.
2)Provides that, for purposes of administering the Program, the
BOE may grant a reasonable extension of time for filing a
return in the manner and form it determines. Specifically
provides that:
a) For a qualified purchaser subject to tax under the
Personal Income Tax (PIT) Law, except for a qualified
purchaser residing or travelling abroad, an extension of
time shall not be granted for more than six months;
b) For a qualified purchaser residing or traveling abroad,
a return shall be filed no later than the 15th day of the
sixth month following the close of the taxable year, unless
the requirements for an extension have been fulfilled on or
before that date; and,
c) For a qualified purchaser subject to tax under the
Corporation Tax (CT) Law, an extension or extensions shall
not be more than seven months from the date that a return
is due.
3)Provides that an extension of time granted as specified above
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shall not be an extension of time for payment of the tax.
Penalties and interest shall be imposed, as provided by law,
without regard to an extension granted.
4)Provides that a reasonable extension for payment of use tax
under the Program may be granted by the BOE whenever good
cause exists, as determined by the BOE.
5)Requires the BOE to grant an extension for filing a return
pursuant to the Program if an extension is granted for filing
a PIT or CT return.
EXISTING LAW :
1)Imposes 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.
2)Imposes, on transactions not subject to sales tax, a
complementary use tax on the storage, use, or other
consumption in this state of TPP purchased from any retailer.
The use tax is imposed on the purchaser, and unless the
purchaser pays the use tax to a retailer registered to collect
California's use tax, the purchaser remains liable for the
tax, unless the use is exempted. The use tax is set at the
same rate as the state's sales tax and must generally be
remitted to the BOE.
3)Requires "qualified purchasers" to register with the BOE for
annual use tax reporting. A qualified purchaser is defined as
a person that:
a) Receives at least $100,000 in gross receipts from
business operations per calendar year;
b) Is not required to hold a seller's permit or certificate
of registration for use tax;
c) Does not hold a use tax direct payment permit; and,
d) Is not otherwise registered with the BOE to report use
tax.
FISCAL EFFECT : The BOE's revenue estimate for this bill is
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currently pending.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
The original intent of the qualified purchaser program was
to encourage better compliance with the filing of use
taxes. According to the Board of Equalization (BOE), use
tax compliance is less than 1%. While the qualified
purchaser program currently requires individuals and
businesses that gross more than $100,000 to register with
the BOE, the BOE has found that the cost of tracking and
following-up on qualified purchasers often exceeded the use
tax collected by the BOE. A large majority of qualified
purchasers between the $100,000 to $500,000 range did not
have any use tax to report. In order to ensure that state
resources are more effectively and efficiently utilized, AB
2059 raises the qualified purchaser threshold to $500,000.
2)The BOE provides the following comments in its staff analysis
of this bill:
a) Sponsor and purpose : "This bill is sponsored by Senator
George Runner (Ret.) to minimize the reporting requirements
for businesses that do not have a use tax liability.
According to the sponsor, while the Qualified Purchaser
program currently requires individuals and businesses with
gross receipts more than $100,000 to register with the BOE,
the BOE has found that the cost of tracking and
following-up on qualified purchasers often exceeds the use
tax collected by the BOE. A large majority of the
qualified purchasers between the $100,000 to $500,000 range
did not have any use tax to report."
3)Committee Staff Comments:
a) California's use tax : Since 1933, the state has imposed
a sales tax on California retailers for the privilege of
selling TPP, absent a specific exemption. The tax is based
upon the retailer's gross receipts from TPP sales in this
state. In 1935, California adopted a complementary "use
tax" on the storage, use, or other consumption of TPP
purchased out-of-state and brought into California. The
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use tax was designed to protect California merchants who
would otherwise be at a competitive disadvantage when
out-of-state retailers sell to California customers without
charging tax.
Unlike the sales tax, the use tax is imposed on the
purchaser and not the retailer. Unless the purchaser pays
the use tax to an out-of-state retailer registered to
collect California's use tax, the purchaser remains liable
for the tax. The use tax is set at the same rate as the
state's sales tax and must generally be remitted to the
BOE.
b) Impediments to use tax collection : The most practical
way for a state to enforce its use tax is to have retailers
collect the tax at the time of sale. However, there is
considerable ambiguity surrounding the circumstances under
which a state may legally compel an out-of-state retailer
to collect use tax on its behalf. This ambiguity has its
origins in the Commerce Clause of the U.S. Constitution,
which charges Congress with regulating commerce among the
several states. The U.S. Supreme Court has held that, by
implication, the Commerce Clause also prohibits states from
enacting laws that unduly burden interstate commerce.
