BILL ANALYSIS �
AB 2119
Page 1
Date of Hearing: May 5, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2119 (Stone) - As Introduced: February 20, 2014
Majority vote. Non-fiscal
SUBJECT : Local taxes: transactions and use taxes.
SUMMARY : Authorizes a county board of supervisors to levy,
increase, or extend a transactions and use tax (TUT), for
general or specific purposes, within the unincorporated area of
the county, if the ordinance proposing the tax is approved by
the qualified voters of the unincorporated area. Specifically,
this bill :
1)Authorizes a county board of supervisors to levy, increase, or
extend a TUT for general or specific purposes, within the
unincorporated area of the county, as specified.
2)Requires the revenues derived from the imposition of a TUT,
for general or specific purposes, to only be used within the
area for which the tax was approved by the qualified voters.
EXISTING LAW :
1)Authorizes cities and counties, under the Bradley-Burns
Uniform Local Sales and Use Tax (SUT) Law, to impose local
SUT. (Revenue & Taxation Code (R&TC), commencing with Section
7200.)
2)Provides counties and cities, under the TUT Law and the
Additional Local Taxes Law, with the authority to impose
district taxes under specified conditions. (R&TC Section 7251
and 7280.)
3)Provides that counties and cities may impose a district tax
for general purposes and special purposes at a rate of 0.125%,
or multiple thereof, if the ordinance imposing the tax is
approved by the required percentage of voters in the city or
county. (R&TC Section 7285.)
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4)Provides that the combined rate of all taxes imposed in
accordance with the TUT law in any county may not exceed 2%.
(R&TC Section 7251.)
5)Requires cities and counties to contract with the State Board
of Equalization (BOE) to perform all functions in the
administration and operations of the ordinances imposing the
Bradley-Burns local taxes and district taxes.
FISCAL EFFECT : None
COMMENTS :
1)Author's statement . The author provided the following
statement in support of this bill:
"This bill would amend the Revenue and Taxation Code to provide
a county the ability to introduce a sales tax measure applied
to the unincorporated area of a county that is only voted on
by the qualified voters of the unincorporated area.
"In many counties in California, half or more of the county is
an unincorporated area, as opposed to incorporated cities,
marking those counties responsible for a large amount of
infrastructure. This bill will allow counties to introduce a
sales tax measure, the revenues of which would be applied to
unincorporated areas, spent on the infrastructure of those
unincorporated areas, and voted on by the qualified voters of
those areas."
2)Arguments in support . Proponents argue that many counties in
California have one-half or more of their county in
unincorporated areas, making those counties responsible for a
large amount of infrastructure without much taxing authority.
Currently, cities have the ability to place a measure on the
ballot "to be voted on by only city residents who will be
affected by the measure." However, voters in unincorporated
parts of the county do not have the same ability to tax
themselves. A tax proposal that would apply only to an
unincorporated area will still have to be approved by the
voters in the entire county. This bill will give residents
who live outside of cities the same rights to levy their own
sales tax as those who live in them. Finally, the proponents
assert that this bill "constructs a fair way to apply sales
AB 2119
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tax measures to unincorporated areas because they would be
voted on by the qualified voters of those areas, and the money
raised by the measure will go towards their infrastructure."
3)Arguments in opposition . Opponents argue that separating
"unincorporated areas from counties would distort sales and
use tax uniformity, causing administrative problems for
retailers responsible for collecting sales and use taxes." In
their opinion, an imposition of different tax rates, depending
on whether retailers are located in unincorporated areas in
the county would likely prove to be cumbersome for both
businesses and the BOE to administer. The opponents assert
that the lack of uniformity in local TUT rates may also lead
to problems in administering county services.
4)Background . The TUT law authorizes the adoption of local
add-on rates to the combined state and local sales tax rate.
Under existing law, cities and counties may impose a TUT (or a
district tax) for general or special purposes, subject to
voter approval, provided that the combined rate of tax does
not exceed 2% (with the exception of the Counties of Alameda,
Contra Costa, and Los Angeles). These taxes may be imposed
either directly by the city or county, or through a special
purpose entity established by the city or county. Generally,
they are levied exclusively within the borders of either a
county or an incorporated city. Counties may also create a
transportation authority to impose district taxes under the
Public Utilities Code.
A district tax is imposed on the sale or the storage, use, or
other consumption of tangible personal property in the
jurisdiction that adopted the tax. Generally, it is imposed
at a rate of 0.125%, or 0.125% increments, up to the 2% limit.
Some cities and counties have more than one district tax,
while others have none. Currently, the district tax rates
vary from 0.10% to 1%. The current combined state, local, and
district rate ranges from 7.50% to 10% (with the exception of
cities in the counties that are not subject to the 2% cap).
