Existing law establishes the Fair and Exposition Fund to, among other things, allocate moneys for the support of the network of California fairs. The balance of moneys in that fund, after appropriation by the Legislature for specified oversight and auditing costs, are continuously appropriated for capital outlay for specified fair projects. Existing sales and use laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state measured by sales price, and requires that revenues, less refunds, derived from a specified rate of that tax be transferred to specified funds and then the balance to the General Fund.

This bill would require a tax return filed for the purposes of the Sales and Use Tax Law to segregate the gross receipts of the seller and the sales price of the property on a form prescribed by the State Board of Equalization when the place of sale or use in this state is on or within the real property of a state-designated fair, as defined, which excludes any fair located in the County of Los Angeles, or any real property of a state-designated fair that is leased to another party.

The bill would require, except as specified, that 30% of all revenues, less refunds and costs of administration, derived from those segregated sales and use tax amounts that would have been deposited into the General Fund instead be deposited into the Fair and Exposition Fund and continuously appropriated for allocation by the Secretary of Food and Agriculture for specified fair projects. projects and subject to certain conditions.

The bill would repeal these provisions on January 1, 2022.

Existing law establishes the Fair and Exposition Fund to, among other things, allocate moneys for the support of the network of California fairs. The balance of moneys in that fund, after appropriation by the Legislature for specified oversight and auditing costs, are continuously appropriated for capital outlay for specified fair projects. Existing sales and use laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state measured by sales price, and requires that revenues, less refunds, derived from a specified rate of that tax be transferred to specified funds and then the balance to the General Fund.

This bill would require a tax return filed for the purposes of the Sales and Use Tax Law to segregate the gross receipts of the seller and the sales price of the property on a form prescribed by the State Board of Equalization when the place of sale or use in this state is on or within the real property of a state-designated fair, defined to mean the 35th District Agricultural Association Merced County Fair and the Merced County Spring Fair, fair, as defined, which excludes any fair located in the County of Los Angeles, or any real property of a state-designated fair that is leased to another party.

The bill would require, except as specified, that 30% of all revenues, less refunds and costs of administration, derived from those segregated sales and use tax amounts that would have been deposited into the General Fund instead be deposited into the Fair and Exposition Fund and continuously appropriated for allocation by the Secretary of Food and Agriculture to the 35th District Agricultural Association Merced County Fair and the Merced County Spring Fair for specified fair projects.

The bill would repeal these provisions on January 1, 2022.

Existing law establishes the Fair and Exposition Fund to, among other things, allocate moneys for the support of the network of California fairs. The balance of moneys in that fund, after appropriation by the Legislature for specified oversight and auditing costs costs, are continuously appropriated for capital outlay for specified fair projects. Existing sales and use laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state measured by sales price, and requires that revenues, less refunds, derived from a specified rate of that tax be transferred to specified funds and then the balance to the General Fund.

This bill would require a tax return filed for the purposes of the Sales and Use Tax Law to segregate the gross receipts of the seller and the sales price of the property on a form prescribed by the State Board of Equalization when the place of sale or use in this state is on or within the real property of a state-designated fair, as defined, fair, defined to mean the 35th District Agricultural Association Merced County Fair and the Merced County Spring Fair, or any real property of a state-designated fair that is leased to another party.

The bill would require, except as specified, that 30% of all revenues, less refunds and costs of administration, derived from those segregated sales and use tax amounts that would have been deposited into the General Fund instead be deposited into the Fair and Exposition Fund and continuously appropriated for allocation by the Secretary of Food and Agriculture to the 35th District Agricultural Association Merced County Fair and the Merced County Spring Fair for specified fair projects.

The bill would repeal these provisions on January 1, 2022.

Existing law establishes the Fair and Exposition Fund to, among other things, allocate moneys for the support of the network of California fairs. Existing law requires certain license fees from satellite wagering to be deposited into a separate account in the Fair and Exposition Fund, and continuously appropriates those moneys for specified fair-related purposes, including, among others, the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs and for health and safety repair and other projects at fairs. The balance of moneys in that fund, after appropriation by the Legislature for specified oversight and auditing costs are continuously appropriated for capital outlay for specified fair projects. Existing sales and use laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state measured by sales price, and requires that revenues, less refunds, derived from a specified rate of that tax be transferred to specified funds and then the balance to the General Fund.

This bill would require a tax return filed for the purposes of the Sales and Use Tax Law to segregate the gross receipts of the seller and the sales price of the property on a form prescribed by the State Board of Equalization when the place of sale or use in this state is on or within the real property of a state designated state-designated fair, as defined, or any real property of a state designated state-designated fair that is leased to another party.

The bill would require, except as specified, that 30% of all revenues, less refunds and costs of administration, derived from those segregated sales and use tax amounts that would have been deposited into the General Fund instead be deposited into that separate account in the Fair and Exposition Fund and continuously appropriated for those same types of fair-related purposes. specified fair projects.

Existing law establishes the Fair and Exposition Fund to, among other things, allocate moneys for the support of the network of California fairs. Existing law requires certain license fees from satellite wagering to be deposited into a separate account in the Fair and Exposition Fund, and continuously appropriates those moneys for specified fair-related purposes, including, among others, the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs and for health and safety repair and other projects at fairs. Existing sales and use laws impose taxes on retailers measured by the gross receipts from the sale of tangible personal property sold at retail in this state, or on the storage, use, or other consumption in this state of tangible personal property purchased from a retailer for storage, use, or other consumption in this state measured by sales price, and requires that revenues, less refunds, derived from a specified rate of that tax be transferred to specified funds and then the balance to the General Fund.

This bill would require a tax return filed for the purposes of the Sales and Use Tax Law to segregate the gross receipts of the seller and the sales price of the property on a form prescribed by the State Board of Equalization when the place of sale or use in this state is on or within the real property of a state designated fair, as defined, or any real property of a state designated fair that is leased to another party.

This bill would require, except as specified, that 30% of all revenues, less refunds and costs of administration, derived from those segregated sales and use tax amounts that would have been deposited into the General Fund instead be deposited into that separate account in the Fair and Exposition Fund and continuously appropriated for those same types of fair-related purposes.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 2678 (Gray) - State-designated fairs: funding

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 2678 would temporarily require (1) retailers at specified fairs to segregate revenue from sales, and (2) that 30 percent of the General Fund portion of this revenue be allocated for specified fair projects.

Fiscal Impact:

• The Board of Equalization (BOE) indicates that this bill would result in an annual General Fund revenue loss of $16.7 million. BOE’s administrative costs would be reimbursed.
• The California Department of Food and Agriculture (CDFA) would incur costs to administer the additional funds and to perform auditing functions to ensure compliance with the bill’s working condition requirements. The magnitude of these costs is unknown, but potentially in the hundreds of thousands of dollars annually.

Background:

Except where a specific exemption or exclusion is provided, current law imposes the sales and use tax (SUT) on all retailers for the privilege of selling tangible personal property (TPP) at retail in California, or on the storage, use, or other consumption in this state of TPP purchased from a retailer.

After the State collects SUT revenue ($48 billion in 2013-14), it allocates the money to various state and local funds. Roughly half—collected from an approximately 3.9 percent rate—goes to the General Fund and can be spent on any state program, such as education, health care, and criminal justice. Another 1.25 percent, known as the Bradley-Burns rate, goes to cities and counties for general purposes. Three sales tax funds have uniform state rates and support specified programs—an approximately 1.1 percent rate for 2011 realignment (county-administered criminal justice, mental health, and social service programs); a 0.5 percent rate for 1991 realignment (county-administered health and social services programs); and a 0.5 percent rate for city and county public safety programs pursuant to Proposition 172 (1993). Additionally, some local governments levy optional local rates—known as Transactions and Use Taxes (TUTs)—and a small portion of these funds are used for general purposes. As of January 1, 2017, the average statewide SUT rate will be 8.21 percent.

