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 of, state, or on the storage, use, or other consumption in this state of, 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, including an exemption for the sale of, or the storage, use, or consumption of, items and materials when used to modify a vehicle for physically handicapped persons.

This bill would, until January 1, 2028, 2030, exempt from those taxes the gross receipts from the sale in this state of, state, and the storage, use, or other consumption in this state of, state, of a public safety first responder dedicated snow removal vehicle, as defined, purchased by a local public agency and any equipment required on those vehicles purchased by a local public agency.

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 state the intent of the Legislature to comply with those provisions. 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 take effect immediately as a tax levy, but its operative date would depend on its effective date. be July 1, 2025.

Existing law provides that whenever a change in ownership occurs or new construction, as specified, is completed, the property changing ownership or new construction shall be appraised at its full cash value, except as otherwise provided, on the date the change in ownership occurs or the new construction is completed.

This bill would make nonsubstantive changes to those provisions.

SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 546 (Alvarado-Gil) - Sales and Use Tax Law: exemption: dedicated snow removal vehicles

Bill Summary:

SB 546 would enact a state General Fund-only sales and use tax (SUT) exemption for the purchase of dedicated snow removal vehicles, as defined.

Fiscal Impact:

The California Department of Tax and Fee Administration (CDTFA) estimates that this bill would result in an annual General Fund revenue loss of $256,000. CDTFA would incur minor and absorbable costs for training, taxpayer outreach, and updating publications and returns.

Background:

Tax expenditure programs (TEPs) are special tax provisions that reduce the amount of revenues the “basic” tax system would otherwise generate in order to provide (1) benefits to certain groups of taxpayers, and/or (2) incentives to encourage certain types of behavior and activities, such as charitable giving. Specifically, current law provides for, among other things, various income and corporation tax credits and deductions, as well as exemptions from the sales and use tax. The Department of Finance is required to publish a list of TEPs (currently totaling several hundred), which currently exceed $87 billion annually.

Except where a specific exemption or exclusion is provided, current law imposes SUT 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.

Many items are fully exempted from the SUT (prescription drugs, food, poultry litter), while others are exempted from the state sales tax, but not the local share, such as 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. The United States Government is exempt from paying SUT; in contrast, state law does not provide a blanket exemption for other public agencies like cities, counties, and special districts. Consequently, these agencies generally pay SUT when purchasing TPP.

Additionally, current state law provides SUT exemptions for specified vehicles purchased by certain buyers. In 2019, the Legislature enacted a state General Fund-only SUT exemption for specified zero-emission technology transit buses sold to a city, county, city and county, transportation or transit district, or other public agency providing transit services to the public (AB 784, Mullin). In 2022, the Legislature extended the exemption from January 1, 2024, to January 1, 2026 (AB 2622, Mullin). Moreover, in 2022, the Legislature enacted a state General Fund-only SUT exemption on qualifying zero or near-zero emission motor vehicles purchased or leased by qualified buyers under the Clean Cars 4 All program, from January 1, 2023, through December 31, 2027, as specified (SB 1382, Gonzalez).

Proposed Law:

This bill would enact a state General Fund-only (3.9375 percent) SUT exemption for a dedicated snow removal vehicle purchased by local public agencies that provide snow removal services, as defined. The exemption would apply to purchases made after July 1, 2025, and before January 1, 2030.

Related Legislation:

AB 561 (Voepel, 2017) would have provided a SUT exemption, as specified, from the portion of the price that exceeds $800,000 of any public safety first responder vehicle and any equipment required on that vehicle purchased by a local public agency, as defined. This bill was held under submission on the Suspense File of the Assembly Appropriations Committee.

Staff Comments:

Currently, the State reimburses cities and counties for costs (in excess of $5,000) incurred removing or grooming snow. Specifically, local jurisdictions can receive reimbursement equal to half of their expenses above $5,000. Additionally, the State reimburses counties for 80 percent of the preceding fiscal year’s snow removal or snow grooming costs over $5,000, up to a maximum of $7 million statewide per year. If these total statewide reimbursable costs exceed $7 million for the fiscal year, the State Controller apportions funds based on each county’s pro-rata share from the three preceding fiscal years.

CDTFA staff indicate that it found limited data with respect to public sector purchase of snow removal vehicles. Based on SCO data and survey responses, the department estimates that annual taxable sales total $6.5 million. At the 3.9375 General Fund SUT rate, the resulting revenue loss would be $256,000 per year.

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Anna M. Caballero, Chair

2023 - 2024 Regular

Sales and Use Tax Law: exemption: DEDICATED SNOW REMOVAL vehicles

Enacts a state General Fund-only (3.9375%) sales and use tax exemption for the purchase of dedicated snow removal vehicles, as defined.

