BILL ANALYSIS �
AB 2681
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Date of Hearing: May 21, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2681 (Dababneh) - As Introduced: February 21, 2014
Policy Committee: Revenue &
Taxation Vote: 7-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill specifies that a sale of tangible personal property
with a counterfeit mark (i.e., counterfeit goods) by a convicted
seller constitutes a "retail sale" or "sale at retail" for
purposes of the Sales and Use Tax law, regardless of whether the
sale is for resale in the regular course of business. The bill
defines a "convicted seller" as a person convicted of selling
counterfeit goods under state or federal law on or after the
date of the sale.
FISCAL EFFECT
1)Minor and absorbable costs to the Board of Equalization (BOE)
to administer the tax.
2)Estimated GF revenue increase of approximately $2.1 million
per year based on California's pro rata share of total
seizures of counterfeit goods in the United States and the
taxable value of those counterfeit goods.
COMMENTS
1) Purpose. According to the author, California's underground
economy has a severe and negative effect on the state's
competitiveness, enabling illegitimate businesses to steal
intellectual property and sell it at below-market costs.
While already illegal, this bill would provide a further
disincentive from engaging in the distribution and sale of
counterfeit goods.
2) Sales Tax Law. Under current law, sales taxes are imposed on
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the "retail sale" or "sale at retail" of tangible personal
property. As a result, retail sales of counterfeit goods and
stolen intellectual property in the form of tangible personal
property is subject to sales tax to the same extent as the
retail sale of legitimate goods. Wholesale or possession or
transportation of goods for resale is not currently subject to
sales tax. This bill would subject the wholesale or
possession or transportation of counterfeit goods for resale
to sales tax.
3) Buyers of Counterfeit Goods. Several academic studies have
shown that consumers often buy counterfeit goods because they
cannot afford the legitimate products but want the brand or
style affinity that comes with those products. In some cases,
such brand affinity can serve to increase the underlying value
of the brand even though another party profits from the sale
of the good. This is particularly true in cases where a
consumer buys a counterfeit product with the hope of later
"upgrading" that product to the authentic item.
In recent years, the ability of manufacturers to counterfeit
products has improved substantially. This may lead certain
consumers to mistake the counterfeit for the authentic
product. Under this scenario, sellers of counterfeit goods
may limit legitimate sales, undercutting the investment and
labor of legitimate manufacturers and retailers.
4) Tax on Criminality. Taxes are frequently used to encourage or
discourage certain behavior, though it may be unusual to
subject illegal or criminal activity to taxation. For
example, tobacco is subject to high excise taxation in order
to discourage its use, but marijuana is not subject to any
excise tax. One reason for abstaining from taxing criminal
activity is that it may legitimize or destigmatize the
activity. Another reason is that the incremental disincentive
created by taxation may be overshadowed by the severe
penalties that otherwise befall criminal activity, such as
jail time, forfeiture of property, and fines.
Given the strong disincentives already in place, it is unclear
what effect an additional sales tax would have on the sale of
counterfeit goods. Furthermore, though BOE has attempted to
estimate the taxable value of counterfeit goods seized in
California, it is unclear whether much of this revenue will
ever be recovered once criminal fines, court costs, and legal
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fees have first been satisfied.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081