State law fully exempts many items from SUT (such as prescription drugs, food, electricity, and poultry litter), while other items are exempted from the state sales tax, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock. Partial SUT exemptions are difficult for both retailers and the BOE, and complicate return preparation and processing. Moreover, errors attributable to these partial exemptions occur frequently, resulting in additional return processing workload for BOE.

Proposed Law:

This bill would, until January 1, 2022, require taxpayers to segregate on their SUT return their sales and purchases of TPP when the place of sale or use is on or within a state designated fair (as specified) or any real property of a state designated fair that is leased to another party; fairs in Los Angeles County are excluded from the requirement.

Additionally, the bill would require that 30 percent of the General Fund portion of SUT revenues (or 1.18 percentage points), less refunds and BOE’s administrative costs, derived from those segregated SUT revenues be deposited into the Fair and Exposition Fund and continuously appropriated for fair-related purposes, including the following:

• Capital outlay to California fairs for fair projects involving public health and safety.
• Fair projects involving major and deferred maintenance.
• Fair projects necessary due to any emergency.
• Projects that are required by physical changes to the fair site.
• Projects that are required to protect the fair property or installation, such as fencing and flood protection.
• For the acquisition or improvement of any property or facility that will serve to enhance the operation of the fair.

The bill would allow CDFA to allocate an unspecified portion of the funds subject to California fairs (excluding those in Los Angeles County) for general operational support, and additionally limits allocation of funds to state-designated fairs unless nonmanagement employees at that state-designated fair, or nonmanagement employees at any real property of that state-designated fair that is leased to another party, have the following working conditions:

• The employee receives a meal period of not less than 30 minutes for a work period of more than five hours per day, unless the work period per day of the employee is less than six hours and the meal period is waived by mutual consent of both the employer and the employee.
• The employee receives a second meal period of not less than 30 minutes for a work period of more than 10 hours per day, unless the work period per day of the employee is less than 12 hours, the second meal period is waived by mutual consent of both the employer and the employee, and the first meal period was not waived.
• Any work in excess of eight hours in one workday, any work in excess of 40 hours in any one workweek, and the first eight hours worked on the seventh day of work in any one workweek is compensated at the rate of no less than one and one-half times the regular rate of pay for an employee.
• Any work in excess of 12 hours in one day is compensated at the rate of no less than twice the regular rate of pay for an employee.
• Any work in excess of eight hours on any seventh day of a workweek is compensated at the rate of no less than twice the regular rate of pay for an employee.

Staff Comments:

According to CDFA, there are 78 fairs in California: the California Exposition and State Fair, 52 district agricultural association fairs, 23 county fairs, and 2 citrus fruit fairs. As noted previously, the measure would not apply to fairs in Los Angeles, which houses the Los Angeles County Fair held in the City of Pomona, and three smaller fairs in the cities of Industry, San Fernando, and Antelope. Staff notes the revenue impact on this bill would depend on (1) annual fair attendance, (2) taxable sales, which in turn would depend on future economic conditions. Consequently, BOE’s revenue loss estimate of nearly $17 million is subject to volatility.

Recommended Amendments:

Staff recommends deleting the continuous appropriation authority from the bill, as it limits Legislative discretion.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

State-designated fairs: funding

Requires retailers at state-designated fairs to segregate revenue from sales; allocates 30% of this revenue to the Secretary of Agriculture for allocation for specified fair projects.

Background

State law imposes the sales tax on every retailer engaged in business in this state that sells tangible personal property, and requires them to collect the appropriate tax from the purchase and remit the amount to the Board of Equalization (BOE). Sales tax applies whenever a retail sale is made, which is basically any sale other than one for resale in the regular course of business. Unless the person pays the sales tax to the retailer, he or she is liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same rate as the sales tax rate, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase. The current rate is 7.50%, but beginning January 1, 2017, the sales and use tax rate decreases to 7.25% (Proposition 30, 2012. The rate breakdown is detailed below). Additionally, cities and counties may increase the sales and use tax rate up to 2% for either specific or general purposes pursuant to the California Constitution’s vote requirements.

Many items are fully exempted from the sales and use tax in this state (prescription drugs, food, poultry litter), while others are exempted from the state sales tax, but not the local share, such as farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock.

While parts of the sales and use tax are allocated for specific local purposes, BOE deposits all revenue generated from the base state sales use tax rate into the General Fund, which the Legislature then allocates to specific purposes annually in the Budget Act. Seeking to enhance funding for fairs in California, groups supporting the state’s fairs want to dedicate revenue from sales at fairs for fair purposes.

Proposed Law

Assembly Bill 2678 provides that retailers must segregate sales of tangible personal property on the real property of a state designated fair, as defined, when filing returns to BOE. The measure applies to sales on property at a state-designated fair but leased to another party, as well as to any use tax due resulting from the use of property at a state fair. However, the measure neither affects the allocation of revenues from the city and county general operations (Bradley-Burns), nor local transactions and use taxes. Additionally, AB 2678 does not apply to fairs in Los Angeles County.

BOE must allocate 30% of revenue required to be segregated by the bill less refunds and administration costs to the Fair and Exhibition Fund, which the bill creates in the State Treasury. The bill does not supersede requirements in the California Constitution and current law directing revenue from the sales and use tax on diesel fuel to flow to transportation purposes, or sales and use taxes currently flowing to the Local Revenue Fund to fund public safety purposes, and does not count towards estimates used by BOE to determine the excise tax rate on motor vehicle fuels calculated pursuant to the fuel tax swap.

The bill continuously appropriates these funds to the Secretary of Food and Agriculture for:

• Capital outlay to California fairs for fair projects involving public health and safety,
• Fair projects involving major and deferred maintenance,
• Fair projects necessary due to any emergency,
• Projects that are required by physical changes to the fair site,
• Projects that are required to protect the fair property or installation, such as fencing and flood protection, and
• For the acquisition or improvement of any property or facility that will serve to enhance the operation of the fair.

However, the bill allows the Secretary to allocate an unspecified portion of the funds subject to California fairs for general operational support. The bill states legislative intent that these moneys be used primarily for those fairs whose sources of revenue may be limited for purposes specified in the bill.

AB 2678 prohibits the Secretary from allocating funds to fairs in Los Angeles, and additionally limits allocation of funds to state-designated fairs unless nonmanagement employees at that state-designated fair, or nonmanagement employees at any real property of that state-designated fair that is leased to another party, have the following working conditions:

• The employee receives a meal period of not less than 30 minutes for a work period of more than five hours per day, unless the work period per day of the employee is less than six hours and the meal period is waived by mutual consent of both the employer and the employee.
• The employee receives a second meal period of not less than 30 minutes for a work period of more than 10 hours per day, unless the work period per day of the employee is less than 12 hours, the second meal period is waived by mutual consent of both the employer and the employee, and the first meal period was not waived.
• Any work in excess of eight hours in one workday, any work in excess of 40 hours in any one workweek, and the first eight hours worked on the seventh day of work in any one workweek is compensated at the rate of no less than one and one-half times the regular rate of pay for an employee.
• Any work in excess of 12 hours in one day is compensated at the rate of no less than twice the regular rate of pay for an employee.
• Any work in excess of eight hours on any seventh day of a workweek is compensated at the rate of no less than twice the regular rate of pay for an employee.

AB 2678’s provisions sunset on January 1, 2022.

State Revenue Impact

BOE estimates that revenue derives from the current base sales tax rate for California Fairs and Expositions is approximately $66 million. The bill would require BOE to divert 30% of that amount into the Fair and Exposition Fund, for approximately $20 million annually.

