BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2758 HEARING: 6/25/14
AUTHOR: Revenue and Taxation FISCAL: Yes
VERSION: 4/10/14 TAX LEVY: No
CONSULTANT: Bouaziz
SALES AND USE TAXES: QUALIFIED USE TAX: ACCEPTABLE TAX
RETURN
Applies the amount of payments or credits first to the use
tax liability reported on the tax return.
Background and Existing Law
State law imposes a sales tax on retailers for the
privilege of selling tangible personal property (TTP),
absent a specific exemption. The tax is based upon the
retailer's gross receipts from TPP sales in this state.
State law imposes, on transactions not subject to sales
tax, 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, unless the use is exempted.
The use tax is set at the same rate as the state's sales
tax and must generally be remitted to the State Board of
Equalization (BOE).
State law authorizes a person to make an irrevocable
election to report qualified use tax, as defined, on that
person's income tax return and provides that any payments
and credits shown on the return of a person reporting
qualified use tax shall be applied in the following order:
Taxes imposed under the Personal Income Tax (PIT)
Law or the Corporation Tax (CT) Law, including
penalties and interest, if any; and,
Qualified use tax reported.
A taxpayer reports use tax to FTB, and FTB generally remits
AB 2758 -- 04/10/14 -- Page 2
the use tax to BOE. Under the current system, payments and
credits are applied first to taxes owed, so if taxes exceed
payments and credits, the taxpayer is still liable for the
qualified use tax reported. By the time the BOE receives
the use tax amount due and notifies the taxpayer, the
taxpayer has incurred late penalties and fees for not
paying the self-reported use tax owed. Changing the order
that payments and credits are applied would eliminate this
problem.
Proposed Law
Assembly Bill 2758 would first apply the amount of payments
or credits available on the tax return to the use tax
liability reported on the tax return, and then to
outstanding taxes, penalties, or interest.
AB 2758 would become effective January 1, 2015, and apply
to taxable years beginning on or after January 1, 2014.
State Revenue Impact
The BOE's revenue estimate for this bill is pending. The
Franchise Tax Board (FTB) estimates revenue losses of
$60,000 in fiscal year (FY) 2014-15, $40,000 in FY 2015-16,
and $30,000 in FY 2016-17.
Comments
1. Purpose of the bill . The provision that specifies that
use tax payments included with the FTB returns shall be
applied first to FTB taxes, interest, and penalties was
included in the original legislation that allowed for
reporting of use tax on the FTB returns. However, this
payment order has resulted in considerable confusion in
situations where a taxpayer fails to remit the proper
amount when filing his or her return with the FTB. AB 2758
changes the payment order, which will minimize the BOE's
workload associated with the necessary additional
correspondence and billing for the use tax and penalty, and
also eliminates the confusion this law generates for
taxpayers.
AB 2758 -- 04/10/14 -- Page 3
2. California's use tax . Since 1933, the state has
imposed a sales tax on California 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. In 1935, California adopted a
complementary "use tax" on the storage, use, or other
consumption of TPP purchased out-of-state and brought into
California. The use tax was designed to protect California
merchants who would otherwise be at a competitive
disadvantage when out-of-state retailers sell to California
customers without charging tax.
Unlike the sales tax, the use tax is imposed on the
purchaser and not the retailer. Unless the purchaser pays
the use tax to an out-of-state 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 generally be remitted to the
BOE.
2. Recent legislative efforts . In recent years,
California has taken several steps to increase use tax
compliance. Chief among these efforts was the inclusion of
a use tax line on the state's income tax returns. In 2010,
Governor Schwarzenegger signed SB 858 (Committee on Budget
and Fiscal Review), Chapter 721, into law as part of the FY
2010-11 Budget Agreement. Among other things, SB 858
provided for the permanent inclusion of a use tax line on
the state's income tax returns, thereby allowing income tax
filers to fill-in the amount of use tax due on their
returns.
Assembly Actions
Assembly Revenue & Taxation 9-0
Assembly Appropriations 17-0
Assembly Floor 73-0
Support and Opposition (06/19/14)
Support : None received.
Opposition : None received.
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