Assembly Standing Committee on Revenue and Taxation

Good afternoon and welcome to this hearing of the Assembly Committee on Revenue and Taxation. As always, please make sure to submit position letters at least one week prior to that. One year would be really thinking way in advance. So one week. I'll give you one week prior to the Committee hearing in order for them to be reflected in the Bill analysis.

Additionally, pursuant to our Committee rules, Bills with a fiscal impact of plus or minus 150,000 will be referred to our suspense file, which will be taken up at a later meeting. We do not have a quorum, and so we will be starting as a Subcommittee, and we will be starting with file item one, AB-1868, by Assemblymember Friedman. Assemblymember, whenever you're ready.

Thank you, Madam Chair and Members, I want to thank the Committee and the Committee staff for their work on the Bill. I accept the Committee amendment on page five of the analysis. State law provides a property tax exemption for property use excluded exclusively for charitable purposes if it is owned by a nonprofit entity. This is commonly known as a welfare exemption. In 2015, the Legislature passed AB-668 and expanded the Property Tax Welfare Exemption to include eligible nonprofit corporations that build and rehabilitate affordable housing units for sale to low-income families.

But unlike rental properties, taxes are assessed on the ownership home and paid by the low-income home buyer, increasing their overall housing cost. Most assessors apply the initial property tax assessment proportionally on the first mortgage paid by that low-income family that participates in low to no-interest mortgage programs. However, some assessors continue to assess deed-restricted homes at fair market value, especially in very expensive parts of the state where the average home price and fair market value exceeds $800,000.

AB-1868 addresses this wide variance between jurisdictions about assessing the value of affordable homes sold to and occupied by low-income families that participate in low to no-interest mortgage programs. AB-1868 creates statewide uniformity in assessing deed-restricted properties sold to and occupied by low-income first-time home buyers. It also applies the property tax assessment consistently and more proportionately on deed-restricted properties sold to these households.

And of course, we all know that owning a home for a lot of these low-income families is a path to building equity and to having security. So we want to encourage more of this kind of home buying and remove barriers to prevent it. Testifying in support on behalf of our sponsor is Debbie Arakel, Executive Director for Habitat for Humanity California. She can explain how this lack of uniformity in assessing the value of their homes directly affects the good work of Habitat for Humanity. With that, I would respectfully request an aye vote.

Good afternoon, Madam Chair and Committee Members. Thank you for the opportunity to speak with you. My name is Debbie Arakel, and I am the Executive Director with Habitat for Humanity California, and I'm here representing the views of Habitat for Humanity affiliates, providing affordable owner-occupied homes in 42 counties across the state. Over the past 10 years, Habitat for Humanity in California has served over 12,000 people, 83% of whom are people of color.

Our homeowner families earn between 30 and 80% of the area median income, and we partner with them to provide a hand-up to deed-restricted affordable homes to own. We've had situations when property taxes were assessed with minimal consideration to affordability and deed restriction. Resulting in over-assessed values with much higher property taxes than estimated rather than proportional to the first mortgage. This requires a mortgage reduction in order to keep the homeowner's monthly payments affordable.

This burdens Habitat for Humanity, negatively impacting our budgets and leaving less funding and the ability to build more homes. This Bill codifies a best practice administered by many counties and supports the assessor's commitment to consistent and uniform approaches to assessing deed-restricted properties. As a 501(c)(3) nonprofit affordable home builder and lender, we're honored to sponsor AB-1868 and join Assemblymember Laura Friedman to achieve equitable property taxation on affordable owner-occupied homes.

I am grateful to the Chair and the Committee and for your consideration for this important Bill, and I urge and aye vote. Thank you.

Thank you very much. Do we have any other witnesses in support?

Hi, Catherine Charles. On behalf of Housing Action Coalition. In support.

Any witnesses in opposition? All right, we have a quorum, so if you can just please do the roll call.

[Roll Call] We have a quorum.

We do have a quorum. Miss Friedman, would you like to close?

We would request an aye vote?

Oh, questions from the Committee?

Thank you very much, Madam Chair. I've read the Bill and the proposal very, very thoroughly, and I want to say one how proud I am that we're at this point. I'll be supporting the Bill. I want to move the Bill. I was a Board Member for Habitat for Humanity, Greater Los Angeles, and know intimately the work that they do and what they try to do in terms of trying to make sure that people have homes. Being on top of roofs and things of that nature.

The organization, its Ambassador, Jimmy Carter. This is a great step in the right direction, I believe, and would love to be considered as a co-author of the Bill, if the author would allow me to do so.

We would be very honored. Thank you.

Thank you.

Assemblymember Grayson.

I concur with my colleagues comments, and also I would like to second the Bill and if allowed, be able to co-author.

We would be very honored. Thank you.

Mr. Patterson.