Comments

1. Purpose of the bill. According to the author “AB 2678 will provide a stable and reliable source of funding for California’s fairs and offer much needed help for specific fair-related purposes and projects on fairgrounds. Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California’s fairs. The network of California Fairs has faced many challenges, the most recent being the loss of continuous fair funding in the 2011-12 Budget due to the state’s growing fiscal problems, thus requiring the fairs to be self-sufficient as of January 1, 2012. Without further state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through the sales tax, the network of fairs is a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities. Currently, the state and local fairs are one of the few public entities that do not receive a portion of the locally generated sales tax, even though they are major contributors to sales tax revenue and create a significant number of jobs in their communities.”

2. Precedent. The Legislature appropriates revenues from the state’s general revenue sources in the Budget Act; the only current exception is the California Constitution’s Article XIX requirement that taxes derived from the sales of fuels for use in motor vehicles upon public streets and highways be used for specified transportation purposes. The state does not dedicate for specific purposes the revenues from sales of specified products, or the sale of any product in a specified place, just as it doesn’t dedicate income tax revenues from specific persons, or all people who live in a specific place. The Legislature allocates these funds as it sees fit, pursuant to requirements in the Constitution and federal law. AB 2678 would set a precedent by requiring a share of the revenue derived from the sales on state-fair property for fair purposes. The state must fund many worthy causes, but the bill would place fair purposes above all other needs, and would invite future bills to dedicate revenue from specific taxable events. On the other hand, the bill funds important priorities funded for decades through horse racing wagering fees, which declined, and replacement General Fund support which was subsequently eliminated. Additionally, fairs do not currently receive a share of the local sales tax. The Committee may wish to consider whether enhancing funding to fairs as part of the State Budget is a better way of accomplishing AB 2678’s goal.

3. Goose and gander. The California Department of Food and Agriculture identifies 78 fairs in California: the California Exposition and State Fair, 52 district agricultural association fairs, 23 county fairs, and 2 citrus fruit fairs. AB 2678 requires retailers, as well as individuals using property, at state fairs to segregate taxes collected on state-fair property, or state-fair property leased to another party. The bill then directs the Secretary of Food and Agriculture to allocate revenues to state-designated fairs for specific purposes. However, the measure doesn’t apply in fairs in Los Angeles, which houses the Los Angeles County Fair held in the City of Pomona, the 48^th District Agricultural Association fair held in the City of Industry, and the 51st District Agricultural Association fair held in the City of San Fernando. Another fair operates in Antelope Valley. The justification for excluding Los Angeles is unclear.

4. Application. Under AB 2678, taxpayers making sales at events held on state designated fairgrounds would need to segregate these sales when filing their sales and use tax returns. Taxpayers who hold a seller’s permit for a permanent place of business and who make sales both at events at state designated fairs and events held at other locations would need to segregate those sales made at state designated fairs. While not administratively difficult, the measure would apply to more than just sales at fairs. For example, California Exposition and State Fair (Cal Expo) also hosts Sacramento Republic soccer games and other events at Bonney Field, a large sports and entertainment venue that includes food and beverage concessions and merchandise sales. Additionally, Raging Waters is a water park located within Cal Expo’s grounds with dining and snack areas. In addition to fairs, these properties host many other events of temporary duration, such as motorized racing, craft fairs, doll shows, gun shows, home and garden shows, harvest festivals, farmers’ markets, cultural festivals and concerts, motor home, RV, and boat shows, plus corporate events, private dinner parties, and wedding receptions. The bill’s requirements would apply to retailers making sales during these events too.

5. Who enforces? AB 2678 sets forth a list of working conditions that a state-designated fair must meet to qualify for funding under the measure. However, it isn’t clear how the Secretary will know whether the fair complies with these specific requirements, or whether funds will be recaptured if a fair meets the requirements at the time funds are allocated, but falls out of compliance after that time.

Assembly Actions

Assembly Revenue and Taxation 9-0
Assembly Agriculture 7-0
Assembly Appropriations 14-0
Assembly Floor 75-2

Support and Opposition

(6/16/16)

Support: Alameda County Fair; Amador County Fair; Butte County Fair; Calaveras County Fair and Jumping Frog Jubilee; California Fair Network; California Mid-State Fair; California Mid-Winter Fair and Fiesta; California State Association of Counties; Cloverdale Citrus Fruit Fair; Contra Costa County Fair; Del Mar Fairgrounds/Racetrack; Del Norte County Fair; Desert Empire Fair; Dixon May Fair; Earl Warren Showgrounds; El Dorado County Fair; Fiona Ma, CPA, California State Board of Equalization, Member; Glenn County Fair; Gold Country Fair; Humboldt County Fair; Kern County Fair; Kings Fair; Lake County Fair; Lake Perris Fairgrounds; Lassen County Fair; Lodi Grape Festival; Mariposa Fair; Mendocino County Fair; Merced County Fair; Monterey County Fair; Mother Lode Fair; Napa County Fairgrounds; Napa Valley Exposition; National Wine Show Association; Nevada County Fairgrounds; Placer County Fair; Plumas-Sierra County Fair; Redwood Empire Fair; Rural County Representatives of California; Salinas Valley Fair; San Benito County Fair; Santa Barbara; Santa Clara County Fair; Santa Cruz County Fairgrounds; Schools’ Agriculture and Nutrition Program; Shasta District Fair; Silver Dollar Fair; Siskiyou Golden Fairground; Solano County Fair; Sonoma County Fair and Event Center; Sonoma-Marin Fairgrounds and Event Center; Southern California Fair and Events Center; Trinity County Fair Association; Tulelake-Butte Valley Fair; Ventura County Fair; Western Fairs Association Service Member Board; Yolo County Fair; Yolo County Farm Bureau; Yuba-Sutter Fair.

Opposition: Unknown.

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ASSEMBLY THIRD READING

ATR Bill Id:

Author:(Gray)

As Amended Ver: May 31, 2016

2/3 vote

SUMMARY: Requires taxable sales and purchases within a "state-designated fair" to be segregated on the Sales and Use Tax (SUT) return and also mandates that 30% of the state's General Fund SUT revenues derived from those segregated sales and purchases be deposited in the Fair and Exposition Fund (Fund). Specifically, this bill:

1. Provides that, for purposes of the SUT Law, the return shall segregate the seller's gross receipts and the property's sales price when the place of sale or use in this state is within a "state-designated fair" or any real property of a "state-designated fair" leased to another party.
2. Defines a "state-designated fair" by reference to Business and Professions Code (B&PC) Sections 19418, 19418.1, 19418.2, and 19418.3, excluding any fair located in the County of Los Angeles.
3. Provides that notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill shall not apply to any tax levied by a county, city, or district pursuant to either of those laws.
4. Provides that, except as otherwise specified, 30% of all SUT revenues, less refunds and costs of administration, that were segregated shall be transferred to the Fund in the State Treasury. Specifically, the moneys shall be continuously appropriated and allocated as provided in B&PC Section 19620.2.
5. Provides that any revenues deposited into the Fund under this bill shall not be allocated to any fair located in the County of Los Angeles.
6. Provides that any revenues deposited into the Fund under this bill shall only be allocated to a state-designated fair if nonmanagement employees at that fair, or nonmanagement employees at any real property of that fair that is leased to another party, are provided the following working conditions:
   1. The employee receives a meal period of at least 30 minutes for a work period of more than five hours per day, unless the work period per day of the employee is less than six hours and the meal period is waived by mutual consent of both the employer and the employee;
   2. The employee receives a second meal period of at least 30 minutes for a work period of more than 10 hours per day, unless the work period per day of the employee is less than 12 hours, the second meal period is waived by mutual consent, and the first meal period was not waived;
   3. Any work in excess of eight hours in one workday, any work in excess of 40 hours in any one workweek, and the first eight hours worked on the seventh day of work in any one workweek is compensated at the rate of at least one and one-half times the regular rate of pay for an employee;
   4. Any work in excess of 12 hours in one day is compensated at the rate of at least twice the regular rate of pay for an employee; and,
   5. Any work in excess of eight hours on any seventh day of a workweek is compensated at the rate of at least twice the regular rate of pay for an employee.
7. Provides for the automatic sunset of this bill's provisions on January 1, 2022.

