Legislative Bill Analysis

Transcription

1 Califrnia State Bard f Equalizatin Senate Bill 1210 (Gaines) Date: 05/04/2016 Prgram: Sales and Use Tax Spnsr: Authr Revenue and Taxatin Cde: Effective: Upn Enactment, but perative 08/12/17 Legislative Bill Analysis Legislative and Research Divisin Michele Pielsticker (Chief) Stephanie Cchran (Analyst) Mark Durham (Revenue) Summary: Prvides a partial sales and use tax exemptin (3.9375%) n the sale f clthing, ftwear, schl supplies, bks, cmputers, and educatinal cmputer sftware during a tw-day perid in August 2017, and every year thereafter, when purchased at a retailer s physical place f business. Summary f Amendments: The amendments since the previus analysis specify the exempt qualified tangible persnal prperty and add a dllar exemptin limit n items. Purpse: T lessen the financial burden n parents purchasing back t schl prducts while increasing sales fr in-state retailers. Fiscal Impact Summary: Annual state sales and use tax lss f $16 millin. Existing Law: Califrnia s Sales and Use Tax Law 1 impses the sales tax n retailers fr the privilege f selling tangible persnal prperty at retail in this state r the use tax upn the strage, use, r ther cnsumptin f tangible persnal prperty purchased frm a retailer, unless the law prvides a specific exemptin r exclusin. Under current law, sales f clthing, ftwear, schl supplies, bks, cmputers, and educatinal cmputer sftware n a CD, are generally subject t the sales r use tax t the same extent as any ther sale f tangible persnal prperty nt therwise exempted r excluded by statute. Califrnia s sales and use tax rates: Effective January 1, 2017, Califrnia s statewide sales and use tax rate will be 7.25%. 2 The table belw shws Califrnia s varius sales and use tax rate cmpnents, that will apply as f January 1, 2017 (the table excludes vter-apprved city and cunty district taxes): Rate Jurisdictin Purpse/Authrity % State (General Fund) State general purpses (Revenue and Taxatin Cde (RTC) Sectins 6051, , 6201, and ) % Lcal Revenue Fund 2011 Realignment f lcal public safety services (RTC Sectins and ) 0.50% State (Lcal Revenue Fund) Lcal gvernments t fund health and welfare prgrams (RTC Sectins and ) 0.50% State (Lcal Public Safety Fund) Lcal gvernments t fund public safety services (Sectin 35, Article XIII, State Cnstitutin) 1.25% Lcal (City/Cunty) 1.00% City and Cunty 0.25% Cunty 7.25% Ttal Statewide Rate (RTC Sectins 7202 and 7203) City and cunty general peratins; Dedicated t cunty transprtatin purpses 1 Part 1 f Divisin 2 f the Revenue and Taxatin Cde (RTC) (cmmencing with Sectin 6001). 2 The.25% tax impsed under Sectin 36 f Article XIII f the State Cnstitutin (Prpsitin 30, The Schls and Lcal Public Safety Prtectin Act f 2012) will sunset December 31, This staff analysis is prvided t address varius administrative, cst, revenue and plicy issues; it is nt t be cnstrued t reflect r suggest the BOE s frmal psitin.

2 Senate Bill 1210 (Gaines) Page 2 Prpsed Law: The bill adds RTC Sectin t the Sales and Use Tax Law t prvide a General Fund (3.9375% rate) sales and use tax exemptin fr the sale f, and the strage, use, r ther cnsumptin in this state Qualified tangible persnal prperty n an annual basis during a tw day perid in August, beginning at 12:01 a.m. n the secnd Saturday f August and ending at 11:59 p.m. n the fllwing day (August 12 thrugh 13, 2017). The exempted items must be purchased at the retailer s physical place f business. Qualified tangible persnal prperty means all f the fllwing: Clthing, $100 r less. Ftwear, $100 r less. Bks, $100 r less. Cmputers fr the prtin f $1,000 r less. Educatinal cmputer sftware fr the prtin f $300 r less. Schl supplies, $60 r less. Schl supplies means all f the fllwing: Binders. Bk bags and backpacks. Calculatrs. Cellphane tape. Blackbard chalk. Cmpasses. Cmpsitin bks. Crayns. Erasers. Facial tissue. Expandable flders, pcket flders, plastic flders Manila flders. Glue, paste, and paste sticks. Highlighters. Index cards. Index card bxes. Legal pads. Lunch bxes. Markers. Ntebks. Paper f all f the fllwing types: Lse leaf ruled ntebk paper. Cpy paper. Graph paper. Tracing paper. Manila paper. Clred paper. Pster bard. Cnstructin paper. Pencil bxes and ther schl supply bxes. Pencil sharpeners. Pencils. Pens. Prtractrs. Rulers. Scissrs. Writing tablets. Legislative Histry: Over the years, sales tax hliday bills have been intrduced t prvide a sales tax exemptin fr certain types f merchandise, all f which failed t pass. The mre recent bills include: Year Bill Summary 2015 AB 1280 (Maienschein) State tax exemptin n tangible persnal prperty purchased at an in-state small retailer the Saturday after Thanksgiving starting in AB 718 (Melendez) State tax exemptin n tangible persnal prperty sld during a ne-day perid n April 15, 2014, and recurring n every April 15 thereafter AB 1007 (Ck) State tax exemptin n qualified back-t-schl prducts, fr $100 r less, during a three day perid in August 2012, and every fllwing year until January 1, AB 1120 (Tran) State and lcal tax exemptin n qualified disaster preparedness prducts, as specified, sld during a seven-day perid in Octber f each year until January 1, This staff analysis is prvided t address varius administrative, cst, revenue and plicy issues; it is nt t be cnstrued t reflect r suggest the BOE s frmal psitin.

