Existing sales and use tax law requires a qualified purchaser to register with the California Department of Tax and Fee Administration to facilitate the collection of the use tax. Existing law defines qualified purchaser for this purpose to include a person that satisfies specified conditions, including that the person receives at least $100,000 in gross receipts from business operations per calendar year.

This bill would, until January 1, 2029, amend the definition of qualified purchaser by removing the condition that the person receives at least $100,000 in gross receipts per calendar year, and would add as a condition that the person makes more than $10,000 in purchases subject to the use tax per calendar year if the use tax imposed on those purchases has not otherwise been paid to a retailer, as provided. The bill would also make nonsubstantive changes to these provisions.

Existing sales and use tax law requires a qualified purchaser to register with the California Department of Tax and Fee Administration to facilitate the collection of the use tax. Existing law defines qualified purchaser for this purpose to include a person that satisfies specified conditions, including that the person receives at least $100,000 in gross receipts from business operations per calendar year.

This bill would, until January 1, 2029, amend the definition of qualified purchaser by removing the condition that the person receives at least $100,000 in gross receipts per calendar year, and would add as a condition that the person makes more than $10,000 in purchases subject to the use tax per calendar year if the use tax imposed on those purchases has not otherwise been paid to a retailer, as provided. The bill would also make nonsubstantive changes to these provisions.

Existing sales and use tax law requires a qualified purchaser to register with the California Department of Tax and Fee Administration to facilitate the collection of the use tax. Existing law defines qualified purchaser for this purpose to include a person that satisfies specified conditions, including that the person receives at least $100,000 in gross receipts from business operations per calendar year.

This bill would would, until January 1, 2029, amend the definition of qualified purchaser by removing the condition that the person receives at least $100,000 in gross receipts per calendar year, and would add as a condition that the person makes more than $100,000 $10,000 in purchases subject to the use tax per calendar year. year if the use tax imposed on those purchases has not otherwise been paid to a retailer, as provided. The bill would also make nonsubstantive changes to these provisions.

Existing law, the California Fair Employment and Housing Act (FEHA), prohibits, in instances in which there is a government rent subsidy, the use of a financial or income standard in assessing eligibility for the rental of housing that is not based on the portion of the rent to be paid by the tenant. FEHA requires the Civil Rights Department to enforce specific provisions of the act, including the provision described above.

This bill would additionally prohibit the use of a persons credit history as part of the application process for a rental housing accommodation without offering the applicant the option of providing alternative evidence of financial responsibility and ability to pay in instances in which there is a government rent subsidy. The bill would require the housing provider to consider that alternative evidence in lieu of the persons credit history in determining whether to offer the rental accommodation to the applicant.

 THIRD READING  

Bill No: AB 1097

Author: Luz Rivas (D)

Amended: 4/17/23 in Assembly

Vote: 21

SENATE GOVERNANCE & FIN. COMMITTEE: 8-0, 7/5/23

AYES: Caballero, Seyarto, Blakespear, Dahle, Durazo, Glazer, Skinner, Wiener

SENATE APPROPRIATIONS COMMITTEE: 7-0, 9/1/23

AYES: Portantino, Jones, Ashby, Bradford, Seyarto, Wahab, Wiener

ASSEMBLY FLOOR: 76-0, 5/25/23 (Consent) - See last page for vote

SUBJECT: Use tax: registration: qualified purchaser

SOURCE: Author

DIGEST:

This bill changes the threshold for requiring a person to register for the Qualified Purchaser Program (QPP) from $100,000 in annual gross receipts to anyone with over $10,000 in purchases subject to the use tax and not paid to a retailer.

ANALYSIS:

Existing law:

1. Imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property (TPP), to be applied whenever a retail sale occurs.
2. Imposes the use tax on any person consuming tangible personal property in the state, normally in cases when property bought elsewhere is used in California at the same rate as the sales tax.
3. Establishes the Qualified Purchaser Program, which defines a “qualified purchaser” as a person receiving at least $100,000 in gross receipts from business operations per calendar year, with exemptions for specified individuals.
4. Requires “qualified purchasers” to register with the California Department of Tax and Fee Administration (CDTFA) and report and pay use tax directly to CDTFA on purchases made from out-of-state retailers, with exemptions for specified individuals.
5. Provides that any retailer that sells more than $500,000 in property for delivery in California in the current or preceding year must register with CDTFA to collect and remit use taxes.