EXISTING LAW:

1. Establishes the Fund. The Fund is charged with, among other things, allocating money to support the network of California fairs.
2. Defines a state-designated fair as the California Exposition and State Fair in the City of Sacramento and those fairs specified in B&PC Sections 19418.1 (district agricultural associations), 19418.2 (county fairs), and 19418.3 (citrus fruit fairs) that may receive financial support or are otherwise governed by B&PC Section 19400 et seq. (governing horse racing). These fairs are also collectively referred to as the "network of California fairs."
3. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
4. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser, and 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 State Board of Equalization (BOE).

FISCAL EFFECT: According to the Assembly Appropriations Committee:

1. BOE will incur minor administrative costs to notify affected retailers, modify tax returns, prepare special forms, prepare a special publication, and answer inquiries from taxpayers and the general public.
2. Ongoing annual General Fund revenue loss in the range of $17 million.

COMMENTS:

1. The author has provided the following statement in support of this bill:

AB 2678 will provide a stable and reliable source of funding for California's fairs and offer much needed help for specific fair-related purposes and projects on fairgrounds.

Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California's fairs. Without state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the network of California fairs is currently a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities.

1. Committee Staff Comments
   1. General background information: The author notes that, before 2009, license fees imposed on horse racing wagers were deposited in the Fund which, in addition to supporting the annual budget of the California Horse Racing Board, also supplemented the income of the network of California fairs. SB 16 X2 (Ashburn), Chapter 12, Statutes of 2009, in turn, shifted the horse racing industry's obligation to fund fairs through license fees imposed on wagers to the General Fund. Specifically, SB 16 X2 provided an annual continuous appropriation of $32 million from the General Fund to support the network of California fairs. This change was done as part of a package of measures designed to provide economic stimulus for the horse racing industry.

The author's office notes that, in fiscal year 2011-12, fair funding at the state level was eliminated as part of a package of budget cuts designed to address the state's ongoing financial crisis. The author notes, however, that the 2016-17 budget "currently contains a $3 million appropriation to support the network of California fairs and a $4 million allocation for infrastructure needs at fairgrounds."

• 1. What would this bill do? This bill requires taxable sales and purchases within a state-designated fair to be segregated on the SUT return and also mandates that 30% of the state's General Fund SUT revenues derived from these segregated sales and purchases be deposited in the Fund. Amounts deposited shall be continuously appropriated and allocated as provided in B&PC Section 19620.2. Section 19620.2, in turn, provides for the allocation of moneys for capital outlay to California fairs for fair projects:
     1. Involving public health and safety;
     2. Involving major and deferred maintenance;
     3. Necessary due to any emergency;
     4. Required by physical changes to the fair site; and,
     5. Required to protect the fair property or installation, such as fencing and flood protection.

The money may also be used for the acquisition or improvement of any property or facility that will serve to enhance the operation of the fair.

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098 FN: 0003335

Date of Hearing: May 4, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2678

Author:(Gray) – As Amended Ver:April 26, 2016

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill modifies the Sales and Use Tax (SUT) to require a portion of sales tax revenue from most state-designated fairs to be deposited into the Fair and Exposition Fund. Specifically, this bill:

1. Requires that tax returns segregate the gross receipts of the seller and the sales price of the property when the place of sale or use is on or within real property of a state-designated fair or any real property of a state-designated fair, as defined, but excludes any fair located in the County of Los Angeles.
2. Requires that 30% of the state’s General Fund (3.9375%) revenues, less refunds and BOE’s administrative costs, derived from those segregated SUT revenues be deposited into the Fair and Exposition Fund, and be continuously appropriated for fair-related purposes.
3. Specifies that any revenues deposited into the Fair and Exposition Fund from this modified SUT shall not be allocated to Los Angeles County.
4. Creates a sunset date for this program of January 1, 2022.

FISCAL EFFECT:

1. BOE will incur minor administrative costs to notify affected retailers, modify tax returns, prepare special forms, prepare a special publication, and answer inquiries from taxpayers and the general public.
2. Ongoing annual GF revenue loss in the range of $17 million.

COMMENTS:

1. Purpose. According to the author, AB 2678 provides a stable source of funding for California’s fairs and offers much-needed support for specific fair-related purposes and projects on fairgrounds.
2. Background. California fairs have been in existence since 1854 and have since grown to encompass 78 fairs statewide. This network of California fairs is composed of 52 district agricultural associations (DAA), 23 county fairs, 2 citrus fruit fairs, and The California Exposition and State Fair (Cal Expo). DAAs are state government entities that are governed by nine-member gubernatorial appointed boards of directors. In contrast, county fairs are county government or not-for-profit organizations; citrus fruit fairs are not-for-profit organizations; and Cal Expo is a state agency.

The Division of Fairs and Expositions within the California Department of Food and Agriculture (CDFA) provides fiscal and policy oversight for the network of California fairs, and the Department of General Services (DGS) provides oversight for use of state property, procurement, and services contracts

The source of state funding for these fairs has historically been dependent on horse racing license fees, which in recent years have significantly declined. In 2009, the Legislature recognized the need for a new source of funding for the continuation of fairs and, thus, continuously appropriated $32 million from the state's General Fund to be paid into the Fairs and Exposition (F&E) Fund. However, the 2011-12 state budget eliminated General Fund contributions to the F&E Fund, requiring DAAs to be self-sufficient as of January 1, 2012. The proposed FY 2016-17 Governor’s budget appropriates $3 million to support the fairs and an additional $4 million for infrastructure needs.

Analysis Prepared by: Luke Reidenbach / APPR. / (916) 319-2081

Date of Hearing: April 21, 2016

REVISED ANALYSIS

ASSEMBLY COMMITTEE ON AGRICULTURE

Bill Dodd, Chair

ABPCA Bill Id:AB 2678 (

Author:Gray) – As Amended Ver:April 20, 2016

SUBJECT: State-designated fairs: funding.

SUMMARY: Requires taxable sales and purchases within the 35^th District Agricultural Association's (DAA) Merced County Fair and the Merced County Spring Fair to be segregated on the Sales and Use Tax (SUT) return and also mandates that 30% of the state's General Fund (GF) (3.9375%) SUT revenues derived from those segregated sales and purchases, be deposited into the Fair and Exposition Fund (Fund), for allocation to these two fairs; and, repeals these provisions January 1, 2022. Specifically, this bill:

1. Provides that, for purposes of the SUT Law, the return shall segregate the seller's gross receipts and the property's sales price when the place of sale or use in this state is within a "state designated fair" or any real property of a "state designated fair" leased to another party.
2. Defines a "state designated fair" to include the 35th DAA's Merced County Fair and the Merced County Spring Fair.
3. Provides that notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill shall not apply to any tax levied by a county, city, or district pursuant to either of those laws.
4. Provides that, except as otherwise specified, 30% of all SUT revenues, less refunds and costs of administration, that were segregated shall be transferred to the Fund in the State Treasury. Specifically, the moneys shall be deposited into the separate account in the Fund.
5. Provides that any amounts deposited into the separate account shall be continuously appropriated and allocated as specified, except that any amounts transferred to the Fund in excess of $11 million shall be allocated for capital outlay projects dealing with public health and safety, major and deferred maintenance, and for general operational cost for fairs whose source of revenue may be limited.
6. Provides a sunset on these provisions of January, 1, 2022.

