BILL ANALYSIS �
SB 805
Page A
Date of Hearing: June 13, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 805 (Committee on Veterans Affairs) - As Introduced:
February 18, 2011
Majority vote. Tax levy. Fiscal committee.
SENATE VOTE : 37-0
SUBJECT : Sales and use taxes: consumers: veterans: itinerant
vendors
SUMMARY : Deletes the sunset date for the provisions of the
Sales and Use Tax (SUT) Law that currently classify a qualified
itinerant vendor (QIV) as a consumer, and not a retailer, of
specified tangible personal property (TPP) the QIV sells.
Specifically, this bill :
1)Deletes the January 1, 2012 sunset date for the provisions of
the SUT Law granting special tax treatment to QIVs, thereby
extending the provisions indefinitely.
2)Provides that, notwithstanding existing law, the state shall
not reimburse local agencies for SUT revenues lost as a result
of this bill.
3)Takes immediate effect as a tax levy.
EXISTING LAW :
1)Imposes a sales tax on 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.
2)Imposes 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. The use tax is set at the same rate as the state's sales
tax and must be remitted to the State Board of Equalization
(BOE).
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3)Designates the following entities as consumers, and not
retailers, of specified TPP they use or furnish in the
performance of their professional services:
a) Licensed optometrists, physicians, pharmacists, and
registered dispensing opticians;
b) Licensed veterinarians;
c) Licensed chiropractors;
d) Specified garment cleaning establishments that received
no more than 20% of their total gross receipts from the
alteration of garments during the preceding calendar year;
e) Licensed hearing aid dispensers; and,
f) Producers of X-ray films or photographs used to diagnose
human medical or dental conditions.
4)Classifies a QIV as a consumer, and not a retailer, of TPP
owned and sold by the QIV, except for alcoholic beverages or
TPP sold for more than $100.
5)Specifies that a person is a QIV when all the following
conditions apply:
a) The person was a member of the Armed Forces of the
United States (U.S.), who received an honorable discharge
or release from active duty under honorable conditions;
b) The person is unable to obtain a livelihood by manual
labor due to a service-connected disability;
c) For purposes of selling TPP, the person is a sole
proprietor with no employees; and,
d) The person has no permanent place of business in this
state.
6)Specifies that this preferential tax treatment does not apply
to a person:
a) Engaged in the business of serving meals, food, or
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drinks to a customer at a location owned, rented, or
otherwise supplied by the customer (i.e., a caterer); or,
b) Operating a vending machine.
FISCAL EFFECT : The BOE estimates state and local revenue losses
of roughly $22,000 annually.
COMMENTS :
1)This bill has been introduced by the Senate Committee on
Veterans Affairs, which notes that the original sunset date
was inserted to guard against unknown revenue losses. Given
the minimal revenue losses that have actually resulted, the
Committee on Veterans Affairs argues that the favorable tax
treatment for QIVs should be extended indefinitely.
2)The BOE notes the following in its staff analysis of this
bill:
a) Sponsor and purpose . "This bill is sponsored by the BOE
in order to enable qualifying veterans to retain their
consumer status with respect to their itinerant sales.
This provision represents one small step towards
recognizing our disabled veterans who have already made, or
are making the transition from military to civilian
employment, and it should not be allowed to sunset. This
provision assists in this transition by simplifying
reporting requirements under the Sales and Use Tax Law for
those qualifying disabled veterans that are honorably
discharged or released from service that desire to engage
in the business of selling goods they own. For qualifying
disabled veterans without employees or a permanent place of
business, this provision eliminates the need for them to
hold a seller's permit, file sales tax returns, and remit
sales tax on their sales."
b) What are a qualifying veteran's tax obligations ? "Under
these provisions, a qualifying itinerant disabled veteran
making taxable sales of goods, wares or merchandise owned
by him or her is not required to report sales tax on his or
her sales of these items. Instead, the veteran is only
required to pay tax on his or her cost of any taxable
purchases of the items or the component parts of the items
he or she sells. For example, when a veteran is selling
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his or her own paintings, the veteran would pay tax on his
or her purchase of the paint, brushes, and canvas used to
make the painting. The sale of the painting, itself, would
thereafter be exempt from tax. Under this provision, if
the qualifying veteran makes no sales of alcoholic
beverages or sales that exceed the $100 cap, the veteran is
not required to obtain a seller's permit, file sales tax
returns, or remit sales tax on his or her sales of the
goods he or she sells. This essentially eliminates the
sales tax compliance costs and associated recordkeeping
that can be unduly burdensome for disabled veterans."