This bill:

1. Repeals the provision that a qualified purchaser, who must register with CDTFA under the QPP, be a person who receives at least $100,000 in gross receipts per calendar year.
2. Provides that a person must register with CDTFA under the QPP when they make at least $10,000 in purchases subject to use tax per calendar year, for which they have not paid use tax to a retailer.
3. Sunsets its changes on January 1, 2029.
4. Replaces references to the Board of Equalization (BOE) with references to CDTFA.

Background

The most practical way for the state to implement the use tax is by requiring out-of-state retailers to collect the tax from a consumer at the time of sale. However, Quill Crop v. North Dakota (1992), 504 U.S. 298 held that a retailer must have a “physical presence” in a state before the state can require that retailer to collect use tax. This standard made it more challenging for California to rely on out-of-state retailers to collect the use tax, instead forcing California to collect more of its use tax from purchasers. The use tax gap, or the difference between tax owed and tax paid, subsequently increased. By 2009, CDTFA estimated the use tax gap as approximately $2 billion annually. To close the use tax gap by more effectively collecting use taxes from purchasers, the Legislature established The Qualified Purchaser Program (QPP).

On June 21, 2018, the Supreme Court overturned Quill’s “physical presence test” in South Dakota v. Wayfair, Inc. (2018) 138 S. Ct. 2080, which generally allowed states to collect use tax from sellers in other states. The Legislature subsequently enacted AB 147 (Burke, Chapter 5, Statutes of 2019), which implemented Wayfair in state law, and providing that a retailer who sells more than $500,000 in property for delivery in California in the current or preceding year must register with CDTFA to collect and remit use taxes. According to CDTFA, the use tax gap has closed substantially over the past few years as a result, and the number of individuals paying taxes through the QPP program has declined in recent history. About $14.9 million was collected from the QPP in the 2021-22 fiscal year.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, “The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in an annual state and local revenue loss of $114,000. The General Fund portion of this amount would be $52,000. The department indicates that it would incur minor and absorbable costs to conduct taxpayer education outreach, modify systems, revise procedures and publications, and train staff.”

SUPPORT: (Verified 9/1/23)

None received

OPPOSITION: (Verified 9/1/23)

None received

ARGUMENTS IN SUPPORT: According to the author, “AB 1097 will streamline the Qualified Purchaser Program, which is an outdated and burdensome [mechanism to] collect use tax.  Without a legislative fix taxpayers with little to no tax liability would continue to be burdened with registration and return filing requirements.  The bill would also relieve taxpayers from paying more by hiring accountants to navigate this [to] collect use tax.”

ASSEMBLY FLOOR: 76-0, 5/25/23

AYES: Addis, Alanis, Alvarez, Arambula, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Cervantes, Chen, Connolly, Megan Dahle, Davies, Dixon, Essayli, Flora, Mike Fong, Vince Fong, Friedman, Gabriel, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Stephanie Nguyen, Ortega, Pacheco, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Rendon

NO VOTE RECORDED: Aguiar-Curry, Kalra, Mathis, Papan

Prepared by: Kyle Krueger / GOV. & F. / (916) 651-4119

9/2/23 16:44:06

**** END ****

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1097 (Luz Rivas) - Use tax: registration: qualified purchaser

Bill Summary:

AB 1097 would change the threshold for requiring a person to register for the Qualified Purchaser Program from $100,000 in annual gross receipts to anyone with over $10,000 in purchases subject to the use tax not paid to a retailer.

Fiscal Impact:

The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in an annual state and local revenue loss of $114,000. The General Fund portion of this amount would be $52,000. The department indicates that it would incur minor and absorbable costs to conduct taxpayer education outreach, modify systems, revise procedures and publications, and train staff.

Background:

Except where a specific exemption or exclusion is provided, current law imposes the sales and use tax 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. Unless purchasers pay the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax.

After CDTFA collects SUT revenue ($78 billion in 2021-22), 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—a 1.0625 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 December 31, 2022, the average statewide SUT rate was 8.56 percent.

Use tax normally applies when property bought elsewhere is used in California. It is designed to protect retailers in California who would otherwise be disadvantaged against out-of-state retailers by California’s sales tax. The use tax is technically imposed on the purchaser, not the seller, of TPP in California. However, the most practical way for the State to implement the use tax is by requiring out-of-state retailers to collect the tax from a consumer at the time of sale.