EXISTING LAW: Establishes the Fund and charges it with, among other things, allocating money to support CFN; requires certain license fees from satellite wagering to be deposited into a separate account in the Fund; these moneys are continuously appropriated for specified fair-related purposes, including the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs; and, defines a state designated fair as the California Exposition and State Fair in the City of Sacramento and those fairs designated as district agricultural associations, county fairs, and citrus fruit fairs, that may receive financial support or are otherwise governed by horse racing statutes.

Existing law imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption; the tax is based upon the retailer's gross receipts from TPP sales in this state; imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California; and, the use tax is imposed on the purchaser, and 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.

FISCAL EFFECT: Unknown.

COMMENTS: Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California's fairs. Without a stable source of state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the California Fairs Network is currently a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities.

Prior to 2009, license fees imposed on horse racing wagers were deposited into the Fund which, in addition to supporting the annual budget of the California Horse Racing Board, also supplemented the income of CFN. SB 16 X2 (Ashburn), Chapter 12, Statutes of 2009, in turn, shifted the horse racing industry's obligation to fund fairs through license fees imposed on wagers to the GF. Specifically, SB 16 X2 provided an annual continuous appropriation of $32 million from the GF to support CFN. This change was done as part of a package of measures designed to provide economic stimulus for the horse racing industry.

In fiscal year 2011-12, fair funding at the state level was eliminated as part of a package of budget cuts designed to address the state's ongoing financial crisis. However, the 2016-17 budget currently contains a $3 million appropriation to support CFN and a $4 million allocation for infrastructure needs at fairgrounds.

According to the author, AB 2678 was intended to provide a stable and reliable source of funding for all California's fairs and to offer much needed help for fair projects involving public health and safety, and for projects involving major and deferred maintenance on small and medium-sized fairgrounds throughout the state. The latest amendments changed that intent by narrowing the bill's impact to only two fairs, and little anticipated SUT revenues.

The author is expected to offer amendments to strike the latest amendments and recast the bill to its April 12, 2016 version, with the added amendment of excluding fairs within Los Angeles County from the "state-designated fair" definition, for purposes of this measure. This would eliminate that fair from contributing to or receiving funds from this proposed new fair funding source.

Legislative history: AB 700 (Krekorian), of the 2009-10 Regular Session, would have required 20% of the state's GF SUT revenues, remitted by specified taxpayers, be deposited into a newly established Creative Industries and Community Economic Revitalization Fund for specified purposes. AB 700 died in the Assembly Appropriations Committee.

AB 1365 (Karnette), of the 2007-08 Regular Session, would have required all SUT revenues derived from the sale of art be allocated to the California Arts Council. AB 1365 was held in the Assembly Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

(Due to significant amendments of April 20, 2016, it is unknown if the support received for the previous version remains in support.)

Opposition

None on file

Analysis Prepared by: Jim Collin / AGRI. / (916) 319-2084

Date of Hearing: April 20, 2016

ASSEMBLY COMMITTEE ON AGRICULTURE

Bill Dodd, Chair

ABPCA Bill Id:AB 2678 (

Author:Gray) – As Amended Ver:April 12, 2016

SUBJECT: State-designated fairs: funding.

SUMMARY: Requires taxable sales and purchases within a "state designated fair" to be segregated on the Sales and Use Tax (SUT) return and also mandates that 30% of the state's General Fund (3.9375%) SUT revenues derived from those segregated sales and purchases, be deposited into the Fair and Exposition Fund (Fund); and, repeals these provisions January 1, 2022. Specifically, this bill:

1. Provides that, for purposes of the SUT Law, the return shall segregate the seller's gross receipts and the property's sales price when the place of sale or use in this state is within a "state designated fair" or any real property of a "state designated fair" leased to another party.
2. Defines a "state designated fair" to include California Exposition and State Fair (Cal Expo), District Agricultural Associations, County Fairs, and Citrus Fairs, known as the California Fairs Network (CFN).
3. Provides that notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill shall not apply to any tax levied by a county, city, or district pursuant to either of those laws.
4. Provides that, except as otherwise specified, 30% of all SUT revenues, less refunds and costs of administration, that were segregated shall be transferred to the Fund in the State Treasury. Specifically, the moneys shall be deposited into the separate account in the Fund.
5. Provides that any amounts deposited into the separate account shall be continuously appropriated and allocated as specified, except that any amounts transferred to the Fund in excess of $11 million shall be allocated for capital outlay projects dealing with public health and safety, major and deferred maintenance, and other related fair projects.
6. Provides a sunset on these provisions of January, 1, 2022.

EXISTING LAW:

1. Establishes the Fund. The Fund is charged with, among other things, allocating money to support CFN.
2. Requires certain license fees from satellite wagering to be deposited into a separate account in the Fund. These moneys are continuously appropriated for specified fair-related purposes, including the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs.
3. Defines a state designated fair as the California Exposition and State Fair in the City of Sacramento and those fairs designated as district agricultural associations, county fairs, and citrus fruit fairs, that may receive financial support or are otherwise governed by horse racing statutes.
   
4. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
5. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser, and 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.

FISCAL EFFECT: According to the Assembly Revenue and Taxation Committee analysis, BOE estimates that this bill would result in annual General Fund SUT losses of $20 million.

COMMENTS: According to the author, AB 2678 will provide a stable and reliable source of funding for California's fairs and offer much needed help for specific fair-related purposes and projects on fairgrounds. Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California's fairs. Without state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the California Fairs Network is currently a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities.

Western Fairs Association and the California Fairs Alliance recognize that CFN is the only form of local government that does not receive a portion of the sales taxes generated on their property. More than 12 million Californians attend their hometown fair each year, creating jobs, tax income, and building community pride and harmony throughout the state. Additionally, another 20 million Californians attend non-fair events at fairgrounds each year, most with a non-profit or charitable element. As it currently stands, none of the resulting locally-generated dollars come back to assist fairgrounds with infrastructure or operating needs.

According to BOE analysis, interim events are held on state designated fairgrounds: "In addition to the various annual fairs, other events held on the designated fairgrounds include motorized racing, craft fairs, doll shows, gun shows, home and garden shows, harvest festivals, farmers' markets, cultural festivals and concerts, motor home, RV, and boat shows, and more. Events may also include corporate events, private dinner parties, and wedding receptions.

According to the author's office, "this bill's segregated reporting requirements are intended to apply to all events and activities that are held on the state designated fairgrounds. Taxpayers making sales at events held on state designated fairgrounds would need to segregate these sales when filing their sales and use tax returns. Taxpayers who hold a seller's permit for a permanent place of business and who make sales both at events at state designated fairs and events held at other locations, would need to segregate those sales made at state designated fairs. BOE staff would need to know what events and activities occur at state designated fairs to instruct taxpayers to properly report their sales and purchases at these locations."

BOE also identified that Cal Expo hosts private venues: "While Cal Expo hosts the annual California State Fair, it is also home to Bonney Field, a large sports and entertainment venue that includes food and beverage concessions and merchandise sales. Additionally, Raging Waters is a water park located within Cal Expo's grounds with dining and snack areas. However, it is not clear whether sales transactions made at Bonney Field or Raging Waters would be subject to the proposed segregation reporting requirements. Would these restaurants and snack areas be required to segregate their food and beverage sales?

BOE staff can work with the author's office to better identify the events and activities that would be subject to the segregated reporting requirements in this bill."

