(1)Existing sales and use tax laws impose a tax 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, for any public safety first responder vehicle and any equipment required on a public safety first responder vehicle that is purchased by a local public agency, would exclude from the terms gross receipts and sales price, amounts of the gross receipts or sales price in excess of $300,000. $800,000 of an individual item.

This bill would require a local public agency that purchases a public safety first responder vehicle or any equipment required on a public safety first responder vehicle subject to this partial exclusion to calculate, as specified, the total amount of sales tax reimbursement to a retailer or use tax that the local public agency would have paid in the absence of the partial exclusion, minus any amounts actually paid, and make an employer contribution to the local public agencys retirement fund in that amount. The bill would declare that this requirement addresses a matter of statewide concern and would apply equally to all cities and counties in this state, including charter cities and charter counties.

(3)The Public Employees Retirement Law establishes the Public Employees Retirement System and sets forth the provisions for its administration and delivery of benefits to its members. That law authorizes any public agency, defined to include specified local agencies, to contract with the Board of Administration of the Public Employees Retirement System to participate in, and make all or part of its employees members of, that system. That law also establishes the Public Employees Retirement Fund and continuously appropriates moneys in the fund for, among other purposes, payments for the benefit of the members of the system and their survivors and beneficiaries. That law requires that employer contributions of the state, school employers, and contracting agencies be credited to the fund.

To the extent that this bill would increase the amount of employer contributions credited to the Public Employees Retirement Fund by a local public agency that contracts with the board to participate in the Public Employees Retirement System, thereby increasing the amount of money in a continuously appropriated fund, this bill would make an appropriation.

(1)Existing sales and use tax laws impose a tax 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, for any public safety first responder vehicle and any equipment required on a public safety first responder vehicle that is purchased by a local public agency, would exclude from the terms gross receipts and sales price, amounts of the gross receipts or sales price in excess of $300,000.

This bill would require a local public agency that purchases a public safety first responder vehicle or any equipment required on a public safety first responder vehicle subject to this partial exclusion to calculate, as specified, the total amount of sales tax reimbursement to a retailer or use tax that the local public agency would have paid in the absence of the partial exclusion, minus any amounts actually paid, and make an employer contribution to the local public agencys retirement fund in that amount. The bill would declare that this requirement addresses a matter of statewide concern and would apply equally to all cities and counties in this state, including charter cities and charter counties.

(2)The Public Employees Retirement Law establishes the Public Employees Retirement System and sets forth the provisions for its administration and delivery of benefits to its members. That law authorizes any public agency, defined to include specified local agencies, to contract with the Board of Administration of the Public Employees Retirement System to participate in, and make all or part of its employees members of, that system. That law also establishes the Public Employees Retirement Fund and continuously appropriates moneys in the fund for, among other purposes, payments for the benefit of the members of the system and their survivors and beneficiaries. That law requires that employer contributions of the state, school employers, and contracting agencies be credited to the fund.

To the extent that this bill would increase the amount of employer contributions credited to the Public Employees Retirement Fund by a local public agency that contracts with the board to participate in the Public Employees Retirement System, thereby increasing the amount of money in a continuously appropriated fund, this bill would make an appropriation.

(3)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 laws authorize 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 the Sales and Use Tax Law are automatically incorporated into the local tax laws.

Existing law requires the state to reimburse cities and counties for revenue losses caused by the enactment of sales and use tax exemptions.

This bill would provide that, notwithstanding these provisions, no appropriation is made and the state shall not reimburse cities and counties for sales and use tax revenues lost by them pursuant to this bill.

(1)Existing sales and use tax laws impose a tax 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, for any public safety first responder vehicle and any equipment required on a public safety first responder vehicle that is purchased by a local public agency, would exclude from the terms gross receipts and sales price, amounts of the gross receipts or sales price in excess of $300,000.

This bill would require a local public agency that purchases a public safety first responder vehicle or any equipment required on a public safety first responder vehicle subject to this partial exclusion to calculate, as specified, the total amount of sales tax reimbursement to a retailer or use tax that the local public agency would have paid in the absence of the partial exclusion, minus any amounts actually paid, and make an employer contribution to the local public agencys retirement fund in that amount. The bill would declare that this requirement addresses a matter of statewide concern and would apply equally to all cities and counties in this state, including charter cities and charter counties.

