Existing state 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, until January 1, 2030, 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, over-the-counter medication, as defined.

Existing law requires a bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, detailed performance indicators, and data collection requirements.

This bill would make findings detailing the goals of the above-described tax expenditure and performance indicators for determining whether the tax expenditure meets those goals.

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.

This bill would provide that the exemption created by this bill does not apply to local sales and use taxes or transactions and use taxes.

Existing law imposes or dedicates certain state sales and use tax rates for local funding, including through the Local Revenue Fund 2011.

This bill would provide that the exemption created by this bill does not apply to those state sales and use tax rates imposed or dedicated for local government funding, including those rates for which revenues are deposited into the Local Revenue Fund 2011.

This bill would take effect immediately as a tax levy.

Date of Hearing: April 29, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2006 (

Author:Mathis) – As Introduced Ver:January 31, 2024

SUSPENSE

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and Use Tax Law: exemption: over-the-counter medication

SUMMARY: Provides a partial exemption under the Sales and Use Tax (SUT) Law for "over-the-counter medication" until January 1, 2030. Specifically, this bill:

1. Defines "over-the-counter medication" to mean a nonprescription drug regulated by the Food and Drug Administration (FDA) pursuant to the federal Food, Drug, and Cosmetic Act and federal regulations adopted pursuant to that act, including, but not limited to, Part 211 of Title 21 of the Code of Federal Regulations.
2. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill's exemption shall not apply with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, either of those laws.
3. Provides that this bill's exemption does not apply with respect to any tax levied pursuant to:
   1. Revenue and Taxation Code (R&TC) Section 6051.2 or 6201.2;
   2. Section 35 of Article XIII of the California Constitution; or,
   3. R&TC Section 6051 or 6201 that is deposited in the State Treasury to the credit of the Local Revenue Fund 2011 pursuant to R&TC Section 6051.15 or 6201.15.
4. Provides that, for purposes of complying with R&TC Section 41, the Legislature finds and declares that the specific goal, purpose, and objective that the exemption will achieve is to create tax parity between prescription and over-the-counter medications.
5. Provides that the performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goal, purpose, and objective shall be the number of transactions exempt from SUT pursuant to this bill, and the total dollar value of taxes forgone.
6. Provides that, no later than January 1, 2026, and each January 1 thereafter, the California Department of Tax and Fee Administration (CDTFA) shall submit a report to the Legislature, in compliance with Government Code Section 9795, detailing the number of transactions exempt from SUT pursuant to this bill, and the total dollar value of taxes foregone.
7. Takes immediate effect as a tax levy.
8. Provides that this bill's statutory provisions shall sunset on January 1, 2030.

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. (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 CDTFA. (R&TC Section 6001 et seq.)
   
3. Provides a SUT exemption for certain types of medicines, including those:
   
   1. Prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a registered pharmacist in accordance with law;
      
   2. Furnished by a licensed physician and surgeon, dentist, or podiatrist to their own patient for treatment of the patient;
      
   3. Furnished by a health facility for treatment of any person pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist;
      
   4. Sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for the treatment of a human being; or,
      
   5. Sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being; or furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation thereof. (R&TC Section 6369)
4. Requires any bill introduced on or after January 1, 2020, that authorizes a SUT exemption, to contain all of the following:
   
   1. Specific goals, purposes, and objectives that the tax expenditure will achieve;
      
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives stated in the bill; and,
   3. Specified data collection requirements to enable the Legislature to determine whether the tax expenditure is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. (R&TC Section 41(a).)

FISCAL EFFECT: The CDTFA estimates that this bill would reduce General Fund (GF) revenues by $176.2 million in fiscal year (FY) 2024-25 and by $182.4 million in FY 2025-26.

COMMENTS:

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

The state has a responsibility to provide the necessary relief for low income, disadvantaged and vulnerable families and communities that are already struggling. AB 2006 helps alleviate the financial burden facing millions of Californians and ensures that families are not [being] placed in a predicament or forced to forgo providing potentially lifesaving and life changing medication for their families.