Prior to 2009, license fees imposed on horse racing wagers were deposited into the Fund which, in addition to supporting the annual budget of the California Horse Racing Board, also supplemented the income of CFN. SB 16 X2 (Ashburn), Chapter 12, Statutes of 2009, in turn, shifted the horse racing industry's obligation to fund fairs through license fees imposed on wagers to the General Fund (GF). Specifically, SB 16 X2 provided an annual continuous appropriation of $32 million from the GF to support CFN. This change was done as part of a package of measures designed to provide economic stimulus for the horse racing industry.

In fiscal year 2011-12, fair funding at the state level was eliminated as part of a package of budget cuts designed to address the state's ongoing financial crisis. However, the 2016-17 budget currently contains a $3 million appropriation to support CFN and a $4 million allocation for infrastructure needs at fairgrounds.

This bill requires taxable sales and purchases within a state designated fair to be segregated on the SUT return and also mandates that 30% of the state's GF portion (3.9375%) SUT revenues (or 1.1813%) derived from these segregated sales and purchases are deposited in the Fund. Amounts deposited shall be continuously appropriated and allocated as provided in statute. Statute specifies the allocation of moneys for the following purposes:

• • 1. Servicing bonds issued for constructing or acquiring improvements at a fair's racetrack enclosure, satellite wagering facilities, health and safety repair projects, or handicapped access compliance projects at fairs;
    2. For payment to the State Race Track Leasing Commission to be pledged for the repayment of debt necessary to construct a racetrack grandstand at the 22^nd District Agricultural Association fairgrounds;
    3. For the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs;
    4. For the support of an equipment and operating fund to produce and display a consolidated California signal at satellite wagering facilities and fairs;
    5. For health and safety repair projects at fairs, including fire and life safety improvement projects, California Code of Regulations compliance projects, and long-term deferred maintenance projects; and,
    6. For the development and payment of revenue generating projects, the establishment of pilot projects to restructure the current fair system, and for projects realizing a cost savings for more efficient utilization of existing fair resources.

Proponents of this bill might argue that earmarking specified SUT revenues would provide a stable and much-needed source of funding for CFN. Opponents, however, might contend that the practice of earmarking restricts the Legislature's ability to fund vital state programs in a holistic manner through the annual budgetary process. Specifically, opponents might argue that this bill elevates specific fair funding needs above other vital programs designed to address basic human necessities, such as health and social services. In addition, this bill would potentially establish a precedent for future dedicated funding legislation.

Legislative history: AB 700 (Krekorian), of the 2009-10 Regular Session, would have required 20% of the state's GF SUT revenues, remitted by specified taxpayers, be deposited into a newly established Creative Industries and Community Economic Revitalization Fund for specified purposes. AB 700 died in the Assembly Appropriations Committee.

AB 1365 (Karnette), of the 2007-08 Regular Session, would have required all SUT revenues derived from the sale of art be allocated to the California Arts Council. AB 1365 was held in the Assembly Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda County Fair

Antelope Valley Fair Association

Butte County Fair

Calaveras County Fair

California Fair Network

California Fairs Alliance

California Mid-State Fair, 16^th District Agricultural Association

California Mid-Winter Fair and Fiesta. 45 District Agricultural Association

California State Association of Counties

Contra Costa County Fair

Del Norte County Fair

Dixon May Fair

Earl Warren Showgrounds, 19^th District Agricultural District

El Dorado County Fair

Gold Country Fair

Kings Fair

Lake County Fair, 49^th District Agricultural Association

Lassen County Fair

Lodi Grape Festival

Mariposa 35-A District Fairgrounds

Mendocino County Fair and Apple Show

Monterey County Fair, 7^th District Agricultural Association

Mother Load Fairgrounds

Napa County Fair Association, Inc.

Napa Valley Expo, 25^th District Agricultural Association

National Wine Show Association, Inc.

Nevada County Fairgrounds

Placer County Fair Association

Redwood Empire Fair

Rural County Representatives of California

Salinas Valley Fair

San Mateo County Event Center

Santa Barbara County Fair

Santa Cruz County Fair, 14^th District Agricultural Association

San Benito County Fair, 33^rd District Agricultural Association

Schools' Agriculture and Nutrition Fair, 48^th District Agricultural Association

Shasta District Fair, 27^th District Agricultural Association

Silver Dollar Fair

Siskiyou Golden Fairground

Solano County Fair Association

Sonoma County Fair and Event Center

Sonoma-Marin Fair

Tulelake-Butte Valley Fair

Ventura County Fair

Western Fairs Association

26^th District Agricultural Association

Yolo County Fair, 40^th District Agricultural Association

Yuba-Sutter Fair

Honorable Fiona Ma, Chair, State Board of Equalization

Opposition

None on file

Analysis Prepared by: Jim Collin / AGRI. / (916) 319-2084

Date of Hearing: April 18, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 2678 (Author:Gray) – As Amended Ver:April 12, 2016

SUSPENSE

2/3 vote. Fiscal committee.

SUBJECT: State-designated fairs: funding

SUMMARY: Requires taxable sales and purchases within a "state-designated fair" to be segregated on the Sales and Use Tax (SUT) return and also mandates that 30% of the state's General Fund (3.9375%) SUT revenues derived from those segregated sales and purchases be deposited in the Fair and Exposition Fund (Fund). Specifically, this bill:

1. Provides that, for purposes of the SUT Law, the return shall segregate the seller's gross receipts and the property's sales price when the place of sale or use in this state is within a "state-designated fair" or any real property of a "state-designated fair" leased to another party.
2. Defines a "state-designated fair" by reference to Business and Professions Code (B&PC) Sections 19418, 19418.1, 19418.2, and 19418.3.
3. Provides that notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill shall not apply to any tax levied by a county, city, or district pursuant to either of those laws.
4. Provides that, except as otherwise specified, 30% of all SUT revenues, less refunds and costs of administration, that were segregated shall be transferred to the Fund in the State Treasury. Specifically, the moneys shall be continuously appropriated and allocated as provided in B&PC Section 19620.2.
5. Provides for the automatic sunset of this bill's provisions on January 1, 2022.

EXISTING LAW:

1. Establishes the Fund. The Fund is charged with, among other things, allocating money to support the network of California fairs.
2. Defines a state-designated fair as the California Exposition and State Fair in the City of Sacramento and those fairs specified in B&PC Sections 19418.1 (district agricultural associations), 19418.2 (county fairs), and 19418.3 (citrus fruit fairs) that may receive financial support or are otherwise governed by B&PC Section 19400 et seq. (governing horse racing). These fairs are also collectively referred to as the "network of California fairs."
   
3. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
4. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser, and 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 State Board of Equalization (BOE).

FISCAL EFFECT: The BOE estimates that this bill would result in annual General Fund SUT losses of $20 million.

COMMENTS:

1. The author has provided the following information in support of this bill:

AB 2678 will provide a stable and reliable source of funding for California's fairs and offer much needed help for specific fair-related purposes and projects on fairgrounds.

Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California's fairs. Without state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the network of California fairs is currently a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities.

1. Proponents of this bill note the following:

Western Fairs Association and the California Fairs Alliance recognize that the California Fair Network is the only form of local government that does not receive a portion of the sales taxes generated on their property. More than 12 million Californians attend their hometown fair each year, creating jobs, tax income, and building community pride and harmony throughout the state. Additionally, another 20 million Californians attend non-fair events at fairgrounds each year, most with a non-profit or charitable element. As it currently stands, none of the resulting locally-generated dollars come back to assist fairgrounds with infrastructure or operating needs.