Want to echo the comments of the other two colleagues here. I'll be obviously voting in support of it, but I was Mayor Fresno for eight years back in the mid-nineties, in the early 2000, and that's when Habitat for Humanity came into Fresno and has been a significant provider of homes. I have been in the locations, I've stood beside families who have their sweat equity in it. And when they get handed the key and they have that home, it is something that is inexplicably joyful. So I'm going to be glad to vote on this. I'd love to be a co-author as well.

We would love to have you. Thank you so much.

All right, Miss Friedman, would you like to close now?

We appreciate the support. The support for first-time homebuyers, low-income homebuyers, and for Habitat. So thank you.

It sounds like we all love Habitat. You do incredible work. So I have a motion by Mr. Gipson, a second by Mr. Grayson, and the motion is do-pass as amended to appropriations. Miss Hyland, please call the roll.

On item number one, AB-1868. The motion is do pass as amended to appropriations. [Roll Call]

Five to zero. And that Bill is out. Congratulations. Thank you.

Thank you so much.

All right, file item two is AB-2191 by Assemblymember Santiago. Good afternoon, Mr. Santiago.

All right, Madam Chair. Thanks for giving us the opportunity to present. Thank you for your work, Committee Members and Staff. This is a very plain, simple Bill. AB-2191 basically wants to codify a program we currently have funded in the state budget.

And while we're still trying to figure out how much will be in the state budget, it's a very important program to be able to fund these programs so that we could do the outreach, the education, and the free tax preparation is important because a lot of the programs that we have, like the CalEITC Earned Income Tax Credit and other programs, are incredibly important to have.

But to have the outreach dollars attached to them so that people can benefit from them, it helps get the programs out. Now, I will say, you know, just as a personal point of view, I used to be skeptical of some of these outreach programs because I always used to think, okay, you take some of these outreach program dollars instead of put them in the in the programmatic, in the program bucket so that people can get these dollars.

But I quickly discovered is that you can have some of the best programs out there. But if people don't know about them, if the outreach isn't there, and if you can't enroll people in those programs, then it don't benefit the people who you intended to benefit. So I would respectfully ask for an aye vote on this Bill.

We have two witnesses because these programs are important and we need to continue to outreach so that we could lift people out of poverty. Thank you.

Witnesses may begin.

Okay, so, hello, Chair Erwin and Members of the Committee. My name is Dr. Dawnté Early, and I am President and CEO of United Way California Capital Regional, and we are here on behalf of California Earned Income Tax Credit, CalEITC Coalition, and we proudly support AB-2191 by Assemblymember Santiago. For 100 years, United Way California Capital Region has brought people together to build stronger, healthier, and more compassionate communities.

We serve Yolo, Sacramento, Placer, Amador, El Dorado Counties, and since 1923, our local United Way has raised more than $500 million to fight poverty in the region and help families succeed. This includes coordinating the region's largest free tax preparation assistance program. In 2024, so far, we have completed around 144,700 returns. The average household income for filers was only around $29,000. So for these families, every additional dollar makes a huge difference.

These families have been able to claim over $5.7 million in refunds, including more than $2 million utilizing the Earned Income Tax Credit. Prior to these funds being available, UWCCR had less resources to provide direct outreach that was accessible to under-resourced communities. On a personal note, 20 years ago, I was a low-income student with a young child of three years old at UC Davis, and it was time for me to file my first tax refund, or taxes. And I was so excited.

I went to, I will not name them, but paid for my taxes to be done. I paid 200 or so dollars. I didn't know, and I called my mom, and I was so excited, mom. I filed my taxes, and I didn't have to pay anything, and I got this huge refund. She was like, Oh My God, I cannot believe you paid someone. You make no money. I can't believe you paid someone to do your taxes. I was like, what was I supposed to do?

My mom actually was an employee at Franchise Tax Board, and she said, have you ever heard of this program, VITA? I was like, how possibly mother will I have heard of this program? And so the next year I went to, again, I was an Aggie. I went to a senior citizen center in Davis, and for the very first time, I brought my whole folder in and I filed my taxes for no money. And then I got this huge refund back.

And those were dollars that I relied on for myself, my son, to pay rent, to put food on the table, all the things full circle. I now am President and CEO of United Way and our organization funds that same organization that I filed taxes for. And so these dollars, I not just over here reading comments these are dollars that got me here in front of you running this organization. It's a real thing being able to have that outreach.

And we are now, because of these dollars, able to do outreach so that moms everywhere don't have to tell their daughters, don't pay to get your taxes done when you make no money. Thank you and I ask for your support for this.

Thank you.

Hello. My name is Teresa Smith and I am the CEO of Dreams for Change. Who also provides CalEITC services and here in support of 2191.

Dreams for Change has been a leader in EITC and CalEITC services for 13 years in San Diego and four years in Imperial County. The CalEITC grant program has been a critical factor in providing target outreach in our communities who have traditionally had a lack of trust and understanding of the tax system while increasing access to the free tax preparation services. The initial outreach and education grant allowed us to double our tax preparation from 2,300 returns to 4,200 returns.