However, a 1992 Supreme Court decision held that a retailer must have a “physical presence” in a state before the state can require that retailer to collect use tax. This standard made it more challenging for California to rely on out-of-state retailers to collect the use tax, instead forcing California to collect more of its use tax from purchasers. The use tax gap, or the difference between tax owed and tax paid, subsequently increased. By 2009, CDTFA estimated this gap to be $2 billion annually. To close the gap, the Legislature enacted established the Qualified Purchaser Program (QPP) in 2009.

The QPP (1) defines a “qualified purchaser” as a person receiving at least $100,000 in gross receipts from business operations per calendar year, (2) requires “qualified purchasers” to register with CDTFA and report and pay use tax directly to CDTFA on purchases made from out-of-state retailers, and (3) exempts a number of specified individuals from the definition of “qualified purchaser,” including individuals who must hold a seller’s permit, and specified purchases of vehicles, vessels, or aircrafts.

On June 21, 2018, the Supreme Court overturned the aforementioned 1992 decision, which generally allowed states to collect use tax from sellers in other states. The Legislature subsequently enacted AB 147, which specifically provided that any retailer that sells more than $500,000 in property for delivery in California in the current or preceding year must register with CDTFA to collect and remit use taxes.

By requiring specified out-of-state retailers to collect use taxes at the point of sale, AB 147 almost entirely reduced the need for California to collect the tax directly from purchasers. According to CDTFA, the use tax gap has closed substantially over the past few years, and the number of individuals paying taxes through the QPP program has declined in recent history. About $14.9 million was collected from the QPP in 2021-22.

Proposed Law:

This bill would, until January 1, 2029, revise the definition of “qualified purchaser” by repealing the condition that a person who receives at least $100,000 in gross receipts per calendar year must register with CDTFA under the QPP. Instead, the measure would provide that a person must comply with QPP when they make at least $10,000 in purchases subject to use tax per calendar year, for which they have not paid use tax to a retailer.

Staff Comments:

CDTFA data for 2021 indicate that about $14.9 million was paid in taxes from 21,012 taxpayers using the QPP. Staff note that about 95 percent of tax payments were made by fewer than one thousand taxpayers with tax liabilities of at least $1,000. During that period, CDTFA received 4,539 returns with annual payments of less than $1,000 each, totaling $768,501, with average payments of $169 per return. Over 15,000 taxpayers owed no tax at all. CDTFA staff estimates that its $114,000 annual revenue loss is about 0.008 percent of the total QPP revenue.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

AB 1097 (Luz Rivas) - Use tax: registration: qualified purchaser

Bill Summary:

AB 1097 would change the threshold for requiring a person to register for the Qualified Purchaser Program from $100,000 in annual gross receipts to anyone with over $10,000 in purchases subject to the use tax not paid to a retailer.

Fiscal Impact:

The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in an annual state and local revenue loss of $114,000. The General Fund portion of this amount would be $52,000. The department indicates that it would incur minor and absorbable costs to conduct taxpayer education outreach, modify systems, revise procedures and publications, and train staff.

Background:

Except where a specific exemption or exclusion is provided, current law imposes the sales and use tax 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. Unless purchasers pay the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax.

After CDTFA collects SUT revenue ($78 billion in 2021-22), 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—a 1.0625 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 December 31, 2022, the average statewide SUT rate was 8.56 percent.

Use tax normally applies when property bought elsewhere is used in California. It is designed to protect retailers in California who would otherwise be disadvantaged against out-of-state retailers by California’s sales tax. The use tax is technically imposed on the purchaser, not the seller, of TPP in California. However, the most practical way for the State to implement the use tax is by requiring out-of-state retailers to collect the tax from a consumer at the time of sale.

However, a 1992 Supreme Court decision held that a retailer must have a “physical presence” in a state before the state can require that retailer to collect use tax. This standard made it more challenging for California to rely on out-of-state retailers to collect the use tax, instead forcing California to collect more of its use tax from purchasers. The use tax gap, or the difference between tax owed and tax paid, subsequently increased. By 2009, CDTFA estimated this gap to be $2 billion annually. To close the gap, the Legislature enacted established the Qualified Purchaser Program (QPP) in 2009.