1. The BOE notes the following in its staff analysis of the introduced version of this bill:
   1. Interim events are held on state designated fairgrounds: "In addition to the various annual fairs, other events held on the designated fairgrounds include motorized racing, craft fairs, doll shows, gun shows, home and garden shows, harvest festivals, farmers' markets, cultural festivals and concerts, motor home, RV, and boat shows, and more. Events may also include corporate events, private dinner parties, and wedding receptions.

"According to the author's office, this bill's segregated reporting requirements are intended to apply to all events and activities that are held on the state designated fairgrounds.

"Taxpayers making sales at events held on state designated fairgrounds would need to segregate these sales when filing their sales and use tax returns. Taxpayers who hold a seller's permit for a permanent place of business and who make sales both at events at state designated fairs and events held at other locations, would need to segregate those sales made at state designated fairs. BOE staff would need to know what events and activities occur at state designated fairs to instruct taxpayers to properly report their sales and purchases at these locations."

• 1. California Exposition and State Fair (Cal Expo) hosts private venues: "While Cal Expo hosts the annual California State Fair, it is also home to Bonney Field, a large sports and entertainment venue that includes food and beverage concessions and merchandise sales. Additionally, Raging Waters is a water park located within Cal Expo's grounds with dining and snack areas. However, it is not clear whether sales transactions made at Bonney Field or Raging Waters would be subject to the proposed segregation reporting requirements. Would these restaurants and snack areas be required to segregate their food and beverage sales?

BOE staff can work with the author's office to better identify the events and activities that would be subject to the segregated reporting requirements in this bill."

1. Committee Staff Comments
   1. General background information: The author notes that, before 2009, license fees imposed on horse racing wagers were deposited in the Fund which, in addition to supporting the annual budget of the California Horse Racing Board, also supplemented the income of the network of California fairs. SB 16x2 (Ashburn), Chapter 12, Statutes of 2009, in turn, shifted the horse racing industry's obligation to fund fairs through license fees imposed on wagers to the General Fund. Specifically, SB 16x2 provided an annual continuous appropriation of $32 million from the General Fund to support the network of California fairs. This change was done as part of a package of measures designed to provide economic stimulus for the horse racing industry.

The author's office notes that, in fiscal year 2011-12, fair funding at the state level was eliminated as part of a package of budget cuts designed to address the state's ongoing financial crisis. The author notes, however, that the 2016-17 budget "currently contains a $3 million appropriation to support the network of California fairs and a $4 million allocation for infrastructure needs at fairgrounds."

• 1. What would this bill do? This bill requires taxable sales and purchases within a state-designated fair to be segregated on the SUT return and also mandates that 30% of the state's General Fund (3.9375%) SUT revenues derived from these segregated sales and purchases be deposited in the Fund. Amounts deposited shall be continuously appropriated and allocated as provided in B&PC Section 19620.2. Section 19620.2, in turn, provides for the allocation of moneys for capital outlay to California fairs for fair projects:
     1. Involving public health and safety;
     2. Involving major and deferred maintenance,
     3. Necessary due to any emergency;
     4. Required by physical changes to the fair site; and,
     5. Required to protect the fair property or installation, such as fencing and flood protection.

The money may also be used for the acquisition or improvement of any property or facility that will serve to enhance the operation of the fair.

• 1. The benefits and perils of earmarking: Proponents of this bill might argue that earmarking specified SUT revenues would provide a stable and much-needed source of funding for state fairs. Opponents, however, might contend that the practice of earmarking restricts the Legislature's ability to fund vital state programs in a holistic manner through the annual budgetary process. Specifically, opponents might argue that this bill elevates specific fair funding needs above other vital programs designed to address basic human necessities, such as health and social services. In addition, this bill would potentially establish a precedent for future dedicated funding legislation.
  2. A note on sunsets: The author has recently amended this bill to add a five-year sunset date. It is Committee staff's understanding that this amendment was designed to clarify that this funding mechanism is temporary and subject to future review by the Legislature.
  3. Double referral: This bill has been double referred to the Assembly Committee on Agriculture.
  4. Legislative history:
     1. AB 700 (Krekorian), of the 2009-10 Regular Session, would have required 20% of the state's General Fund SUT revenues, remitted by specified taxpayers, be deposited into a newly established Creative Industries and Community Economic Revitalization Fund for specified purposes. AB 700 died in the Assembly Committee on Appropriations.
     2. AB 1365 (Karnette), of the 2007-08 Regular Session, would have required all SUT revenues derived from the sale of art be allocated to the California Arts Council. AB 1365 was held in the Assembly Committee on Appropriations.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda County Fair

California Fairs Alliance

California Mid-State Fair

Del Norte County Fair

Earl Warren Showgrounds

El Dorado County Fair

Kings Fair

Lodi Grape Festival

Mariposa 35-A District Fairgrounds

Mendocino County Fair

Nevada County Fairgrounds

Placer County Fair Association

Redwood Empire Fair

Siskiyou Golden Fairground

Solano County Fair Association

Western Fairs Association

7^th District Agricultural Association/Monterey County Fair

14^th District Agricultural Association

19^th District Agricultural Association

40^th District Agricultural Association/Yolo County Fair

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098

Date of Hearing: April 11, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 2678 (

Author:Gray) – As Introduced Ver:February 19, 2016

2/3 vote. Fiscal committee.

SUBJECT: State designated fairs: funding

SUMMARY: Requires taxable sales and purchases within a "state designated fair" to be segregated on the Sales and Use Tax (SUT) return and also mandates that 30% of the state's General Fund (3.9375%) SUT revenues derived from those segregated sales and purchases be deposited in the Fair and Exposition Fund (Fund). Specifically, this bill:

1. Provides that, for purposes of the SUT Law, the return shall segregate the seller's gross receipts and the property's sales price when the place of sale or use in this state is within a "state designated fair" or any real property of a "state designated fair" leased to another party.
2. Defines a "state designated fair" by reference to Business and Professions Code (B&PC) Sections 19418, 19418.1, 19418.2, and 19418.3.
3. Requires the State Board of Equalization (BOE) to develop a form for this purpose.
4. Provides that notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill shall not apply to any tax levied by a county, city, or district pursuant to either of those laws.
5. Provides that, except as otherwise specified, 30% of all SUT revenues, less refunds and costs of administration, that were segregated shall be transferred to the Fund in the State Treasury. Specifically, the moneys shall be deposited into the separate account in the Fund specified in B&PC Section 19606.1.
6. Provides that any amounts deposited into the separate account shall be continuously appropriated and allocated as provided in B&PC Section 19606.1, except that any amounts transferred to the Fund pursuant to B&PC Section 19606.1(g) shall be allocated in accordance with B&PC Section 19620.2.

EXISTING LAW:

1. Establishes the Fund. The Fund is charged with, among other things, allocating money to support the network of California fairs.
2. Requires certain license fees from satellite wagering to be deposited into a separate account in the Fund. These moneys are continuously appropriated for specified fair-related purposes, including the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs.
3. Defines a state designated fair as the California Exposition and State Fair in the City of Sacramento and those fairs specified in B&PC Sections 19418.1 (district agricultural associations), 19418.2 (county fairs), and 19418.3 (citrus fruit fairs) that may receive financial support or are otherwise governed by B&PC Section 19400 et seq. (governing horse racing). These fairs are also collectively referred to as the "network of California fairs."
   
4. Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state.
5. Imposes a complimentary use tax on the storage, use, or other consumption of TPP purchased out-of-state and brought into California. The use tax is imposed on the purchaser, and 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.

FISCAL EFFECT: The BOE estimates that this bill would result in annual General Fund SUT losses of $20 million.

COMMENTS:

1. The author has provided the following information in support of this bill:

AB 2678 will provide a stable and reliable source of funding for California's fairs and offer much needed help for specific fair-related purposes and projects on fairgrounds.