1. This bill is supported by the Howard Jarvis Taxpayers Association, which notes:

California has the highest statewide sales tax rate in the country at 7.25 percent and is ranked ninth by the Tax Foundation in combined state and local sales tax rates. The impact of such a high tax rate is compounded significantly by the increasing cost of living crisis, with data from CalMatters showing that it costs 46.8% more to live in California than the national average, and that California has the nation's highest rate of functional poverty, as measured by the U.S. Census Bureau. Such high costs of living disproportionately impact marginalized, vulnerable, and low-income individuals, families, and communities.

1. This bill is opposed by the California Teachers Association, which notes:

According to the Department of Finance, the state provided over $87.5 billion in General Fund tax expenditures in 2023-24 (including income, sales and use, corporate, and other taxes). This number continues to grow each year. This revenue would have otherwise gone to the General Fund, of which approximately 39 percent would have gone toward Proposition 98 for K-14 education. This means approximately $34 billion is redirected away from schools and community colleges each year due to existing tax expenditures.

While we understand these bills are well intended, CTA does not support this approach, as it would reduce overall funding for education. CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.

1. 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, U.S. 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).
      

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. 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 or cost, without a supermajority vote.

• 1. An overview of the SUT Law: The SUT represents the state's third largest source of GF revenues. Nevertheless, the past several decades have seen a dramatic reduction in the state's reliance on the SUT and a corresponding increase in its reliance on personal income tax revenues. In FY 2024-25, SUT revenues are estimated to comprise only 17.3% of the state's GF revenues, down from nearly 60% in FY 1950-51.
  2. What accounts for the state's reduced reliance on SUT revenues? The SUT Law was enacted in a very different era. In the 1930s, California's economy was largely dominated by manufacturing, and residents mostly bought and sold tangible goods. Thus, in establishing the base for a new consumption tax, it made sense to impose the tax on sales of tangible personal property, defined as personal property that may be "seen, weighed, measured, felt, or touched." Over the past 80 years, however, California's economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base. For example, the Commission on the 21^st Century Economy noted that spending on taxable goods represented 34.6% of personal income in 2008, down from 55.4% in 1980. As a result, tax experts and economists from across the political spectrum argue that California should expand its SUT base.

It could be argued that, while well-intentioned, additional SUT exemptions further erode an already shrinking SUT base. This, in turn, increases fiscal pressures to maintain or even increase California's relatively high SUT rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. What would this bill do? This bill provides a SUT exemption for over-the-counter medications, which this bill defines as nonprescription drugs that the FDA regulates under the federal Food, Drug, and Cosmetic Act. The proposed exemption is partial and, as such, would only apply to the GF portion of the SUT rate (i.e., 3.9375%). This partial exemption would apply from the date of this bill's enactment until January 1, 2030.

The author argues that the exemption for over-the-counter medications would help alleviate the financial pressures facing many families throughout California. The author also notes:

OTC medications are an affordable alternative to prescription medications, offering consumers the option to self-treat mild to moderate symptoms in place of a visit to a healthcare provider. This option has the net benefit of significantly reducing the costs incurred by our healthcare systems.

• 1. An inherently regressive tax: The SUT has been widely criticized as a regressive exaction that most heavily impacts those least able to pay. For example, a survey by the Nevada Legislative Counsel Bureau long ago concluded that in the case of a retail sales tax with food exempt, "the lowest income group would experience the highest ratio of tax to income . . . ." (Survey of Sales Taxes Applicable to Nevada 59 (Bull. No. 3, May 1948).) Others, however, contend that a degree of progressivity is provided via the various exemptions built into most state SUT laws (i.e., for certain necessities of life such as food, housing, and medical care).

Proponents of this bill might argue that an exemption for over-the-counter medicines would further promote a degree of progressivity in an already regressive tax regime. Proponents might also note that, to reduce the regressive nature of the SUT, exemptions have been enacted for numerous necessities of life, including food and prescription medications. Critics, however, might contend that SUT exemptions are a blunt instrument for affecting social policy. While this bill would offer financial relief to low-income individuals struggling to make ends meet, this bill also provides relief indiscriminately to wealthy consumers who might not even notice the exemption.