3 Senate Bill 1210 (Gaines) Page 2 Year Bill Summary 2006 AB 2089 (Tran) State tax exemptin n qualified disaster preparedness prducts, as specified, during a nine-day perid in Octber f each year until January 1, AB 548 (Garcia) State and lcal tax exemptin n any article f clthing, clthing accessries, r ftwear fr $100 r less, schl supplies fr $500 r less, and persnal cmputers fr $1,000 r less, during a fur-day perid in August Cmmentary: 1. Effect f the bill. This bill wuld exempt the sale r use f clthing, ftwear, schl supplies, bks, cmputers, and educatinal cmputer sftware frm the % state sales tax rate n August 12 and 13, The exemptin wuld ccur each secnd weekend in August, every year thereafter. 2. The May 5, 2016 amendments identify specific qualified tangible persnal prperty subject t the exemptin and limit the specific exemptin amunt n the items. 3. Limits n the exemptin amunts. The current partial sales and use tax exemptins the BOE administers apply t the entire sales price. This exemptin may require retailers t charge tw different tax rates: ne n the partially exempt prtin and ne n the price that ges ver the exemptin cap. This culd increase errrs in cllecting and reprting the crrect tax amunt. 4. Exemptin may nt apply t sme merchandise exchanges and rain checks. Under current law, when merchandise is returned fr ther merchandise, the law cnsiders the transactin as tw separate transactins: (1) a rescissin f the riginal sale and (2) a separate sale f the replacement merchandise. As an example, if a custmer purchases a cmputer and exchanges the cmputer fr a laptp, the transactin is regarded under the law as a separate sale f the laptp and a rescissin f the riginal sale f the cmputer. T reprt the crrect amunt f tax, the retailer may deduct the sales price f the cmputer frm taxable sales, and must include the sales price f the laptp. Under the prpsed hliday perid, if the same cmputer is purchased during the sales tax hliday perid and exchanged fr the laptp after the hliday perid, the prpsed exemptin wuld nt apply t the exchange; the law recgnizes that transactin as ccurring after the exempt hliday perid. This cmplexity may lead t retailer reprting errrs, added cnfusin and increased custmer inquiries. Rain checks culd als create cnfusin. Current law prvides that a retailer-issued rain check des nt cnstitute a sale f tangible persnal prperty. Therefre, the exemptin wuld nt apply when a retailer issues a rain check t the custmer fr an ut f stck item during the hliday perid and the custmer uses the rain check t purchase the item after the prpsed hliday perid. 5. The sales tax hliday culd increase retailer s csts. Creating a sales tax exemptin that nly lasts fr tw days wuld place an additinal burden n retailers t prgram their cash registers t exempt sales n certain dates. This may require retailers t incur csts t accmmdate the change. Increased sales activity during this perid ptentially culd ffset thse csts. 6. Partial exemptins cmplicate administratin. Currently, mst sales and use tax exemptins are applied t the ttal applicable sales and use tax. Hwever, a few partial exemptins in Califrnia law nly exempt the state tax prtin f the sales and use tax rate, such as sales and purchases f manufacturing and research and develpment equipment, teleprductin equipment and farm equipment. These partial exemptins cmplicate return preparatin and prcessing, and result in mre errrs. 7. States with similar sales tax hlidays. Currently, furteen states will hld a sales tax hliday in 2016: Alabama, Arkansas, Cnnecticut, Iwa, Luisiana, Maryland, Mississippi, Missuri, New Mexic, Oklahma, Suth Carlina, Tennessee, Texas, and Virginia. Eligible items include clthing, cmputers, schl supplies, energy star prducts, firearms and hunting supplies, hurricane This staff analysis is prvided t address varius administrative, cst, revenue and plicy issues; it is nt t be cnstrued t reflect r suggest the BOE s frmal psitin