In Quill Corp. v. North Dakota (1992), 504 U.S. 298, the
U.S. Supreme Court was asked to decide the
constitutionality of a North Dakota law that imposed a use
tax collection obligation on out-of-state retailers that
advertised in the state three or more times in a single
year. The Court invalidated the law, holding that, under
the negative Commerce Clause, a retailer must have a
"physical presence" in a state before that state can
require the retailer to collect its use tax.
The "physical presence" test affirmed in Quill has
complicated California's efforts to collect its use tax.
For example, when a California business purchases office
supplies from an out-of-state retailer through its catalog
or online store, the business' use of the supplies in
California triggers a use tax liability. If the
out-of-state retailer lacks a "physical presence" in
California, however, California is constitutionally
prohibited from requiring the retailer to collect the tax.
If the business fails to remit the tax, the purchase
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completely escapes taxation. It is estimated that this gap
in California's sales and use tax system costs the state
over $1.145 billion in revenues each year.<1>
c) Recent legislative efforts focused on increasing use tax
collections : In recent years, California has taken steps
to increase use tax compliance. Among these efforts are
the mandatory use tax registration Program and the
permanent inclusion of a use tax line on the state's income
tax returns. Each is discussed briefly below:
i) Mandatory use tax registration Program : In 2009,
California enacted the Program seeking to increase use
tax compliance among California businesses that purchase
TPP from out-of-state. Specifically, the Program
requires "qualified purchasers" to register with the BOE
for annual use tax reporting. A qualified purchaser is
defined as a person that:
(1) Receives at least $100,000 in gross receipts
from business operations per calendar year;
(2) Is not required to hold a seller's permit or
certificate of registration for use tax;
(3) Does not hold a use tax direct payment permit;
and,
(4) Is not otherwise registered with the BOE to
report use tax.
ii) Permanent inclusion of a use tax line on income tax
returns : In 2010, Governor Schwarzenegger signed SB 858
(Committee on Budget and Fiscal Review), Chapter 721,
into law as part of the Fiscal Year 2010-11 Budget
Agreement. Among other things, SB 858 provided for the
permanent inclusion of a use tax line on the state's
income tax returns, thereby allowing income tax filers to
fill-in the amount of use tax due on their returns.
d) This proposal : This bill modifies the existing Program
in numerous respects outlined below:
--------------------------
<1> This total represents $795 million in use taxes uncollected
from California consumers and $350 million in use taxes
uncollected from businesses.
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i) An increased threshold : This bill modifies the
Program's definition of a "qualified purchaser" to
increase, from $100,000 to $500,000, the threshold amount
of annual gross receipts from business operations. Thus,
businesses with less than $500,000 in annual gross
receipts would no longer be required to register with the
BOE under the Program. The BOE reports that, based on
the years 2007 through 2010, annual returns for
businesses with gross receipts between $100,000 and
$500,000 averaged 272,346. Over 65% of these returns,
however, reported zero use tax due.
In an effort to address this issue, the Members of the
BOE voted unanimously on July 27, 2011, to remove from
the Program those qualified purchasers that have filed
returns with no use tax liability for three successive
years. Committee staff questions whether it might be
useful to allow this modification of the Program to play
out before simply eliminating a registration requirement
for those businesses with less than $500,000 in annual
gross receipts.
ii) Extended due dates for returns : Under existing law,
qualified purchasers must report their use taxes by April
15th for the preceding calendar year. This bill, in
turn, provides that the BOE may grant a "reasonable"
extension of time for filing a return. This bill does
not define the term "reasonable" but appears to limit the
maximum extension based on the type of taxpayer at issue
(e.g., six months for most PIT filers). Committee staff
questions whether it might be preferable to retain a
single, consistent due date for Program filers.
iii) Extension for payment : Finally, this bill grants
the BOE discretion to provide a "reasonable" extension
for payment of use taxes under the Program "whenever good
cause exists, as determined by the �BOE]." It is unclear
to Committee staff whether there is any precedent for
such an unqualified payment extension. Moreover, by
failing to specify any criteria for granting such an
extension, this bill may constitute an unlawful
delegation of legislative authority.
REGISTERED SUPPORT / OPPOSITION :
AB 2059
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Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098