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. The Sales and Use Tax Law provides various exemptions from those taxes.

This bill would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, a textbook purchased by a student from an institution of higher education education, as defined, or sold by a person whose primary purpose is to provide textbooks to students attending institutions of higher education, for use as a learning resource in any course of study at an institution of higher education. The bill would define certain terms for those purposes.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes cities and counties 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 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. The Sales and Use Tax Law provides various exemptions from those taxes.

This bill would exempt from those taxes the gross receipts from the sale in this state of, and the storage, use, or other consumption in this state of, a textbook purchased by a student from an institution of higher education or sold by a person whose primary purpose is to provide textbooks to students attending institutions of higher education, for use as a learning resource in any course of study at an institution of higher education. The bill would define certain terms for those purposes.

The Bradley-Burns Uniform Local Sales and Use Tax Law authorizes cities and counties 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.

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

Date of Hearing: May 24, 2017

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 960

Author:(Brough) – As Amended Ver:May 16, 2017

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

SUMMARY:

This bill provides a partial Sales and Use Tax (SUT) exemption for the purchases of textbooks purchased by students of an institution of higher education, as defined, from a retailer whose primary purpose is to provide textbooks to those students. This partial exemption becomes operative following a budget measure that appropriate funds to the Board of Equalization (BOE) for administering it.

FISCAL EFFECT:

General Fund (GF) cost pressures in the range of $50 million in 2017-18, $107 million in 2018-19, and $111 million in 2019-20. These cost pressures reflect the potential GF revenue loss if the proposed partial SUT exemption becomes operative once BOE receives an appropriation to administer it.

COMMENTS:

1. Background and Purpose. According to data from the California Student Aid Commission (CSAC), the California average per capita spending on textbooks is estimated to be $1,017 this fiscal year. In total, students at the University of California, California State University, California Community Colleges, and private universities are expected to spend an estimated $2.59 billion. Moreover, other 21 states have tax exemptions for higher education textbooks. According to the author, AB 960 will help students, who are already struggling to afford the high costs of college, by making textbooks more affordable.
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 partial SUT exclusion, to help students afford textbooks.

A recent policy committee amendment would help state policymakers control year-to-year costs, but this amendment also introduces additional uncertainty for taxpayers and retailers. Under this amendment, the proposed SUT exemption will only be available on years when BOE receives a budget appropriation to administer it. This means that the exemption can be turned on or off based on perceived fiscal conditions of that year. As amended, AB 960 both creates the expectation that the proposed SUT exemption will be available, thereby creating cost pressures for the state, as well as generates uncertainty and complexity for retailers, consumers, and the BOE since the availability of the exemption is not guaranteed.

1. Recent legislation. AB 479 (Donnelly), of the 2013-14 Legislative Session, which would have a SUT exemption on textbooks purchased by higher education students, died in the Assembly Committee on Revenue and Taxation.

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

Date of Hearing: May 8, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 960 (

Author:Brough) – As Introduced Ver:February 16, 2017

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and use taxes: exemptions: textbooks

SUMMARY: Provides a sales and use tax (SUT) exemption for purchases of “textbooks,” as defined. Specifically, this bill:

1. Provides an exemption from SUT for the sale of, and the storage, use, or other consumption of, “textbooks” that are either:
   1. Purchased by a student at an “institution of higher education;” or,
   2. Sold by an entity whose primary purpose is to provide “textbooks” to students attending institutions of higher education.
2. Requires a student to present a valid student identification card.
3. Defines an "institution of higher education" as a public or private college or university that is nationally or regionally accredited or a postsecondary educational institution as defined in Education Code Section 66261.5 as added by AB 499 (Kuehl), Chapter 914, Statutes of 1998.
4. Defines "textbooks" as any published material that is principally designed for use by a student at an institution of higher education as a source of instructional material and includes any book or edition of a book that is directed or recommended by an instructor at an institution of higher education to a student to purchase for use as a basis for a course of study at that institution.
5. Excludes from the definition of a "textbook" books on audio tape, computer disc, CD-ROM, and similar storage media.
6. Provides that no appropriation is made by this measure and no local agency will be reimbursed for any SUT revenues lost by the agency under this measure.
7. Takes effect immediately as a tax levy, but will become operative on the first day of the first calendar quarter commencing more than 90 days after enactment.

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 books 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 State Board of Equalization (BOE) estimates that the SUT provisions of this bill will result in a revenue loss of $106.1 million in fiscal year (FY) 2017-18, $222.2 million in FY 2018-19, and $231.5 million in FY 2019-20.

COMMENTS:

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

For the many students and families who are already struggling to afford tuition, this out-of-pocket expense can be a huge burden. Many students end up taking on additional loans or credit card debt or working longer hours just to pay for their books. Others compromise their own educational experience by opting not to buy books at all—one recent survey by the Student PIRGs found that 65 percent of students have decided at some time not to buy or rent an assigned textbook.

This bill presents a simple way for the State of California to give students a small measure of financial breathing room.