3)Committee Staff Comments:
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960's, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues). This bill would
permanently extend a tax expenditure, in the form of a
consumer status classification, to assist honorably
discharged itinerant veterans.
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should also be noted that, once enacted, it generally
takes a two-thirds vote to rescind an existing tax
expenditure absent a sunset date. This effectively results
in a "one-way ratchet" whereby tax expenditures can be
conferred by majority vote, but cannot be rescinded,
irrespective of their efficacy, without a supermajority
vote.
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c) Retailers and consumers : The sales tax is imposed on
retailers for the privilege of selling TPP. As such,
retailers of TPP must generally obtain a sellers permit and
report and remit the tax to the BOE. Existing law,
however, classifies a variety of retailers as consumers,
and not retailers, of specified TPP they sell. These
retailers are not required to obtain sellers permits or to
report tax on their qualifying sales. Instead, these
retailers are only required to pay tax on the taxable goods
used to produce the property they sell. As the BOE notes
in its staff analysis of this bill, "consumer reporting
status" is primarily designed to alleviate reporting
burdens for small businesses, while minimizing the revenue
losses associated with complete SUT exemptions.
d) How did we get here? : The provisions granting consumer
reporting status to QIVs were added to law by SB 809
(Committee on Veterans Affairs), Chapter 621, Statutes of
2009. For several years preceding SB 809's enactment, a
number of veterans argued that existing law already exempts
honorably discharged veterans from sales tax on sales of
food and carbonated beverages from a mobile cart.
Specifically, these veterans pointed to Business and
Professions Code (B&PC) Section 16102, which provides in
its entirety:
Every soldier, sailor or marine of the United States
who has received an
honorable discharge or a release from active
duty under honorable conditions
from such service may hawk, peddle and vend
any goods, wares or
merchandise owned by him, except spirituous,
malt, vinous or other
intoxicating liquor, without payment of any
license, tax or fee whatsoever,
whether municipal, county or State, and the
board of supervisors shall issue
to such soldier, sailor or marine, without
cost, a license therefor.
This provision was added in 1893 (long before enactment of
the SUT Law), and was described in the chaptering bill as
"An act to establish a uniform system of county and
township government." Moreover, this statute is contained
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in Chapter 2 of Part 1 of Division 7 of the B&PC, entitled
Licensing by Counties. As such, BOE adopted the position
that, while this statute exempts honorably discharged
veterans from locally imposed license taxes and fees, it
does not provide an exemption from SUT. Thus, SB 809 was
passed in an effort to address this issue, and explicitly
granted preferential treatment to honorably discharged
itinerant veterans under the SUT Law.<1>
e) Should the sunset date be deleted outright ? This bill
would delete the January 1, 2012 sunset date for the
provisions of the SUT Law granting special tax treatment to
QIVs, thereby extending the provisions indefinitely. While
such a deletion would offer QIVs a degree of certainty
regarding their future tax treatment, this Committee has a
longstanding policy of including sunset dates for tax
expenditure programs to ensure effective legislative
oversight. As such, the Committee may wish to consider
extending the current sunset date for an appropriate period
instead of deleting the sunset date outright.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
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<1> It should be noted that SB 809 was similar to AB 3009
(Brownley) of the 2007-08 Legislative Session, which would have
conferred consumer status to similarly situated QIVs, but only
with respect to food products and nonalcoholic beverages. AB
3009 was held in this Committee.