Existing sales and use tax laws impose a tax 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. The Sales and Use Tax Law defines the terms gross receipts and sales price.

This bill would, in the sale of any public safety first responder vehicle that is purchased by a local public agency and in the sale of any equipment required on a public safety first responder vehicle that is purchased by a local public agency, exclude from the terms gross receipts and sales price, amounts of the gross receipts or sales price of an individual item in excess of $300,000. The bill, for the purposes of this exclusion, would define local public agency as a fire protection district or a fire department of a city, county, municipal corporation, district, or public authority located within this state.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes counties and cities to impose local sales and use taxes in conformity with the Sales and Use Tax Law, and existing law authorizes districts, as specified, to impose transactions and use taxes in accordance with the Transactions and Use Tax Law, which generally conforms to the Sales and Use Tax Law. Amendments to state sales and use taxes are incorporated into these laws.

Section 2230 of the Revenue and Taxation Code provides that the state will reimburse counties and cities for revenue losses caused by the enactment of sales and use tax exemptions.

This bill would provide that, notwithstanding Section 2230 of the Revenue and Taxation Code, no appropriation is made and the state shall not reimburse any local agencies for sales and use tax revenues lost by them pursuant to this bill.

This bill would take effect immediately as a tax levy, but its operative date would depend on its effective date.

A provision of the Sales and Use Tax Law imposes a state sales tax at a rate of 4³/₄% of the gross receipts of the retail sale of tangible personal property in the state.

This bill would make technical, nonsubstantive changes to that provision.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

SB 120 (Anderson) - Sales and use taxes: exclusion: public safety first responder vehicle and equipment

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

Bill Summary:

SB 120 would provide a sales and use tax (SUT) exemption for the sale of (1) public safety first responder vehicles, and (2) any required equipment on those vehicles, in excess of $300,000 when purchased by a local public agency.

Fiscal Impact:

The Board of Equalization (BOE) estimates that the bill would result in an annual revenue loss of $2.95 million, $1.38 million of which would be General Fund. BOE’s would incur minor administration costs to notify retailers, audit claimed exclusions, and answer inquiries from taxpayers and the general public.

Background:

The SUT is a tax on final sales of tangible personal property, such as clothing, household furnishings, appliances, and motor vehicles. Intermediate sales of goods (from a wholesaler to a retailer, for example) are not taxed, and in addition, certain individual items are specifically exempted from the SUT. The largest of these tax expenditure programs (TEPs) involve home-consumed food, utilities, prescription medicines, manufacturing equipment, and a variety of agricultural-related goods. California’s state-level SUT was established in the 1930s and its local SUT in 1955.

SUT rates in California differ by county and locality, and range from 7.50 percent to 10.00 percent, depending on whether optional taxes are levied. The current statewide SUT rate is 8.42 percent (weighted by sales). This includes:

• A state rate of 6.50 percent—3.9375 percent for the General Fund, 2.0625 percent for specified local purposes, 0.25 percent for schools and community college funding, and 0.25 percent to pay off the deficit-financing bonds.

• A weighted average local rate of 1.88 percent, including 0.75 percent for general purposes, 0.25 percent for county transportation purposes, and the remaining 0.92 percent from optional SUTs largely used for transportation.

Proposed Law:

This bill would exempt from the SUT purchases in excess of $300,000 of public safety first responder vehicles, and any required equipment on those vehicles, purchased by a local public agency, as defined.

Related Legislation:

SB 1367 (Anderson, 2014) contained similar provisions to this bill, but did not include the $300,000 threshold. The bill failed passage in the Senate Governance and Finance Committee.

Staff Comments:

Data from the State Controller’s Annual Reports indicate that local governments spend an estimated $7 billion annually on fire protection. BOE staff was not able to determine the distribution of spending at the local level. The ratio of fire vehicle and equipment expenditures to the overall fire protection expenditures is about one percent. Assuming that this is reflective of all cities, counties and fire districts in the State, annual statewide first responder vehicle and equipment expenditures would be $70 million. BOE assumed that the average price of a vehicle with auxiliary equipment is $600,000, implying that the average exemption would be $300,000 ($600,000 less $300,000). As an order of magnitude, purchases of $300,000 and above were estimated to represent half the total expenditures. Hence, estimated purchases exempted under this bill totaled $35 million. Using the current average sales and use tax rate of 8.42 percent, annual revenue loss totaled $2.95 million. This measure would not reimburse local governments its portion of sales tax loss.