(2)The Public Employees Retirement Law establishes the Public Employees Retirement System and sets forth the provisions for its administration and delivery of benefits to its members. That law authorizes any public agency, defined to include specified local agencies, to contract with the Board of Administration of the Public Employees Retirement System to participate in, and make all or part of its employees members of, that system. That law also establishes the Public Employees Retirement Fund and continuously appropriates moneys in the fund for, among other purposes, payments for the benefit of the members of the system and their survivors and beneficiaries. That law requires that employer contributions of the state, school employers, and contracting agencies be credited to the fund.

To the extent that this bill would increase the amount of employer contributions credited to the Public Employees Retirement Fund by a local public agency that contracts with the board to participate in the Public Employees Retirement System, thereby increasing the amount of money in a continuously appropriated fund, this bill would make an appropriation.

(3)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 laws authorize 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 the Sales and Use Tax Law are automatically incorporated into the local tax laws.

Existing law requires the state to reimburse cities and counties for revenue losses caused by the enactment of sales and use tax exemptions.

This bill would provide that, notwithstanding these provisions, no appropriation is made and the state shall not reimburse cities and counties for sales and use tax revenues lost by them pursuant to this bill.

Date of Hearing: May 3, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 561

Author:(Voepel) – As Amended Ver:April 17, 2017

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

SUMMARY:

This bill provides a partial sales and use tax (SUT) exclusion for the sale of public safety first responder vehicles and any required equipment on those vehicles, in excess of $800,000, purchased by a local public agency, and requires the local public agency to deposit the savings from the partial SUT exclusion into its retirement fund.

FISCAL EFFECT:

This bill will reduce General Fund (GF) revenue by an estimated $780,000 in 2017-18, and $1.7 million each year thereafter. There will be a corresponding increase in contributions to local retirement funds because this bill requires savings from the proposed SUT exclusion to be redirected towards each public agency’s respective retirement fund.

COMMENTS:

1. Purpose. According to the author, AB 561 will strengthen local pension funds in a way that benefits both employees and taxpayers. The author notes that the costs of first responder vehicles and equipment can be significant for local governments, and this bill will reduce those costs while strengthening local governments’ long-term financial obligations.
2. Fiscal implications of tax expenditures. Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. These features of tax law are referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). One ongoing concern about tax expenditures is the lack of control over revenue losses, since the number of taxpayers taking advantage of any given tax expenditure can vary each year. This bill enacts a new tax expenditure program, in the form of a SUT exclusion, to help fund local public agency’s retirement funds.
3. Recent legislation. SB 120 (Anderson), of the 2015-16 Legislative Session, which contained similar provisions to this bill, was held on the Senate Appropriations Committee’s Suspense File, and AB 1356 (Anderson), of the 2013-14 Legislative Session, which also contained similar provision to this bill, died in the Senate Governance and Finance Committee.

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

Date of Hearing: April 3, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 561 (

Author:Voepel) – As Amended Ver:March 20, 2017

Majority vote. Fiscal committee.

SUBJECT: Sales and use taxes: exclusion: public safety first responder vehicle and equipment: local public employee retirement: employer contributions

SUMMARY: Provides a partial sales and use tax (SUT) exclusion 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, and requires the local public agency to deposit the savings from the partial SUT exclusion into its retirement fund. Specifically, this bill:

1. Provides local public agencies a partial SUT exclusion for the purchase of a public safety first responder vehicle, and any required equipment on the vehicle, for amounts in excess of $300,000.
2. Requires the local public agency to calculate the savings provided from the partial SUT exclusion and to deposit those savings into its retirement fund.
3. Provides that “gross receipts” and “sales price” shall not include amounts in excess of $300,000 from the sale in this state, and the storage, use, or other consumption in this state of, any public safety first responder vehicle or any equipment required on a public safety first responder vehicle that is purchased by a local public agency.
4. Defines a “local public agency” as a city, county, municipal corporation, district, or public authority located within this state that provides or may provide first responder emergency services.

EXISTING LAW:

1. 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 gross receipts from sales of TPP in this state.
   
2. Imposes a use tax on the storage, use, or other consumption in this state of TPP purchased from any retailer for storage, use, or other consumption in this state, absent a specific exemption.
   
3. Provides that the sale of public safety vehicles are subject to the SUT to the same extent as the sale of any other TPP not specifically exempted or excluded from SUT by statute.