Over the past 75 years, there has been a designated funding source for fairs from which the state has made significant investments in promoting the business operations and improving the infrastructure of California's fairs. Without state funding, these properties will continue to deteriorate and in their demise create public safety issues. The reality is that, through sales tax, the network of California fairs is currently a huge revenue generator for the state of California. Without funding to maintain the infrastructure, what were once valuable state assets may become state liabilities.

1. This bill is supported by the California Fair Network, which notes the following:

Western Fairs Association and the California Fairs Alliance recognize that the California Fair Network is the only form of local government that does not receive a portion of the sales taxes generated on their property. More than 12 million Californians attend their hometown fair each year, creating jobs, tax income, and building community pride and harmony throughout the state. Additionally, another 20 million Californians attend non-fair events at fairgrounds each year, most with a non-profit or charitable element. As it currently stands, none of the resulting locally-generated dollars come back to assist fairgrounds with infrastructure or operating needs.

1. The BOE notes the following in its staff analysis of this bill:
   1. Interim events are held on state designated fairgrounds: "In addition to the various annual fairs, other events held on the designated fairgrounds include motorized racing, craft fairs, doll shows, gun shows, home and garden shows, harvest festivals, farmers' markets, cultural festivals and concerts, motor home, RV, and boat shows, and more. Events may also include corporate events, private dinner parties, and wedding receptions.

"According to the author's office, this bill's segregated reporting requirements are intended to apply to all events and activities that are held on the state designated fairgrounds.

"Taxpayers making sales at events held on state designated fairgrounds would need to segregate these sales when filing their sales and use tax returns. Taxpayers who hold a seller's permit for a permanent place of business and who make sales both at events at state designated fairs and events held at other locations, would need to segregate those sales made at state designated fairs. BOE staff would need to know what events and activities occur at state designated fairs to instruct taxpayers to properly report their sales and purchases at these locations."

• 1. California Exposition and State Fair (Cal Expo) hosts private venues: "While Cal Expo hosts the annual California State Fair, it is also home to Bonney Field, a large sports and entertainment venue that includes food and beverage concessions and merchandise sales. Additionally, Raging Waters is a water park located within Cal Expo's grounds with dining and snack areas. However, it is not clear whether sales transactions made at Bonney Field or Raging Waters would be subject to the proposed segregation reporting requirements. Would these restaurants and snack areas be required to segregate their food and beverage sales?

BOE staff can work with the author's office to better identify the events and activities that would be subject to the segregated reporting requirements in this bill."

1. Committee Staff Comments
   1. General background information: The author notes that, before 2009, license fees imposed on horse racing wagers were deposited in the Fund which, in addition to supporting the annual budget of the California Horse Racing Board, also supplemented the income of the network of California fairs. SB 16x2 (Ashburn), Chapter 12, Statutes of 2009, in turn, shifted the horse racing industry's obligation to fund fairs through license fees imposed on wagers to the General Fund. Specifically, SB 16x2 provided an annual continuous appropriation of $32 million from the General Fund to support the network of California fairs. This change was done as part of a package of measures designed to provide economic stimulus for the horse racing industry.

The author's office notes that, in fiscal year 2011-12, fair funding at the state level was eliminated as part of a package of budget cuts designed to address the state's ongoing financial crisis. The author notes, however, that the 2016-17 budget "currently contains a $3 million appropriation to support the network of California fairs and a $4 million allocation for infrastructure needs at fairgrounds."

• 1. What would this bill do? This bill requires taxable sales and purchases within a state designated fair to be segregated on the SUT return and also mandates that 30% of the state's General Fund (3.9375%) SUT revenues derived from these segregated sales and purchases be deposited in the Fund. Amounts deposited shall be continuously appropriated and allocated as provided in B&PC Section 19606.1. Section 19606.1, in turn, provides for the allocation of moneys for the following purposes:
     1. Servicing bonds issued for constructing or acquiring improvements at a fair's racetrack inclosure, satellite wagering facilities, health and safety repair projects, or handicapped access compliance projects at fairs;
     2. For payment to the State Race Track Leasing Commission to be pledged for the repayment of debt necessary to construct a racetrack grandstand at the 22^nd District Agricultural Association fairgrounds;
     3. For the payment of expenses incurred in establishing and operating satellite wagering facilities at fairs;
     4. For the support of an equipment and operating fund to produce and display a consolidated California signal at satellite wagering facilities and fairs;
     5. For health and safety repair projects at fairs, including fire and life safety improvement projects, California Code of Regulations compliance projects, and long-term deferred maintenance projects; and,
     6. For the development and payment of revenue generating projects, the establishment of pilot projects to restructure the current fair system, and for projects realizing a cost savings for more efficient utilization of existing fair resources.
  2. The benefits and perils of earmarking: Proponents of this bill might argue that earmarking specified SUT revenues would provide a stable and much-needed source of funding for state fairs. Opponents, however, might contend that the practice of earmarking restricts the Legislature's ability to fund vital state programs in a holistic manner through the annual budgetary process. Specifically, opponents might argue that this bill elevates specific fair funding needs above other vital programs designed to address basic human necessities, such as health and social services. In addition, this bill would potentially establish a precedent for future dedicated funding legislation.
  3. Suggested administrative amendment: This bill requires the BOE to develop a form to segregate sales and purchases of property sold or used at a state designated fair. The BOE notes, however, that the existing SUT return could be modified to add an additional line to report these transactions separately. In determining how best to implement this bill, BOE staff would like the option of either modifying the existing SUT return or creating a supplemental form to capture the required information. As such, the BOE has suggested administrative amendments in its staff analysis to provide this flexibility.
  4. Potential amendments suggested by the Author: The Author's office has suggested two potential amendments to this bill. The first would add a five-year sunset date, to clarify that this funding mechanism is temporary and subject to future review by the Legislature. The second amendment would redirect segregated revenues for allocation under B&PC Section 19620.2, to clarify that the funds will be used for vital fair maintenance and infrastructure needs.
  5. Double referral: This bill has been double referred to the Assembly Committee on Agriculture.
  6. Legislative history:
     1. AB 700 (Krekorian), of the 2009-10 Regular Session, would have required 20% of the state's General Fund SUT revenues, remitted by specified taxpayers, be deposited into a newly established Creative Industries and Community Economic Revitalization Fund for specified purposes. AB 700 died in the Assembly Committee on Appropriations.
     2. AB 1365 (Karnette), of the 2007-08 Regular Session, would have required all SUT revenues derived from the sale of art be allocated to the California Arts Council. AB 1365 was held in the Assembly Committee on Appropriations.

REGISTERED SUPPORT / OPPOSITION:

Support

Alameda County Fair

Calaveras County Fair

California Fair Network

California Fairs Alliance

California Mid-State Fair

California State Association of Counties

Contra Costa County Fair

Del Norte County Fair

Dixon May Fair

Earl Warren Showgrounds

El Dorado County Fair

Gold Country Fair

Mariposa 35-A District Fairgrounds

Nevada County Fairgrounds

Placer County Fair Association

Redwood Empire Fair

Rural County Representatives of California

San Mateo County Event Center

Salinas Valley Fair

Santa Barbara County Fair

Silver Dollar Fair

Siskiyou Golden Fairground

Solano County Fair Association

Tulelake-Butte Valley Fair

Sonoma-Marin Fair

Ventura County Fair

Western Fairs Association

Yuba-Sutter Fair

7^th District Agricultural Association, Monterey County Fair

19^th District Agricultural District

26^th District Agricultural Association

40^th District Agricultural Association/Yolo County Fair

1 individual

Opposition

None on file

Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098