The QPP (1) defines a “qualified purchaser” as a person receiving at least $100,000 in gross receipts from business operations per calendar year, (2) requires “qualified purchasers” to register with CDTFA and report and pay use tax directly to CDTFA on purchases made from out-of-state retailers, and (3) exempts a number of specified individuals from the definition of “qualified purchaser,” including individuals who must hold a seller’s permit, and specified purchases of vehicles, vessels, or aircrafts.

On June 21, 2018, the Supreme Court overturned the aforementioned 1992 decision, which generally allowed states to collect use tax from sellers in other states. The Legislature subsequently enacted AB 147, which specifically provided that any retailer that sells more than $500,000 in property for delivery in California in the current or preceding year must register with CDTFA to collect and remit use taxes.

By requiring specified out-of-state retailers to collect use taxes at the point of sale, AB 147 almost entirely reduced the need for California to collect the tax directly from purchasers. According to CDTFA, the use tax gap has closed substantially over the past few years, and the number of individuals paying taxes through the QPP program has declined in recent history. About $14.9 million was collected from the QPP in 2021-22.

Proposed Law:

This bill would, until January 1, 2029, revise the definition of “qualified purchaser” by repealing the condition that a person who receives at least $100,000 in gross receipts per calendar year must register with CDTFA under the QPP. Instead, the measure would provide that a person must comply with QPP when they make at least $10,000 in purchases subject to use tax per calendar year, for which they have not paid use tax to a retailer.

Staff Comments:

CDTFA data for 2021 indicate that about $14.9 million was paid in taxes from 21,012 taxpayers using the QPP. Staff note that about 95 percent of tax payments were made by fewer than one thousand taxpayers with tax liabilities of at least $1,000. During that period, CDTFA received 4,539 returns with annual payments of less than $1,000 each, totaling $768,501, with average payments of $169 per return. Over 15,000 taxpayers owed no tax at all. CDTFA staff estimates that its $114,000 annual revenue loss is about 0.008 percent of the total QPP revenue.

-- END --

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Use tax: registration: qualified purchaser

Changes the threshold for requiring a person to register for the Qualified Purchaser Program (QPP) from $100,000 in annual gross receipts to anyone with over $10,000 in purchases subject to the use tax not paid to a retailer.

Background

Sales and Use Taxes. State law imposes the sales tax on every retailer “engaged in business in this state” that sells tangible personal property (TPP), and requires them to register with the California Department of Tax and Fee Administration (CDTFA), and remit amounts collected to CDTFA. Sales tax applies whenever a retail sale occurs, which is generally any sale other than one for resale in the regular course of business. The tax is based upon the retailer’s gross receipts of TPP sales in California. The current rate is 7.25%, and cities, counties, and specified special districts may add locally adopted sales and use taxes on top of the state sales and use tax, up to a certain limit.

Unless the purchaser pays the sales tax to the retailer, they are liable for the use tax, which the law imposes on any person consuming tangible personal property in the state. The use tax is the same rate as the sales tax, and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase. Use tax normally applies when property bought elsewhere is used in California. It is designed to protect retailers in California who would otherwise be disadvantaged against out-of-state retailers by California’s sales tax.

Qualified Purchaser Program (QPP). The use tax is technically imposed on the purchaser, not the seller, of TPP in California. However, the most practical way for the state to implement the use tax is by requiring out-of-state retailers to collect the tax from a consumer at the time of sale.

However, Quill Crop v. North Dakota (1992), 504 U.S. 298 held that a retailer must have a “physical presence” in a state before the state can require that retailer to collect use tax. This standard made it more challenging for California to rely on out-of-state retailers to collect the use tax, instead forcing California to collect more of its use tax from purchasers. The use tax gap, or the difference between tax owed and tax paid, subsequently increased. By 2009, CDTFA estimated the use tax gap as approximately $2 billion annually.

To close the use tax gap by more effectively collecting use taxes from purchasers, the Legislature enacted ABx4 18 (Committee on Budget, 2009) to establish The Qualified Purchaser Program (QPP).

The QPP:

• Defines a “qualified purchaser” as a person receiving at least $100,000 in gross receipts from business operations per calendar year.
• Requires “qualified purchasers” to register with CDTFA and report and pay use tax directly to CDTFA on purchases made from out-of-state retailers.
• Exempts a number of specified individuals from the definition of “qualified purchaser,” including individuals who must hold a seller’s permit, and specified purchases of vehicles, vessels, or aircrafts.