• 1. Partial SUT exemptions are complicated to administer: Most exemptions are applied to the total applicable state and local SUT. However, California does maintain a few partial SUT exemptions: specifically, those for manufacturing and research and development equipment, farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock. These partial exemptions are difficult to process and frequently contain errors. Providing an additional incentive, in the form of a partial SUT exemption, may further complicate administration for taxpayers and CDTFA alike.
  2. CDTFA should be provided additional lead-time: As currently drafted, this bill's exemption would become effective immediately upon enactment. CDTFA, however, requires a certain amount of lead time to inform impacted retailers, modify SUT returns, and reprogram impacted computer systems. The author may wish to amend this bill to delay the exemption's operative date to July 1, 2025.
  3. This bill's definition of over-the-counter medicine: This bill provides a very broad definition for over-the-counter medicine. Specifically, this bill defines such medicines to mean any nonprescription drug regulated by the FDA pursuant to the Food, Drug, and Cosmetic Act, and the federal regulations adopted thereunder. Although the FDA publishes a list of over-the-counter drug products in its "Orange Book", these products are not always identified by the common names that appear on store shelves. In addition, the FDA's list is updated on a monthly basis. As such, it may be difficult for both retailers and the CDTFA to ensure that only appropriately regulated products receive the exemption.
  4. Policy on tax expenditures: Both R&TC Section 41 and Committee policy require any tax expenditure bill to outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives.  A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements.  This bill currently complies with R&TC Section 41.

In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote.  According to this policy, an "appropriate sunset provision" means five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" means 10 years. This bill includes a five-year sunset date in compliance with Committee policy.

REGISTERED SUPPORT / OPPOSITION:

Support

California Community Pharmacy Coalition

California Manufacturers and Technology Association

California Retailers Association

Howard Jarvis Taxpayers Association

Opposition

California Federation of Teachers

California Teachers Association

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

Date of Hearing: March 11, 2024

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Jacqui Irwin, Chair

ABPCA Bill Id:AB 2006 (

Author:Mathis) – As Introduced Ver:January 31, 2024

Majority vote. Tax levy. Fiscal committee.

SUBJECT: Sales and Use Tax Law: exemption: over-the-counter medication

SUMMARY: Provides a partial exemption under the Sales and Use Tax (SUT) Law for "over-the-counter medication" until January 1, 2030. Specifically, this bill:

1. Defines "over-the-counter medication" to mean a nonprescription drug regulated by the Food and Drug Administration (FDA) pursuant to the federal Food, Drug, and Cosmetic Act and federal regulations adopted pursuant to that act, including, but not limited to, Part 211 of Title 21 of the Code of Federal Regulations.
2. Provides that, notwithstanding any provision of the Bradley-Burns Uniform Local SUT Law or the Transactions and Use Tax Law, this bill's exemption shall not apply with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, either of those laws.
3. Provides that this bill's exemption does not apply with respect to any tax levied pursuant to:
   1. Revenue and Taxation Code (R&TC) Section 6051.2 or 6201.2;
   2. Section 35 of Article XIII of the California Constitution; or,
   3. R&TC Section 6051 or 6201 that is deposited in the State Treasury to the credit of the Local Revenue Fund 2011 pursuant to R&TC Section 6051.15 or 6201.15.
4. Provides that, for purposes of complying with R&TC Section 41, the Legislature finds and declares that the specific goal, purpose, and objective that the exemption will achieve is to create tax parity between prescription and over-the-counter medications.
5. Provides that the performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goal, purpose, and objective shall be the number of transactions exempt from SUT pursuant to this bill, and the total dollar value of taxes forgone.
6. Provides that, no later than January 1, 2026, and each January 1 thereafter, the California Department of Tax and Fee Administration (CDTFA) shall submit a report to the Legislature, in compliance with Government Code Section 9795, detailing the number of transactions exempt from SUT pursuant to this bill, and the total dollar value of taxes foregone.
7. Takes immediate effect as a tax levy.
8. Provides that this bill's statutory provisions shall sunset on January 1, 2030.

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. (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 CDTFA. (R&TC Section 6001 et seq.)
   
