BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 530 (Wright)
Hearing Date: 05/26/2011 Amended: 05/17/2011
Consultant: Mark McKenzie Policy Vote: G&F 5-3
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BILL SUMMARY: SB 530, an urgency measure, would impose a tax on
direct broadcast satellite (DBS) television providers at a rate
of 6% of gross revenues, as specified, until January 1, 2020.
The Board of Equalization (BOE) would administer the tax
pursuant to the Fee Collection Procedures Law and deposit the
revenues in the General Fund for transfer to the Local Safety
and Protection Account, which is re-established by this bill as
a continuously appropriated fund. The bill specifies a
procedure for temporarily suspending the imposition of the tax
if the revenues collected are being used for unauthorized
purposes. The bill also requires the Legislative Analyst's
Office (LAO), in collaboration with BOE, to conduct a study to
assess the impact of the DBS tax
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
DBS tax (revenues) ($96,000) ($196,200) ($200,000)Special*
BOE program startup unknown one-time costs of over
$1,000General
BOE ongoing admin unknown, significant costs, likely in
excess General
of $1,000 annually
LAO/BOE study all costs covered by DBS tax
revenuesSpecial*
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* Local Safety and Protection Account
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STAFF COMMENTS: SUSPENSE FILE.
Under existing law, cable television service providers are
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subject to direct local taxation based on the rationale that
they use public rights-of-way and are granted a local monopoly.
The two primary local taxes imposed on cable providers are
franchise fees paid to local governments for the privilege of
using local government property and rights-of-way, and
utility-user-taxes that are generally levied by local
governments on many utilities, including cable television,
telephone, gas, and electric utilities. Both of these taxes
provide general fund revenues for local governments. Existing
law does not provide for a state-imposed tax or fee on DBS
service customers or providers, although DBS providers pay a
sales tax or collect the use tax associated with of customers'
monthly rental or lease of the satellite receiver.
SB 530 would impose an excise tax on DBS providers at a rate of
6% of gross revenues for the privilege of selling DBS services
to subscribers in the state. The bill specifies in detail which
revenues are to be included in and excluded from the definition
of gross revenues for purposes of the tax. Staff notes that the
definitions and methodologies for determining gross revenues are
nearly identical to those specified in existing law for
franchise fees paid by cable television companies. Considering
the fundamental differences between the business models and
methods for providing television services by cable television
providers and DBS providers, it is unclear why the excise tax
imposed in this bill should be modeled after the franchise fees
charged to cable companies. It is clear in the current market,
however, that cable television providers no longer have a
monopoly on the provision of television services, which is
partially the reason for charging a franchise fee.
Based on available census and industry data, BOE estimates DBS
gross revenues of approximately $3.1 billion in California in
2010, and projects 2 percent annual growth. Assuming a January
1, 2012 implementation date, the proposed 6% excise tax would
generate approximately $96 million in 2011-12 (half year),
$196.2 million in 2012-13, and $200 million in 2013-14. The
taxes would be reported and remitted to BOE on a quarterly
basis. These revenues would be deposited into the General Fund
and transferred to the Local Safety and Protection Account,
which is re-established by the bill. The money would be
continuously appropriated to the State Controller for allocation
pursuant to existing law for specified local law enforcement and
public safety purposes.
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AB3x 3 (Evans), Chapter 18 of 2009-10 Third Extraordinary
Session enacted several temporary tax increases as part of a
budget agreement in February of 2009. Among these was a
temporary increase in the vehicle license fee from the previous
rate of 0.65% of a vehicle's value to 1.15% until July 1, 2011.
A portion of the increase (0.15%) is deposited into the Local
Safety and Protection Account and allocated to specified
entities for local law enforcement and public safety purposes,
including supplemental local law enforcement funding, juvenile
detention and probation programs, small and rural county sheriff
departments, jail construction, criminal justice administration,
and other specified programs. Staff estimates that the current
value of the temporary VLF increase that is dedicated to these
local law enforcement purposes is over $500 million per year.
SB 530 would dedicate all revenues from the new tax on DBS
providers to these same purposes. Since existing law specifies
that the local Safety and Protection Account is only operative
until July 1, 2011, this bill would re-establish that
continuously appropriated fund. Considering the severity of the
current state budget deficit, Staff recommends that the bill be
amended to retain the revenues from any new statewide tax in the
General Fund rather than dedicating the revenues to local public
safety purposes. Absent this amendment, the bill should be
amended to delete the continuous appropriation and only make
funds available upon appropriation by the Legislature.
SB 530 would require the BOE to collect the tax pursuant to the
Fee Collections Procedures Law beginning the first day of the
first calendar quarter commencing more than 90 days after the
effective date of this bill. BOE indicates that, due to the
numerous complexities and administrative challenges associated
with the imposition of an excise tax on DBS providers, it would
need at least a six-month lead time from the effective date of
the bill to perform any necessary administrative startup tasks.
For instance, the BOE would need to interact with the DBS
service provider industry and adopt any regulations necessary to
implement the tax. In addition, BOE would incur administrative
startup costs related to identifying and registering affected
taxpayers, performing computer systems programming, developing
forms, publications, and returns, and hiring and training staff.
None of these expenses are accounted for in BOE's current
budget. Due to uncertainties and unfamiliarity with the DBS
service industry, BOE is not currently able to estimate the
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magnitude of these initial startup costs. Staff estimates that
these costs would easily exceed $1 million in 2011-12. Staff
recommends an amendment to delay the operative date of the bill
for at least six months after the bill is enacted.
Staff notes that BOE would also incur significant ongoing costs
to administer the DBS provider tax. Standard administrative
functions would include registering new taxpayers, processing
returns, auditing returns, performing collection functions,
administering taxpayer appeals, and adjusting regulations as
necessary. BOE has not completed an estimate of these ongoing
costs to date, but staff estimates these costs would also exceed
$1 million annually. Staff recommends an amendment to allow
reimbursement of BOE's startup and ongoing administrative costs
from revenues collected prior to deposit into the General Fund.
SB 530 also specifies a procedure to immediately halt
collections of the DBS excise tax when the Department of Finance
determines that the revenues are not being used for specified
local law enforcement purposes, and restart collections when the
revenues are being allocated correctly. These provisions mirror
current law pertaining to the temporary increase in vehicle
license fees that are dedicated to local law enforcement
purposes. Considering the substantial administrative
difficulties for BOE to immediately halt and restart collections
of the excise tax, staff recommends an amendment to delete these
procedures.
Finally, the bill would require the LAO, in collaboration with
BOE, to conduct a study by December 31, 2018 to assess and
evaluate the impact of the DBS provider excise tax. The LAO
would convene an advisory committee, as specified, and consult
with relevant legislative policy committees to design the study
in order to address a number of specified concerns relative to
the impact of the tax. Any costs associated with the study
would be allocated to the LAO and BOE from excise tax revenues.