Background

Tax expenditures. California law allows various income tax credits, deductions, exemptions, and exclusions. When a tax law is determined to have a cost in the form of foregone revenues, such as a tax exemption, state law refers to them as "tax expenditures." The Legislature enacts such tax incentives either to compensate taxpayers for incurring certain expenses, such as child adoption, or to influence certain behaviors, such as participating in charitable giving. The Legislature uses tax incentives to encourage taxpayers to do something they would otherwise not do but for the tax incentive. The Department of Finance must annually publish a list of tax expenditures, currently totaling around $87 billion per year.

Sales and use tax. State law imposes the sales tax on every retailer selling tangible personal property in this state. Retailers must register with the California Department of Tax and Fee Administration (CDTFA) and remit the amounts collected to CDFTA. Unless the purchaser pays the sales tax to the retailer, they are liable for the use tax, which is imposed on any person consuming tangible personal property in the state. The use tax rate is the same as the sales tax rate and must be remitted on or before the last day of the month following the quarterly period in which the person made the purchase. As shown in the table below, the current statewide sales and use tax rate is 7.25%, of which the rate imposed allocated to the State General Fund is 3.9375%. Additionally, cities and counties may increase the sales and use tax rate up to 2% with voter approval for either specific or general purposes pursuant to the California Constitution’s vote requirements.

Tax exemptions. Many items are fully exempted from the sales and use tax in California (prescription drugs, food, poultry litter), while others are exempted from the state sales tax, but not the local share, such as 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. While the United States government is exempt from paying the sales and use tax, state law does not provide a blanket exemption for other public agencies like cities, counties, and special districts. As a result, these agencies generally pay tax when purchasing tangible personal property or using it here.

Vehicle sales and use tax. When purchasing a vehicle from a dealer, the retailer collects sales tax at the point of sale. However, use tax is due on all original registration and transfer applications for vehicles/vessels purchased from someone other than a licensed California dealer, manufacturer, or dismantler. For a private-party sale, the buyer pays use tax to the California Department of Motor Vehicles when registering the vehicle within 30 days of the purchase.

Vehicle exemptions. State law also provides sales and use tax exemptions for specific vehicles purchased by certain buyers. In 2019, the Legislature enacted AB 784 (Mullin) enacted a state General Fund-only sales and use tax exemption for specified zero-emission technology transit buses sold to a city, county, city and county, transportation or transit district, or other public agency providing transit services to the public. In 2022, the Legislature extended the exemption from January 1, 2024, to January 1, 2026 (AB 2622, Mullin). Additionally, in 2022 the Legislature enacted a state General Fund-only sales and use tax exemption on qualifying zero or near-zero emission motor vehicles purchased or leased by qualified buyers under the Clean Cars 4 All program (SB 1382, Gonzalez). This exemption applies to purchases made from January 1, 2023, through December 31, 2027. Eligibility for the Clean Cars 4 All program depends on the buyer’s household income level, where they reside, and the vehicle leased or purchased.

Snow removal vehicle sales. At present, there is no public database available to determine the number of snow removal vehicles purchased or brought into use in the State of California or by local public agencies specifically. However, according to the market research company Maximize Market Research^[1], the global snow removal market size in 2022 was approximately $74 billion and is expected to reach approximately $110 billion by 2029.

Reimbursable snow removal costs. State law allocates revenues collected from fuel taxes, including the Motor Vehicle Fuel License Tax, Use Fuel Tax, and Diesel Fuel Tax, from the Highway Users Tax Account in the Transportation Tax Fund to cities and counties across California to reimburse them for providing certain local traffic services. Among these, the state reimburses cities and counties for costs incurred removing or grooming snow over $5,000. Cities that report spending more than $5,000 in a fiscal year for snow removal can receive an amount equal to half of their expenses above $5,000.

Additionally, the state reimburses counties for 80% of the preceding fiscal year’s snow removal or snow grooming costs over $5,000, up to a maximum of $7 million statewide per year. If these total statewide reimbursable costs exceed $7 million for the fiscal year, the State Controller apportions funds based on each county’s share of the total for the three preceding fiscal years.

Arguing that there is an expected increase in extreme weather events that present dangerous conditions for both pedestrians and drivers, the author wants to encourage local public agencies to purchase dedicated snow removal vehicles by exempting their purchase from the state General Fund sales and use tax.

Proposed Law

Senate Bill 546 enacts a state General Fund-only (3.9375%) sales and use tax exemption for a dedicated snow removal vehicle purchased by local public agencies that provide snow removal services. Under the measure, a “dedicated snow removal vehicles” and “local public agency” respectively as:

• “Dedicated snow removal vehicle” means a vehicle to which is permanently affixed snow removal equipment, including a snowblower or auger, that is operated exclusively to remove snow from public roads, private roads, or other paths to allow on-road vehicle access and is purchased by a local public agency for use by a local public agency employee to provide snow removal services.
• “Local public agency” means a city, county, municipal corporation, district, or public authority located within this state that provides, or may provide, snow removal services.