According to the BOE analysis of this bill, as of April 1,
2014, 178 local jurisdictions, including cities, counties, and
special purpose entities, impose a district tax for general or
specific purposes. Of the 178 jurisdictions, 44 are
county-imposed taxes and 134 are city-imposed taxes. Of the
44 county-imposed taxes, 30 are imposed for transportation
purposes.
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5)What does this bill do ? This bill does not make any changes
to the TUT rate, the 2% cap, or the voter thresholds for the
imposition of specific or general purpose district taxes in
existing law. This bill simply proposes to allow the
qualified voters in an unincorporated area of the county to
approve a TUT to be levied only within that area. Under
existing law, a county may impose a district tax for purposes
of providing services to one of its unincorporated area, but
only with the approval of qualified voters in the entire
county, not just the unincorporated area. In other words,
current law does not authorize a county to levy a district tax
that is limited only to an unincorporated area of the county.
6)Who are "qualified voters " ? Courts have interpreted the
phrase "qualified electors of such district" in Section 4 of
Article XIIIA of the California Constitution to mean the
registered voters voting in the election concerning the
proposed tax. [Neilson v. City of California City (2005) 133
Cal. App.4th 1296, 1312.] Nonresident consumers are not
registered voters and are not included among the voters voting
on the proposed district tax.
7)Will this bill help counties to raise more money for
unincorporated areas ? This bill is intended to provide more
flexibility for counties to raise revenues to fund local
services in the county's unincorporated areas. Local
governments often find it difficult to make up for decreases
in state revenues with increases in local revenues because
counties have limited authority to raise revenues, and local
special taxes require a two-thirds vote of the electorate.
Furthermore, the interaction between city-imposed and
county-imposed TUTs may cause some counties to run out of room
under the 2% maximum combined rate of tax. When a city
imposes a TUT, that tax rate counts toward the county's cap,
which means that the county is restricted in its ability to
raise revenues on a countywide basis. Since levying a tax on
a countywide basis is the only way for the county to fund
services in its unincorporated areas, an imposition of a new,
or extension of an existing, tax by a city or a district
within the county will directly impact the county's ability to
raise revenues for services in the unincorporated areas.
This bill does not increase the 2% cap, but it allows voters in
an unincorporated area of the county to vote on a tax measure
AB 2119
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that would apply only within the unincorporated area. Since
it is not a countywide tax measure, the tax rate will not be
combined with the tax rates of other districts within the
county for purposes of determining the 2% cap. As such, this
bill may help counties that either have already reached, or
are close to reaching, the 2% maximum combined rate limit to
levy a TUT in the unincorporated areas. This bill would also
allow local governments to levy a lesser tax that could
support smaller projects and be more acceptable to the local
voters.
8)Exporting the burdens of the tax: A TUT imposed in an
unincorporated area will be partially borne by residents of
other jurisdictions. The argument for exporting taxes to
non-residents, however, is justified when nonresidents derive
benefits from the public-service benefits from a locality that
are financed by local resident taxpayers. For example,
tourism is an attractive tax exporting opportunity, where
tourists in fact will bear the burden of the taxes imposed on
sales of TPP in the area. Perhaps residents of unincorporated
areas that are tourist destinations will be more amenable to
levying a new, or increasing an existing, TUT, knowing that
the burden of that tax will be partially borne by
non-residents.
9)BOE administrative costs and concerns . Cities and counties
are required to contract with BOE to administer district
taxes. As noted by the BOE staff, it is not always possible
to determine the correct tax rate based solely on a mailing
address or zip code. This bill may exacerbate the existing
problem of determining the retailer's location, i.e. whether a
retailer is located in a city or in the unincorporated county.
10)BOE suggested amendments. BOE staff notes that the phrase "as
applicable" is vague and suggested amendments to clarify that
a countywide tax or an unincorporated area-only tax would be
voted on by the voters in the respective jurisdiction:
On page 2, line 7, after "entire county" insert ", if levied on
the entire county"
On page 2, line 8, delete "as applicable" and insert "if levied
on the unincorporated area of the county"
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On page 2, line 21, delete "out"
On page 2, line 30, after the first "county" insert "if levied
on the entire county"
On page 2, line 30, delete "as applicable" and insert "if levied
on the unincorporated area of the county"
11)Double-referral . This bill was heard in the Assembly
Committee on Local Government on April 9, 2014, and passed out
of that Committee on a vote of 7 to 2.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
California State Association of Counties
Humboldt County
Monterey County
County of Santa Cruz
Organization of SMUD Employees
California Tax Reform Association
Opposition
California Taxpayers Association
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098