FISCAL EFFECT: The Board of Equalization estimate revenue loss of $5.1 million in fiscal year (FY) 2017-18 and $10.7 million in FY 2018-19.

COMMENTS:

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

When I served as Mayor of my city, we were consistently frustrated by the large checks we had to send to the state whenever we wanted to purchase a needed vehicle for first responders. The high cost of these vehicles was expensive enough, but the additional sales taxes were also painful. These funds could be better allocated if they remained local and within the city’s coffers. Meanwhile, we were also regularly concerned about the long-term health of our pension funds, which should ensure that public safety and other employees have post-retirement financial stability.

With these factors in mind, AB 561 is legislation geared toward strengthening local pension funds in a manner that benefits employees and taxpayers. In addition, by ensuring the exempt sales tax proceeds benefit the city in question, we will diminish future concerns and objections that local elected officials might have about purchasing necessary public safety equipment. Not only will a city receive a new fire truck, but they’ll also strengthen their long-term financial obligations.

1. According to the California Fire Chiefs Association and the Fire Districts Association of California, this “exemption would allow first responder agencies to upgrade expensive equipment such as fire engines without imposing a sales/use tax charge requiring one governmental entity (local government) to transfer funds to another entity, the State.” Furthermore, this bill “would allow local first responders to upgrade or replace their equipment while strengthening pensions for the crucial public safety personnel.”
2. According to the California Tax Reform Association, “[t]he approach of eliminating sales tax by public agencies has historically been rejected because it ultimately involves redistribution to the agency which would benefit from others that do not, or from the state to local agencies.”
3. Committee Staff Comments:
   1. What is a "Tax Expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, United States Treasury officials began arguing that these features of the tax law should be referred to as "expenditures," since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues). This bill would enact a new tax expenditure, in the form of a SUT exclusion for purchases of public safety vehicles and required equipment, as provided.
   2. How is a Tax Expenditure Different from a Direct Expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are reviewed less frequently than direct expenditures once they are put in place. This can offer taxpayers greater certainty, but it can also result in tax expenditures remaining a part of the tax code without demonstrating any public benefit. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy, without a supermajority vote. To that end, the author may wish to consider adding an appropriate sunset date to this bill to allow the Legislature to review this tax expenditure in the future.
   3. Where Do Revenues Go? The following is a table detailing how the SUT revenue is distributed among the various jurisdictions:

In addition to the 7.25% statewide rate, 31 counties, 131 cities, and seven towns in California impose one or more local taxes in conformity with the Transactions and Use Tax Law.

• 1. No Such Thing as a Free Lunch: This bill’s exclusion 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 exclusion from the SUT means a loss in revenues to those entities. For example, if a Fire District purchases a fire engine and equipment worth $1 million in a neighboring city, $700,000 will be excluded from gross receipts, saving the Fire District about $52,500 in SUT. The State General Fund will lose about $27,500. The City and County will lose the remaining balance of about $25,000. These local funds would have been directed to support local criminal justice activities, transportation, local government operations, and the support of local health and social service programs.
  2. Paying down Someone Else’s Debt: Ensuring that saved funds get redirected to pay down pension obligations may also exacerbate this bill’s potential intergovernmental overreach. This bill requires a local public agency take the savings from the exclusion and contribute those funds to the local public agency’s retirement fund. This appears to be a laudable goal but may be problematic for several reasons. State, counties, and cities all have their own pensions and financial obligations that need to be met. Taking money from these entities reduces their ability to properly address those concerns. The transferring of funds as provided for in this bill effectively allows one entity to subsidize another entity’s financial decisions. Finally, not all local public agencies are in a financial position that requires them to make additional employer contributions to their retirement fund. Local public agencies generally make their own decisions on how to prioritize expenses. As such, some local governments may not appreciate the state mandating how moneys are used.

REGISTERED SUPPORT / OPPOSITION:

Support

Association of Deputy District Attorneys

Association for Los Angeles Deputy Sheriffs

California Fire Chiefs Association

California State Firefighters’ Association

Fire Districts Association of California

Los Angeles County Professional Peace Officers Association

Los Angeles Police Protective League

Riverside Sheriffs’ Association

Opposition

California State Association of Counties

California Tax Reform Association

League of California Cities

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098