The exemption enacted by the bill applies to purchases made after July 1, 2025, and before January 1, 2030. The measure also includes legislative findings and declarations to comply with Section 41 of the Revenue and Taxation Code.

State Revenue Impact

Pending.

Comments

1. Purpose of the bill. According to the author, “Ensuring our communities have adequate snow removal vehicles is critical to responding to severe snowstorms that create an imminent risk to public safety. When heavy snow accumulates, it creates hazardous conditions for homeowners, motorists, and public safety personnel responding to emergencies. By providing public agencies with a sales tax exemption when purchasing snow removal vehicles, these cities, counties, and other public entities will have the tools required to manage extreme weather events without the financial burden and heightened safety risks.”

2. Windfall or but for tax benefit? Tax expenditures produce two different outcomes. The first outcome is a “windfall”, where the tax expenditure rewards behavior that would have occurred without the tax benefit. The second outcome is a “but for tax benefit”, where a certain activity would not have occurred without the incentive created by the tax expenditure. There is no real tax revenue “loss” if the taxpayer never would have made the purchase “but for” the tax incentive. Here, local public agencies already purchase dedicated snow removal vehicles, and it is unclear whether or how many local public agencies who need new or additional dedicated snow removal vehicles are forgoing these purchases due to the sales and use tax. As a result, SB 546 may be a “windfall” for some local public agencies while serving as a “but for tax benefit” to others. The Committee may wish to consider the incentive effects of SB 546 given the possibility of a windfall for certain local agencies.

3. Regarding equity. By creating a state General Fund-only tax exemption, SB 546 will likely reduce state General Fund revenues to the sole benefit of communities that are impacted by snow. In 2023, 36 of California's 58 counties (62%) incurred snow removal costs. The Committee may wish to consider the public safety and economic benefits to the State as a whole when only a few local public agencies purchase and use dedicated snow removal vehicles.

4. Best way? Local agencies that purchase vehicles after July 1, 2025, but before the January 1, 2030 repeal date will directly benefit from SB 546. However, jurisdictions that recently purchased dedicated snow removal vehicles will not. Further, state law already provides for reimbursement of snow removal costs for cities and counties. Therefore, this exemption could be an additional benefit to cities and counties that already receive snow removal cost reimbursements from the state. While it is unclear whether current state reimbursement is sufficient to offset the cost of needed snow removal vehicles, is SB 546’s exemption necessary when the state already directly reimburses local agencies for their snow removal costs? The Committee may wish to consider the best way to help local agencies with snow removal costs.

5. Precedent. By exempting purchases of snow removal equipment from the State General Fund sales and use tax rate, this bill reduces costs incurred by local agencies necessary to provide a vital public service. Absent an exemption, sales tax applies to almost every purchase the state or a local agency makes, including purchasing vehicles, or for anything else, such as when school districts purchase books and educational supplies, generating revenue for the state General Fund. While the Legislature has enacted a similar exemption for zero-emission transit buses purchased by local agencies, this bill expands this precedent by relieving some local agencies from paying tax when purchasing snow removal vehicles. The Committee may wish to consider whether the need to offset local agency costs incurred for snow removal is more acute than costs incurred to provide other services.

6. Intermittent vs. dedicated. This sales and use tax exemption is narrowly tailored for dedicated snow removal vehicles, thereby excluding intermittent snow removal vehicles. An intermittent snow removal vehicle has detachable snow removal equipment, operates as a snowplow during part of the year, and can be used for other purposes when there is no snow to remove. Narrowing the exemption to dedicated snow removal vehicles ensures that the exemption influences local governments to purchase vehicles that will be used improve road conditions affected by snow buildup rather than influencing local governments to purchase vehicles that can be used for other tasks.

7. Section 41. Section 41 of the Revenue and Taxation Code, requires any bill authorizing a new tax expenditure to contain, among other things, specific goals, purposes, and objectives that the tax expenditure will achieve, and detailed performance indicators, along with data collection and reporting requirements (SB 1335, Leno, 2014).

SB 546 states its specific goals to be:

• To assist local agencies in acquiring necessary dedicated snow removal vehicles to respond to an expected increase of extreme weather events.
• To overcome dangerous conditions for both pedestrians and drivers by expanding snow removal efforts.
• To eliminate or significantly diminish the burden of high-cost dedicated snow removal vehicles needed to ensure the safety of citizens during and after severe winter storm activity.
• To support the economy by supporting local businesses and ensuring clear transportation routes for workers.

The performance indicators for the stated goals as the following:

• The annual number of dedicated snow removal vehicles purchased by local agencies.
• The annual number of road closures due to snow buildup.

The measure directs the Legislative Analyst’s Office (LAO) to review the effectiveness of the tax exemption, and publish a report by July 1, 2028, on the effectiveness of the exemption.

Support and Opposition

(1/5/24)

Support: California Ski Industry Association.

Opposition: None received.

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1. https://www.maximizemarketresearch.com/market-report/global-snow-remover-market/4586/ ↑