On June 21, 2018, the Supreme Court overturned Quill’s “physical presence test” in South Dakota v. Wayfair, Inc. (2018) 138 S. Ct. 2080, which generally allowed states to collect use tax from sellers in other states. The Legislature subsequently enacted AB 147 (Burke, 2019), which implemented Wayfair in state law, and specifically provided that any retailer that sells more than $500,000 in property for delivery in California in the current or preceding year must register with CDTFA to collect and remit use taxes.

By requiring specified out-of-state retailers to collect use taxes at the point of sale, AB 147 almost entirely reduced the need for California to collect the tax directly from purchasers. According to CDTFA, the use tax gap has closed substantially over the past few years, and the number of individuals paying taxes through the QPP program has declined in recent history. About $14.9 million was collected from the QPP in the 2021-22 fiscal year.

The author wants to alter the requirements of the QPP program to eliminate the time and money many businesses spend on compliance.

Proposed Law

Assembly Bill 1097 revises the definition of “qualified purchaser” by repealing the condition that a person who receives at least $100,000 in gross receipts per calendar year must register with CDTFA under the QPP. Instead, the measure provides that a person must comply with QPP when they make at least $10,000 in purchases subject to use tax per calendar year, for which they have not paid use tax to a retailer. The bill sunsets these changes on January 1, 2029. The bill also replaces references to the Board of Equalization (BOE) with references to CDTFA.

State Revenue Impact

CDTFA estimates annual state and local revenue loss of about $114,000 annually.

Comments

1. Purpose of the bill. According to the author, “AB 1097 will streamline the Qualified Purchaser Program, which is an outdated and burdensome [mechanism to] collect use tax.  Without a legislative fix taxpayers with little to no tax liability would continue to be burdened with registration and return filing requirements.  The bill would also relieve taxpayers from paying more by hiring accountants to navigate this [to] collect use tax.

2. Tradeoffs. CDTFA estimates that AB 1097 will reduce state and local use tax revenues by around $114,000 annually. CDTFA’s estimate assumes that because the bill narrows the population of taxpayers for whom the QPP applies, a greater number of taxpayers will fail to fully comply with the use tax. However, since the Legislature enacted AB 147, CDTFA has collected over $7.6 billion from online retailers and marketplace facilitators that collect sales and use tax on transactions occurring through their marketplaces. As a result, the pre-AB 147 QPP receives less use tax, as retailers with economic nexus or marketplace facilitators now collect the use tax on most of these purchases. CDTFA states that of the 21,000 returns it received in 2021, fewer than 25% report any tax, and 95% of revenue comes from taxpayers with liabilities of at least $1,000. AB 1097 relieves taxpayers who already pay use taxes to retailers of the need to be covered by the QPP without having a significant effect on the state’s General Fund.

3. “Gross Receipts” v “Purchases Subject to the Use Tax.” The goal of the QPP program is to collect use tax from individuals who owe a significant amount of use tax and may otherwise not pay all of it. The current statute aims to achieve this by applying the QPP program to people with larger businesses (measured in gross receipts) who are likely to make more purchases subject to the use tax. However, the size of a person’s business does not necessarily correlate to the amount of use tax collected with the QPP, and many businesses have a filing requirement even though no tax is due. Now that the use tax is primarily collected in other ways, imposing a filing requirement where no tax is due continues to impose a large burden with little benefit to the state. As such, it makes more sense to now apply the QPP program directly to people based on the amount of purchases they make subject to use tax.

Assembly Actions

Assembly Revenue & Taxation Committee: 11-0

Assembly Appropriations Committee: 15-0

Assembly Floor: 76-0

Support and Opposition

(6/30/23)

Support: None received

Opposition: None received.

-- END --

Date of Hearing: May 17, 2023

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Chris Holden, Chair

ABPCA Bill Id:AB 1097

Author:(Luz Rivas) – As Amended Ver:April 17, 2023

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

SUMMARY:

This bill modifies, until January 1, 2029, the definition of a “qualified purchaser” for purposes of administering use tax under the Qualified Purchaser Program (QPP).

Specifically, this bill replaces the condition that a qualified purchaser receives at least $100,000 in gross receipts per calendar year with the condition that a qualified purchaser makes more than $10,000 in purchases subject to the use tax per calendar year that has not otherwise been paid to a retailer.