3. Provides a SUT exemption for certain types of medicines, including those:
   
   1. Prescribed for the treatment of a human being by a person authorized to prescribe the medicines, and dispensed on prescription filled by a registered pharmacist in accordance with law;
      
   2. Furnished by a licensed physician and surgeon, dentist, or podiatrist to their own patient for treatment of the patient;
      
   3. Furnished by a health facility for treatment of any person pursuant to the order of a licensed physician and surgeon, dentist, or podiatrist;
      
   4. Sold to a licensed physician and surgeon, podiatrist, dentist, or health facility for the treatment of a human being; or,
      
   5. Sold to this state or any political subdivision or municipal corporation thereof, for use in the treatment of a human being; or furnished for the treatment of a human being by a medical facility or clinic maintained by this state or any political subdivision or municipal corporation thereof. (R&TC Section 6369)
4. Requires any bill introduced on or after January 1, 2020, that authorizes a SUT exemption, to contain all of the following:
   
   1. Specific goals, purposes, and objectives that the tax expenditure will achieve;
      
   2. Detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets the goals, purposes, and objectives stated in the bill; and,
   3. Specified data collection requirements to enable the Legislature to determine whether the tax expenditure is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. (R&TC Section 41(a).)

FISCAL EFFECT: The CDTFA estimates that this bill would reduce General Fund (GF) revenues by $176.2 million in fiscal year (FY) 2024-25 and by $182.4 million in FY 2025-26.

COMMENTS:

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

The state has a responsibility to provide the necessary relief for low income, disadvantaged and vulnerable families and communities that are already struggling. AB 2006 helps alleviate the financial burden facing millions of Californians and ensures that families are not [being] placed in a predicament or forced to forgo providing potentially lifesaving and life changing medication for their families.

1. This bill is supported by the Howard Jarvis Taxpayers Association, which notes:

California has the highest statewide sales tax rate in the country at 7.25 percent and is ranked ninth by the Tax Foundation in combined state and local sales tax rates. The impact of such a high tax rate is compounded significantly by the increasing cost of living crisis, with data from CalMatters showing that it costs 46.8% more to live in California than the national average, and that California has the nation's highest rate of functional poverty, as measured by the U.S. Census Bureau. Such high costs of living disproportionately impact marginalized, vulnerable, and low-income individuals, families, and communities.

1. This bill is opposed by the California Teachers Association, which notes:

According to the Department of Finance, the state provided over $87.5 billion in General Fund tax expenditures in 2023-24 (including income, sales and use, corporate, and other taxes). This number continues to grow each year. This revenue would have otherwise gone to the General Fund, of which approximately 39 percent would have gone toward Proposition 98 for K-14 education. This means approximately $34 billion is redirected away from schools and community colleges each year due to existing tax expenditures.

While we understand these bills are well intended, CTA does not support this approach, as it would reduce overall funding for education. CTA believes that Proposition 98 should be protected from reductions through the creation of new or expanding existing tax expenditures, especially as the state is facing a budget deficit.

1. 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, U.S. 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).
      

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. 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 or cost, without a supermajority vote.

• 1. An overview of the SUT Law: The SUT represents the state's third largest source of GF revenues. Nevertheless, the past several decades have seen a dramatic reduction in the state's reliance on the SUT and a corresponding increase in its reliance on personal income tax revenues. In FY 2024-25, SUT revenues are estimated to comprise only 17.3% of the state's GF revenues, down from nearly 60% in FY 1950-51.
  2. What accounts for the state's reduced reliance on SUT revenues? The SUT Law was enacted in a very different era. In the 1930s, California's economy was largely dominated by manufacturing, and residents mostly bought and sold tangible goods. Thus, in establishing the base for a new consumption tax, it made sense to impose the tax on sales of tangible personal property, defined as personal property that may be "seen, weighed, measured, felt, or touched." Over the past 80 years, however, California's economy has seen dramatic growth in the service and information sectors, resulting in a significant erosion of the SUT base. For example, the Commission on the 21^st Century Economy noted that spending on taxable goods represented 34.6% of personal income in 2008, down from 55.4% in 1980. As a result, tax experts and economists from across the political spectrum argue that California should expand its SUT base.

It could be argued that, while well-intentioned, additional SUT exemptions further erode an already shrinking SUT base. This, in turn, increases fiscal pressures to maintain or even increase California's relatively high SUT rate. High rates arguably promote non-compliance and encourage out-of-state purchases, placing California retailers at a competitive disadvantage. High rates also risk impacting consumer decision-making, which runs counter to widely accepted principles of sound tax policy.