Staff notes that the BOE revenue estimate assumes continuation of the quarter-cent SUT increase that was approved by voters as part of Proposition 30. Under current law, this increase will expire at the end of 2016. Assuming the expiration of the temporary tax, the total revenue loss associated with this bill would be $2.86 million. Additionally, BOE’s estimate does not assume growth (either in price or quantity of vehicles) in the out-years, which suggests that BOE’s revenue estimate could be somewhat understated.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

SALES AND USE TAXES: EXCLUSION: PUBLIC SAFETY FIRST RESPONDER VEHICLE AND EQUIPMENT

Provides a sales and use tax exemption for the sale of public safety first responder vehicles, and any required equipment on those vehicles, in excess of $300,000 purchased by a local public agency.

Background and Existing Law

State law imposes a sales and use tax on the sale, storage, or use of tangible personal property unless exempted by state law. Generally, nonprofits, public agencies, and charities are subject to sales and use tax, unless otherwise exempted. Cities and Counties may increase the sales and use tax rate up to 2% as a transactions and use tax for either specific or general purposes with a vote of the people.

The current state sales and use tax rate on tangible personal property is 7.5% and is imposed as follows:

Proposed Law

Senate Bill 120 exempts purchases in excess of $300,000 of public safety first responder vehicles, and any required equipment on those vehicles, from sales and use taxes.

The bill defines “local public agency” as a city, county, municipal corporation, district, or public authority located within this state which provides or may provide first responder emergency services.

This measure does not reimburse local governments for the sales tax loss. As a tax levy, SB 120 takes effect immediately, but shall not become operative until the first day of the calendar quarter commencing more than 90 days after the effective date of this act.

State Revenue Impact

The Board of Equalization (BOE) estimates that this bill would result in an annual sales and use tax loss of $3 million. This estimate only takes into account purchases of first responder vehicles (fire and ambulance) and any equipment required on those vehicles.

Comments

1. Purpose of the bill. According to the author, “Our local government first responders are on the front lines ensuring public safety in our communities. Their efforts are funded with the tax dollars of hard-working families. Taxpayers expect the taxes they pay to fund first responder services go directly to ensuring public safety. This bill will ensure that our tax money is spent on providing the best public safety services possible to keep out communities safe by reducing government public safety first responder’s state and local sales tax liability on emergency vehicles and related emergency equipment to the first $300,000 of the sales price of an individual item.”

2. Precedent. This bill sets a potentially dangerous precedent for extending a sales and use tax exemption to local government entities. This precedent is of concern for two reasons:

• additional exemptions will result in a greater overall reduction in sales tax revenues; and

• exempting local government entities from sales and use taxes has the potential to reallocate significant amounts of local sales tax revenue among the state’s taxing jurisdictions. (See Comment #3)

3. Effect of Exemption. SB 120’s exemption cuts costs for one branch of government, but reduces revenues for others. Since the sales tax is levied by the State, cities, and counties, any exemption from the tax means a loss in revenues to those entities. For example, if Fire District Z purchases a $100,000 fire engine in neighboring City A, they will save $7,500 in sales and use tax. City A, where the fire engine was sold, will lose approximately $2,063. The county City A is in will lose $1,000, and the State General Fund will lose $4,438. In effect, the State, city, and county governments would help subsidize the purchase of a first responder vehicle.

4. Let’s get clear. SB 120 does not define “public safety first responder.” Without a definition, a first responder could be almost anyone. For example, if a mountain lion is roaming city streets and animal control is called, animal control would be a public safety first responder, and therefore able to claim the sales and use tax exemption for the purchase of a new animal control vehicle. Additionally, SB 120 does not explicitly state if each transaction or each item over $300,000 qualifies for the sales and use tax exemption. The Committee may wish to consider clarifying the bill’s language to carry out the author’s intent.

5. Related Legislation. Last year’s SB 1367 (Anderson) contained provisions similar to this bill without the $300,000 threshold. The bill failed passage out of this Committee.

Support and Opposition

(4/23/15)

Support: California State Firefighters’ Association (CSFA); Fire Districts Association of California (FDAC); North Tahoe Fire Protection District.

Opposition: Unknown.

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