FISCAL EFFECT:

1. Absorbable costs to the Department of Tax and Fee Administration (CDTFA) to conduct taxpayer education outreach, modify systems, revise procedures and publications, and train staff.
2. Annual state and local revenue loss of approximately $114,000. A portion of the state’s 7.25% Sales and Use Tax rate supports the state’s General Fund, with the remaining portion dedicated to local government purposes.

COMMENTS:

1. Purpose. According to the author:

AB 1097 will streamline the Qualified Purchaser Program, which is an outdated and burdensome [mechanism to] collect use tax. Without a legislative fix taxpayers with little to no tax liability would continue to be burdened with registration and return filing requirements. The bill would also relieve taxpayers from paying more by hiring accountants to navigate this [to] collect use tax.

1. QPP. Use tax is a complement to sales tax and imposed on the storage, use, or other consumption of tangible personal property purchased out-of-state, but used in the state. Prior to 2018, the U.S. Supreme Court had ruled a retailer must have a physical presence in a state before the state could require the retailer to collect the state’s use tax. Thus, the QPP was enacted to increase use tax collections by requiring certain non-retailer businesses known as “qualified purchasers” to register with CDTFA and annually report and pay use tax owed. Under the QPP, a qualified purchaser is a person who receives at least $100,000 in annual gross receipts from business operations, amongst other criteria. However, the QPP no longer provides consequential revenue to the state in light of changes to use tax administration after 2018.

This bill temporarily modifies the QPP’s definition of qualified purchaser to replace the gross receipts threshold with a requirement that a qualified purchaser make more than $10,000 in purchases subject to use tax per year. Thus, businesses with use tax liabilities under approximately $1,000 annually would be relieved of the obligation to report and pay use taxes through the QPP. This change would be operative for five years to enable the Legislature to determine the impact on tax revenues, administration, and compliance.

Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081

Date of Hearing: April 24, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1097 (

Author:Luz Rivas) – As Amended Ver:April 17, 2023

SUSPENSE

Majority vote. Fiscal committee.

SUBJECT: Use tax: registration: qualified purchaser

SUMMARY: Modifies, until January 1, 2029, the existing Qualified Purchaser Program ("Program") under which qualified purchasers, as defined, are required to report and pay use tax directly to the California Department of Tax and Fee Administration (CDTFA). Specifically, this bill:

1. Amends the Program's definition of a "qualified purchaser" by removing the requirement that the person have at least $100,000 in gross receipts from business operations per calendar year.
2. Provides instead that, to be a "qualified purchaser", the person must make more than $10,000 in purchases subject to use tax per calendar year where use tax has not otherwise been collected or paid.
3. Replaces obsolete references to the State Board of Equalization with the CDTFA, which is now charged with administering the Sales and Use Tax Law.
4. Sunsets the modifications listed above on January 1, 2029, at which point the Program statute reverts to its current form.

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 retailer's gross receipts from TPP sales in this state. (Revenue and Taxation Code (R&TC) Section 6001 et seq.)
2. Imposes a complimentary use tax on the storage, use, or other consumption of TPP generally 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 entity 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 CDTFA. (R&TC Section 6001 et seq.)
   
3. Requires a "qualified purchaser" to register with CDTFA to facilitate the collection of use tax. (R&TC Section 6225.)
   
4. Defines a "qualified purchaser" as a person that:
   
   1. Is not required to hold a seller's permit;
      
   2. Is not required to be registered under R&TC Section 6226;
      
   3. Does not hold a use tax direct payment permit;
      
   4. Receives at least $100,000 in gross receipts from business operations per calendar year; and,
      
   5. Is not otherwise registered with the CDTFA to report use tax.

FISCAL EFFECT: CDTFA estimates annual revenue losses of approximately $114,073.

COMMENTS:

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

AB 1097 will streamline the Qualified Purchaser Program, which is an outdated and burdensome [mechanism to] collect use tax. Without a legislative fix taxpayers with little to no tax liability would continue to be burdened with registration and return filing requirements. The bill would also relieve taxpayers from paying more by hiring accountants to navigate this [to] collect use tax.