• 1. What would this bill do? This bill provides a SUT exemption for over-the-counter medications, which this bill defines as nonprescription drugs that the FDA regulates under the federal Food, Drug, and Cosmetic Act. The proposed exemption is partial and, as such, would only apply to the GF portion of the SUT rate (i.e., 3.9375%). This partial exemption would apply from the date of this bill's enactment until January 1, 2030.

The author argues that the exemption for over-the-counter medications would help alleviate the financial pressures facing many families throughout California. The author also notes:

OTC medications are an affordable alternative to prescription medications, offering consumers the option to self-treat mild to moderate symptoms in place of a visit to a healthcare provider. This option has the net benefit of significantly reducing the costs incurred by our healthcare systems.

• 1. An inherently regressive tax: The SUT has been widely criticized as a regressive exaction that most heavily impacts those least able to pay. For example, a survey by the Nevada Legislative Counsel Bureau long ago concluded that in the case of a retail sales tax with food exempt, "the lowest income group would experience the highest ratio of tax to income . . . ." (Survey of Sales Taxes Applicable to Nevada 59 (Bull. No. 3, May 1948).) Others, however, contend that a degree of progressivity is provided via the various exemptions built into most state SUT laws (i.e., for certain necessities of life such as food, housing, and medical care).

Proponents of this bill might argue that an exemption for over-the-counter medicines would further promote a degree of progressivity in an already regressive tax regime. Proponents might also note that, to reduce the regressive nature of the SUT, exemptions have been enacted for numerous necessities of life, including food and prescription medications. Critics, however, might contend that SUT exemptions are a blunt instrument for affecting social policy. While this bill would offer financial relief to low-income individuals struggling to make ends meet, this bill also provides relief indiscriminately to wealthy consumers who might not even notice the exemption.

• 1. Partial SUT exemptions are complicated to administer: Most exemptions are applied to the total applicable state and local SUT. However, California does maintain a few partial SUT exemptions: specifically, those for manufacturing and research and development equipment, farm equipment and machinery, diesel fuel used for farming and food processing, teleproduction and postproduction equipment, timber harvesting equipment and machinery, and racehorse breeding stock. These partial exemptions are difficult to process and frequently contain errors. Providing an additional incentive, in the form of a partial SUT exemption, may further complicate administration for taxpayers and CDTFA alike.
  2. CDTFA should be provided additional lead-time: As currently drafted, this bill's exemption would become effective immediately upon enactment. CDTFA, however, requires a certain amount of lead time to inform impacted retailers, modify SUT returns, and reprogram impacted computer systems. The author may wish to amend this bill to delay the exemption's operative date to July 1, 2025.
  3. This bill's definition of over-the-counter medicine: This bill provides a very broad definition for over-the-counter medicine. Specifically, this bill defines such medicines to mean any nonprescription drug regulated by the FDA pursuant to the Food, Drug, and Cosmetic Act, and the federal regulations adopted thereunder. Although the FDA publishes a list of over-the-counter drug products in its "Orange Book", these products are not always identified by the common names that appear on store shelves. In addition, the FDA's list is updated on a monthly basis. As such, it may be difficult for both retailers and the CDTFA to ensure that only appropriately regulated products receive the exemption.
  4. Policy on tax expenditures: Both R&TC Section 41 and Committee policy require any tax expenditure bill to outline specific goals, purposes, and objectives that the tax expenditure will achieve, along with detailed performance indicators for the Legislature to use when measuring whether the tax expenditure meets those stated goals, purposes, and objectives.  A tax expenditure bill will not be eligible for a Committee vote unless it has complied with these requirements.  This bill currently complies with R&TC Section 41.

In addition to the R&TC Section 41 requirements, this Committee's policy also requires that all tax expenditure proposals contain an appropriate sunset provision to be eligible for a vote.  According to this policy, an "appropriate sunset provision" means five years, except in the case of a tax expenditure measure providing relief to California veterans, in which case "appropriate sunset provision" means 10 years. This bill includes a five-year sunset date in compliance with Committee policy.

REGISTERED SUPPORT / OPPOSITION:

Support

California Community Pharmacy Coalition

California Retailers Association

Howard Jarvis Taxpayers Association

Opposition

California Teachers Association

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