BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 919 (Williams) - Sales and Use Tax: Itinerant Vendors:
Repayment
Amended: June 24, 2014 Policy Vote: G&F 6-1
Urgency: No Mandate: No
Hearing Date: June 30, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 919 would allow veteran vendors, as specified,
to receive repayments of sales taxes paid to the Board of
Equalization (BOE) between April 1, 2002 and April 1, 2010.
Fiscal Impact:
The bill contains a one-time $50,000 General Fund
appropriation to the State Controller's Office (SCO) for
repayments, as specified. A cost pressure could result to
the extent that total claims for repayments exceed $50,000
(See Staff Comments).
BOE indicates the bill would result in one-time costs of
less than $10,000 (General Fund).
Background: The sales and use tax (SUT) is imposed on retail
sales of tangible personal property (TPP) unless specifically
exempted. The SUT is generally not applied to sales between
wholesalers and retailers, but rather is imposed on the retailer
at the point of final sale to its customers. Persons selling TPP
generally must obtain a seller's permit and report the tax on a
BOE-prescribed return.
Current law allows about 15 entities that purchase products for
resale to be designated as "consumers," and not retailers, of
certain TPP that they purchase for resale. Thus, under a
"consumer" reporting status, current law eliminates the need for
the retailer to obtain a seller's permit and report the tax on
his or her sales. Rather, these retailers are regarded as
consumers, and they must pay tax on their purchases of taxable
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products they intend to sell. These include certain items
purchased by optometrists, physicians, pharmacists,
veterinarians, and others where the sales are, to varying
degrees, incidental to their main businesses. For these
entities, sales taxes are due when they purchase the product
from the wholesaler, instead of when they resell the products to
their customers. The benefit is that these businesses and BOE
avoid the recordkeeping and auditing burdens on an incidental
amount of sales. The cost to the State is that it loses the
sales tax on the mark-up between the wholesale and retail price
of the products being sold. In the case of cooked food, the
state loses the full value of the product since the raw food
materials are generally exempt from the tax.
Under current law, qualified itinerant vendors (QIVs) are
classified as consumers instead of retailers. A QIV is a person
that (1) was a member of the United States Armed Forces who
received an honorable discharge or release from active duty
under honorable conditions, (2) is unable to obtain a livelihood
by manual labor due to a service-connected disability, (3) is a
sole proprietor with no employees, and (4) has no permanent
place of business in the State.
The provisions granting consumer reporting status to QIVs were
added to current 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 collecting
and remitting 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
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supervisors shall issue
to such soldier, sailor or marine, without cost, a license
therefor.
This provision was added in 1893 (40 years before enactment of
the Sales and Use Tax 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 in
Chapter 2 of Part 1 of Division 7 of the B&PC, entitled
Licensing by Counties. Consequently, 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. This interpretation has been supported
by Legislative Counsel opinions and a Los Angeles Superior Court
Decision (No . BC 210257).
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. SB 809's
provisions would have sunset at the end of 2011, but were
extended until the end of 2021 by subsequent legislation.
Proposed Law: This bill would, among other things, do the
following:
Enable a "qualified veteran" to receive from the state a
"qualified repayment" of state and local sales taxes paid
to the BOE during the eight-year period beginning April 1,
2002, and ending April 1, 2010.
Define a "qualified veteran" as a person who met the
requirements of a QIV during the period in which the sales
were made, and paid to the BOE state and local sales taxes
during the period beginning April 1, 2002, to April 1,
2010. To qualify, the QIV must also not have collected
sales tax from customers.
Define a "qualified repayment" as an amount equal to the
state and local sales taxes paid during the period
beginning April 1, 2002, and before April 1, 2010, less any
amounts previously refunded, credited or paid through any
means.
Before January 1, 2016, authorize a qualified veteran to
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file a claim with BOE.
By March 1, 2016, require BOE to certify to SCO the
qualified repayment amount to be made.
Appropriate $50,000 to SCO to make payments of qualified
repayments to qualified veterans.
Require BOE to report to the Legislature by May 1, 2016,
the name of each qualified veteran who was issued a
repayment and the repayment amount.
Require SCO to transfer back any used portion of the
bill's appropriation back to the General Fund.
Staff Comments: This bill largely results from the efforts of a
single individual whose interpretation of current law as it
existed prior to the passage of SB 809 has been consistently
rejected. Specifically, the individual filed three separate
lawsuits between 1999 and 2008 against BOE seeking a sales tax
refund for the period dating back to 1993. He failed all three
times.
Nevertheless, BOE entered into a settlement agreement with the
individual in April, 2010. Specifically, under the settlement,
BOE agreed to refund him an undisclosed amount of money, while
he (1) was required to refrain from further litigation or
administrative claims against BOE, and (2) agreed to waive "any
known or unknown claims."
The individual is now advocating for legislation to provide
additional relief. Essentially, in enacting this bill, the
Legislature would be retroactively conforming the law to support
his notion that QIVs were never under legal obligation to
collect sales tax, despite the fact that this position was
repeatedly rejected by the courts, by BOE, and by Legislative
Counsel.
This bill's ultimate fiscal impact is not completely known.
Though the bill appropriates $50,000, the actual costs to
provide comprehensive repayments to QIVs could be higher. BOE
indicates that it is aware of a small number of veterans that
over the years have filed appeals on the issue related to the
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Business and Professions Code discussed above. The number of
those veterans (and potentially others) that would seek
repayments is not known. If a single QIV had average daily sales
of about $215 over the 8-year period covered in the bill, the
resulting sales tax due to BOE (and now repaid under the
provisions of the bill) would exceed $50,000. Thus, to the
extent that BOE is correct and veterans who have filed appeals
previously were to come forward and request repayments, the
$50,000 might not be adequate, with a cost pressure being the
result.