1. Committee Staff Comments:
   1. General background: Since 1933, the state has imposed a sales tax on California retailers for the privilege of selling TPP, absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in California. In 1935, California adopted a complementary "use tax" on the storage, use, or other consumption of TPP purchased out-of-state but subsequently used in California. The use tax was designed to protect California merchants who would otherwise be at a competitive disadvantage. Unlike the sales tax, the use tax is imposed on the purchaser and not the retailer. Nevertheless, the most practical way for a state to enforce its use tax is to have remote retailers collect the tax from the purchaser at the time of sale.
   2. A changing legal landscape: Until recently, California's use tax gap (i.e., the difference between the amount of tax owed and tax paid) was estimated to be approximately $2 billion annually. This tax gap was mainly due to the now overturned Supreme Court precedent articulated in Quill Corp. v. North Dakota (1992), 504 U.S. 298. In Quill, the Supreme Court had been asked to decide the constitutionality of a North Dakota law that imposed a use tax collection obligation on out-of-state retailers that advertised in North Dakota three or more times in a single year. The Court invalidated the law, holding that under the dormant commerce clause, a retailer must have a "physical presence" in a state before that state can require the retailer to collect its use tax. The "physical presence" test set forth in Quill greatly complicated California's efforts to collect its use tax, especially in the inherently "non-physical" e-commerce sector.

All this changed on June 21, 2018, with the United States Supreme Court's decision in South Dakota v. Wayfair, Inc. Wayfair reset the stage by explicitly overturning the outdated "physical presence" test. Specifically, the Wayfair Court upheld a South Dakota law that required remote sellers without a physical presence in the state to collect tax on all sales into South Dakota if the remote seller exceeded a specified level of economic activity in the state.

Since the Wayfair decision and the subsequent enactment of AB 147 (Burke), Chapter 5, Statutes of 2019, which included the Marketplace Facilitator Act, the use tax gap has closed substantially. In fact, CDTFA estimates that, since AB 147's enactment, the state has collected over $7.6 billion from online retailers and marketplace facilitators.

• 1. What is the Program? The Program was adopted in the pre-Wayfair era as part of a comprehensive effort to increase use tax collections by requiring certain non-retailer businesses known as "qualified purchasers" to register with CDTFA and annually report use tax owed (mainly on out-of-state purchases).

The Program still requires a "qualified purchaser" to register with the CDTFA and report and pay use tax directly to the department on purchases made from out-of-state retailers. A "qualified purchaser", in turn, is defined as a person meeting specified conditions, including that the person receives at least $100,000 in annual gross receipts from business operations.

The author's office notes that, as currently structured, the Program no longer provides consequential revenue to the state and subjects California businesses to unnecessary registration and filing requirements. The author's office also notes that qualified purchasers are not retailers but must still incur the burden of filing use tax returns, which occasionally necessitates the hiring of tax professionals.

• 1. What would this bill do? This bill would temporarily modify the Program's definition of a "qualified purchaser" to eliminate the requirement that the person receive at least $100,000 in gross receipts per calendar year from business operations. Instead, the person would be required to make more than $10,000 in purchases subject to use tax per calendar year. Thus, businesses with use tax liabilities under roughly $1,000 (assuming a 10% rate) would be relieved of the obligation to directly report use taxes through the Program. These Program modifications would be operative for five years to enable the Legislature to determine the modifications' impact on revenues, tax administration, and taxpayer compliance.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

None on file

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

Date of Hearing: April 10, 2023

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 1097 (

Author:Luz Rivas) – As Amended Ver:March 20, 2023

Majority vote. Fiscal committee.

SUBJECT: Use tax: registration: qualified purchaser

SUMMARY: Modifies the existing Qualified Purchaser Program ("Program") under which qualified purchasers, as defined, are required to report and pay use tax directly to the California Department of Tax and Fee Administration (CDTFA). Specifically, this bill:

1. Amends the Program's definition of a "qualified purchaser" by removing the requirement that the person have at least $100,000 in gross receipts from business operations per calendar year.
2. Provides instead that, to be a "qualified purchaser", the person must make more than $100,000 in purchases subject to use tax per calendar year.
3. Replaces obsolete references to the State Board of Equalization with the CDTFA, which is now charged with administering the Sales and Use Tax Law.

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 retailer's gross receipts from TPP sales in this state. (Revenue and Taxation Code (R&TC) Section 6001 et seq.)
2. Imposes a complimentary use tax on the storage, use, or other consumption of TPP generally 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 entity 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 CDTFA. (R&TC Section 6001 et seq.)
   