1. Opponents “recognize the intent of the measure but have ongoing concerns with proposals such as these that erode the sales tax base. For many cities and counties, sales tax is an important source of funding. Unfortunately, changes in consumer behavior are contributing to a slowing of this revenue base.” As such, opponents are “opposing sales tax exemption proposals that fail to protect the local portions of the sales tax.”
2. 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 tax expenditure, in the form of a SUT exemption for purchases of textbooks, 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. What does this bill do? This bill would exempt from the SUT purchases of textbooks by students at a public or private university that is nationally or regionally accredited, a community college, or a public or private vocational or professional school from the SUT. Only textbooks directed or recommended for a course at an eligible institution would be exempt from SUT. Thus, those purchases would be completely exempt from the state portion of SUT as well as local taxes imposed by a county, city, or district pursuant to the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law. [Revenue &Taxation Code Parts 1.5, 1.6 and 1.7 (commencing with Section 7200)].
   4. Price cap: This bill does not limit the amount of the purchase price that would be exempt from the SUT. Nor is the proposed SUT exemption targeted to low- and moderate-income consumers. In fact, it is available to all students regardless of income as well as all non-students. Without a price cap, this bill would provide financial help to students who do not need it. Furthermore, it would potentially subsidize purchases of textbooks for students who are not enrolled in the course for which the textbooks are recommended. The Committee may wish to consider imposing a cap on the purchase amount that would be eligible for the proposed SUT exemption.
   5. Who gets the benefit? Retailers, including campus bookstores, maintain a mark-up on new textbooks to cover the costs of store operations, transportation costs, and other expenses. For example, the average markup on new textbooks at the campus bookstore can be between 25 to 30%. There is no guarantee that given a SUT exemption the manufacturer would simply pass the savings on to the consumer and would not mark up the price of the textbook accordingly. The Committee may wish to consider whether the proposed SUT exemption is the most effective way to deliver cost savings to students.
      

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

California State Association of Counties

League of California Cities

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

Date of Hearing: March 27, 2017

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

ABPCA Bill Id:AB 960 (

Author:Brough) – As Introduced Ver:February 16, 2017

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and use taxes: exemptions: textbooks

SUMMARY: Provides a sales and use tax (SUT) exemption for purchases of “textbooks,” as defined. Specifically, this bill:

1. Provides an exemption from SUT for the sale of, and the storage, use, or other consumption of, “textbooks” that are either:
   1. Purchased by a student at an “institution of higher education;” or,
   2. Sold by an entity whose primary purpose is to provide “textbooks” to students attending institutions of higher education.
2. Requires a student to present a valid student identification card.
3. Defines an "institution of higher education" as a public or private college or university that is nationally or regionally accredited or a postsecondary educational institution as defined in Education Code Section 66261.5 as added by AB 499 (Kuehl), Chapter 914, Statutes of 1998.
4. Defines "textbooks" as any published material that is principally designed for use by a student at an institution of higher education as a source of instructional material and includes any book or edition of a book that is directed or recommended by an instructor at an institution of higher education to a student to purchase for use as a basis for a course of study at that institution.
5. Excludes from the definition of a "textbook" books on audio tape, computer disc, CD-ROM, and similar storage media.
6. Provides that no appropriation is made by this measure and no local agency will be reimbursed for any SUT revenues lost by the agency under this measure.
7. Takes effect immediately as a tax levy, but will become operative on the first day of the first calendar quarter commencing more than 90 days after enactment.

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 books 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 State Board of Equalization (BOE) estimates that the SUT provisions of this bill will result in a revenue loss of $106.1 million in fiscal year (FY) 2017-18, $222.2 million in FY 2018-19, and $231.5 million in FY 2019-20.

COMMENTS:

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

For the many students and families who are already struggling to afford tuition, this out-of-pocket expense can be a huge burden. Many students end up taking on additional loans or credit card debt or working longer hours just to pay for their books. Others compromise their own educational experience by opting not to buy books at all—one recent survey by the Student PIRGs found that 65 percent of students have decided at some time not to buy or rent an assigned textbook.

This bill presents a simple way for the State of California to give students a small measure of financial breathing room.

1. Opponents “recognize the intent of the measure but have ongoing concerns with proposals such as these that erode the sales tax base. For many cities and counties, sales tax is an important source of funding. Unfortunately, changes in consumer behavior are contributing to a slowing of this revenue base.” As such, opponents are “opposing sales tax exemption proposals that fail to protect the local portions of the sales tax.”
2. 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 tax expenditure, in the form of a SUT exemption for purchases of textbooks, 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. What does this bill do? This bill would exempt from the SUT purchases of textbooks by students at a public or private university that is nationally or regionally accredited, a community college, or a public or private vocational or professional school from the SUT. Only textbooks directed or recommended for a course at an eligible institution would be exempt from SUT. Thus, those purchases would be completely exempt from the state portion of SUT as well as local taxes imposed by a county, city, or district pursuant to the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law. [Revenue &Taxation Code Parts 1.5, 1.6 and 1.7 (commencing with Section 7200)].
   4. Price cap: This bill does not limit the amount of the purchase price that would be exempt from the SUT. Nor is the proposed SUT exemption targeted to low- and moderate-income consumers. In fact, it is available to all students regardless of income as well as all non-students. Without a price cap, this bill would provide financial help to students who do not need it. Furthermore, it would potentially subsidize purchases of textbooks for students who are not enrolled in the course for which the textbooks are recommended. The Committee may wish to consider imposing a cap on the purchase amount that would be eligible for the proposed SUT exemption.
   5. Who gets the benefit? Retailers, including campus bookstores, maintain a mark-up on new textbooks to cover the costs of store operations, transportation costs, and other expenses. For example, the average markup on new textbooks at the campus bookstore can be between 25 to 30%. There is no guarantee that given a SUT exemption the manufacturer would simply pass the savings on to the consumer and would not mark up the price of the textbook accordingly. The Committee may wish to consider whether the proposed SUT exemption is the most effective way to deliver cost savings to students.
      

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

California State Association of Counties

League of California Cities

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