4 Senate Bill 1210 (Gaines) Page 3 preparedness items, and severe weather preparedness kits. Fr mst states, the exemptin applies t specified items. Csts: BOE wuld incur csts t ntify affected taxpayers, mdify tax returns, revise regulatins and pamphlets, answer inquiries frm industry and the public, prgram changes, audit claimed amunts, revise sales tax returns, and review returns with claimed exemptins. In additin, because f the ptential fr a partial tax exemptin, administrative csts wuld als be incurred in cmputer prgramming, return analysis, and return prcessing. An estimate f these csts is pending. Revenue Impact: Backgrund, Methdlgy, and Assumptins. This bill prvides limits fr each qualified tangible persnal prperty. The specified limits vary per categry. Clthing, ftwear and bks are limited t $100 r less. Schl supplies are limited t $60 r less. The initial $1000 and $300 are exempt fr cmputers and educatinal sftware. Clthing and Ftwear. Using the Bureau f Ecnmic Analysis (BEA) data fr clthing and ftwear, and remving all electrnic sales (internet), mail rder, and ther direct selling, the U.S. natinal expenditures fr 2014 was apprximately $329.8 billin. Califrnia s market share is abut 12%, r $39.6 billin. Accunting fr sales grwth t 2017, the estimated sales are abut $40.8 billin. Staff assumes that 75% f the clthing and ftwear are priced at n mre than $100, therefre sales is estimated t be $30.6 billin (75% $40.8 billin = $30.6 billin). Bks. Using the same data surce and methdlgy as mentined abve, the U.S. natinal expenditures fr bks is abut $26.5 billin, and the Califrnia share is abut $3.3 billin adjusted t Staff assumes that mst K-12 bks are priced lwer than $100. Educatin Cmputer Sftware. Finding infrmatin specific t educatinal sftware was challenging; hwever, staff did find 2014 data frm an article The Future f Educatin Technlgy, by the DataFx Blg. This article indicates that the U.S. Pre K thrugh 12th grade is apprximately $8 billin, and applying the 12% Califrnia share, this equates t apprximately $960 millin. Staff culd nt find any definitive data n hw much is purchased in-stre r nline, therefre, staff is assuming that nly 15% is purchased in-stre. This calculates t apprximately $144 millin in taxable sales, r apprximately $149 millin fr In additin, this figure des nt reflect pst-secndary sales, and the assumptin is that the majrity frm this sectr are being purchased nline and nt in-stres. Staff assumes that mst K-12 related educatinal cmputer sftware is priced lwer than $300. Cmputers. BEA des nt have a gd breakdwn fr cmputers; therefre, staff used U.S. Census data. Remving thse purchased at electrnic stres (internet), mail rder, r ther direct selling, the natinal sales fr cmputers was $31.7 billin, and applying the 12% Califrnia share plus the grwth rate t 2017, the ttal sales are $4.1 billin. Staff estimates, based n analyzing desktp and laptp retail sales f a majr retailer, that 70% f sales are $1000 r less. Therefre, sales is estimated t be $2.9 billin (70% $4.1 billin = $2.9 billin). The revenue lss frm the amunt f cmputers sld ver $1000 wuld be negligible. Schl Supplies. Again, BEA des nt have a gd breakdwn fr schl supplies, s staff used U.S. Census data. In additin, the data des nt breakut schl supplies versus ffice supplies, and staff is nt sure hw that will be differentiated at the pint f sale. Therefre, all ffice and schl supplies were included. The same methdlgy as cmputers was used, and the 2017 ttal sales are apprximately $1.2 billin. Based n the schl supplies definitin prvided in the bill, staff assumes that all the supplies are priced lwer than $60. This staff analysis is prvided t address varius administrative, cst, revenue and plicy issues; it is nt t be cnstrued t reflect r suggest the BOE s frmal psitin

5 Senate Bill 1210 (Gaines) Page 4 Tw Day Revenue Impact. Ttal sales f clthing and ftwear, bks, cmputers, educatinal sftware, and schl supplies are estimated t be $38 billin. Tw-days wrth f sales, taking int accunt an increase in the number f purchases during the tw days, ttals apprximately $313 millin. Revenue Summary. The revenue impact frm exempting the $313 millin frm the sales and use tax wuld be as fllws: Ttal Estimated State Revenue Lss (3.9375%) $313 millin $12 millin Qualifying Remarks. This revenue estimate des nt accunt fr any changes in ecnmic activity that may r may nt result frm enactment f the prpsed law. It als des nt accunt fr pst-secndary educatinal sftware sales. This staff analysis is prvided t address varius administrative, cst, revenue and plicy issues; it is nt t be cnstrued t reflect r suggest the BOE s frmal psitin