3. Requires a "qualified purchaser" to register with CDTFA to facilitate the collection of use tax. (R&TC Section 6225.)
   
4. Defines a "qualified purchaser" as a person that:
   
   1. Is not required to hold a seller's permit;
      
   2. Is not required to be registered under R&TC Section 6226;
      
   3. Does not hold a use tax direct payment permit;
      
   4. Receives at least $100,000 in gross receipts from business operations per calendar year; and,
      
   5. Is not otherwise registered with the CDTFA to report use tax.

FISCAL EFFECT: CDTFA estimates annual revenue losses of $500,000.

COMMENTS:

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

AB 1097 will streamline the Qualified Purchaser Program, which is an outdated and burdensome [mechanism to] collect use tax. Without a legislative fix taxpayers with little to no tax liability would continue to be burdened with registration and return filing requirements. The bill would also relieve taxpayers from paying more by hiring accountants to navigate this [to] collect use tax.

1. Committee Staff Comments:
   1. General background: Since 1933, the state has imposed a sales tax on California retailers for the privilege of selling TPP, absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in California. In 1935, California adopted a complementary "use tax" on the storage, use, or other consumption of TPP purchased out-of-state but subsequently used in California. The use tax was designed to protect California merchants who would otherwise be at a competitive disadvantage. Unlike the sales tax, the use tax is imposed on the purchaser and not the retailer. Nevertheless, the most practical way for a state to enforce its use tax is to have remote retailers collect the tax from the purchaser at the time of sale.
   2. A changing legal landscape: Until recently, California's use tax gap (i.e., the difference between the amount of tax owed and tax paid) was estimated to be approximately $2 billion annually. This tax gap was mainly due to the now overturned Supreme Court precedent articulated in Quill Corp. v. North Dakota (1992), 504 U.S. 298. In Quill, the Supreme Court had been asked to decide the constitutionality of a North Dakota law that imposed a use tax collection obligation on out-of-state retailers that advertised in North Dakota three or more times in a single year. The Court invalidated the law, holding that under the dormant commerce clause, a retailer must have a "physical presence" in a state before that state can require the retailer to collect its use tax. The "physical presence" test set forth in Quill greatly complicated California's efforts to collect its use tax, especially in the inherently "non-physical" e-commerce sector.

All this changed on June 21, 2018, with the United States Supreme Court's decision in South Dakota v. Wayfair, Inc. Wayfair reset the stage by explicitly overturning the outdated "physical presence" test. Specifically, the Wayfair Court upheld a South Dakota law that required remote sellers without a physical presence in the state to collect tax on all sales into South Dakota if the remote seller exceeded a specified level of economic activity in the state.

Since the Wayfair decision and the subsequent enactment of AB 147 (Burke), Chapter 5, Statutes of 2019, which included the Marketplace Facilitator Act, the use tax gap has closed substantially. In fact, CDTFA estimates that, since AB 147's enactment, the state has collected over $7.6 billion from online retailers and marketplace facilitators.

• 1. What is the Program? The Program was adopted in the pre-Wayfair era as part of a comprehensive effort to increase use tax collections by requiring certain non-retailer businesses known as "qualified purchasers" to register with CDTFA and annually report use tax owed (mainly on out-of-state purchases).

The Program still requires a "qualified purchaser" to register with the CDTFA and report and pay use tax directly to the department on purchases made from out-of-state retailers. A "qualified purchaser", in turn, is defined as a person meeting specified conditions, including that the person receives at least $100,000 in annual gross receipts from business operations.

The author's office notes that, as currently structured, the Program no longer provides consequential revenue to the state and subjects California businesses to unnecessary registration and filing requirements. The author's office also notes that qualified purchasers are not retailers but must still incur the burden of filing use tax returns, which occasionally necessitates the hiring of tax professionals.

• 1. What would this bill do? This bill would modify the Program's definition of a "qualified purchaser" to eliminate the requirement that the person receive at least $100,000 in gross receipts per calendar year from business operations. Instead, the person would be required to make more than $100,000 in purchases subject to use tax per calendar year. Thus, businesses with use tax liabilities under roughly $10,000 (assuming a 10% rate), would be relieved of the obligation to directly report use taxes through the Program.
  2. Amendments agreed to by author: To ease administration and reduce potential revenue losses, the author has agreed to amendments to do the following:
     1. Reduce the annual purchase threshold from $100,000 to $10,000;
     2. Clarify that the threshold applies to purchases where the use tax was not collected; and,
     3. Provide that the Program modifications shall be operative for 5 years, to enable the Legislature to determine the modifications' impact on revenues, tax administration, and taxpayer compliance.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file

Opposition

None on file

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