With the additional grant for the tax preparation, we increased our production to 8,100 returns prior to the pandemic. With the removal of funds in 2021, only 4,400 returns were completed with last year an increase back to the 8,500 returns and an additional 88 EITC applications completed. I like to share these numbers with you because they are a true reflection of the impact of the CalEITC grant program to our nonprofit's ability to reach more individuals who are in to need of the tax education and preparation.

Our mobile tax team conducts workshops to help educate our clients on tax rights and credits along with completing their tax returns. Mary and John and their kids were experiencing homelessness. Our team learned that they had not filed their taxes for the past three years. Both parents were working gig jobs related and feared filing the returns due to owing self employment tax and also didn't have the $200 to file those tax returns. Our team worked with them to gather all the necessary information and completed the returns.

That resulted in over $17,000 in tax credits and recovered stimulus payments, which provided them the resources needed to move back into housing. Her annual surveys results of our tax clients reveal that 80% of the tax payers utilize their refunds to pay rent and other basic household bills. This program and grant funds are a vital lifeline to our community. We want to make sure clients like Mary and John have access to these services and resources each year.

With the right outreach and education, Mary and John might not have been able to prevent their experiencing homelessness if they were able to access those tax credits. For these reasons and on behalf of taxpayers like Mary and John, I strongly urge you to vote yes on this. Thank you.

Thank you very much. Do we have any other speakers in support?

Good afternoon. Anna Hasselblad with United Ways of California and a co-lead of the CalEITC Coalition. In strong support.

Good afternoon. Kathleen Van Osten. On behalf of John Burton Advocates for Youth. In support.

Good afternoon. Amy Everitt. President of Golden State Opportunity and co-lead of the CalEITC Coalition. In strong support. Thank you.

Good afternoon. Savannah Jorgensen. On behalf of the Lutheran Office of Public Policy California. A Member of the CalEITC Coalition. In strong support.

Hi there. Sam Wilkinson. On behalf of GRACE End Child Poverty California, as well as Economic Security California, and the CalEITC Coalition. In support. Thank you.

Rebecca Gonzales with the Western Center on Law and Poverty, also a member of the Coalition. In Support.

Do we have any witnesses in opposition? Questions from the Committee? Questions or comments of course. I love your story, how it all comes around. And obviously, VITA is a really very successful program, and we need to continue to make sure that it is as effective as possible. And we're big fans of EITC. We know that it lifts working people out of poverty.

Really impactful program that we have been struggling for the last few years to try to get enough people to apply when they are eligible. So this is critically important. So a lot of us are excited by the rollout of direct file with the IRS. How will that change the kind of the workflow at United Way?

Well, I mean, again, I think what we are hoping is to actually get the word out. And so one of the things we're advocating for here is even having that, making sure that people know that they, they can file, should file, that it won't be used against them. So I think there's a lot of education and outreach associated with that as well.

Will it make any difference in your?

So when I think about the direct file, one of the barriers that we run into is our clients still have that hesitation to fear the system. And so the education continues to be important not only to be not scared of the system and the tax system, to be able to get to the point where they can file on their own. Unfortunately, I feel a lot of our hard-to-reach populations, especially those who are looking for ITIN or other situations, are still that fear is real of the tax system. And that's what we hear over and over again of they're scared.

And so even with the direct file, they're scared they're going to screw it up and really want that guidance to make sure that they get it right and get all what they qualify for.

All right. Mr. Santiago, would you like to close?

Respectively ask for an aye vote and thank you.

All right, do I have a motion? And a second? So I have a motion by Assemblymember Gipson. A second by Assemblymember Grayson. And the motion is do-pass to appropriations. Miss Hyland, please call the roll.

Fine item number two, AB-2191. The motion is do-pass to appropriations. [Roll Call]

All right, that Bill is out 5-0. Thank you very much.

Thank you.

Next up, we have file item three, AB-2312. Assemblymember Wallis. Begin whenever you are ready.

Thank you.

Thank you, Madam Chair. Good afternoon, Madam Chair and Committee. I have before you today Assembly Bill-2312. As we know, affordability is a top priority for many of us here and for residents in California. Many Californians struggle to make ends meet due to high living costs, and student loan debt is often a significant financial burden. Facing the high costs of housing, energy, and living in the state leaves many California college graduates struggling to get by or even considering leaving the state.

For neighboring states with lower costs of living, which negatively impacts California's workforce and economy. AB-2312 will address these issues by removing the current cap on the above-the-line deduction and allowing college students and graduates to deduct the full amount of interest on their student loans from their taxes. The Bill will help Californians navigate the challenges posed by the affordability crisis and alleviate the financial burden of obtaining higher education.

I'd like to say thank you to the Committee Staff for their analysis, and I look forward to continuing our work on this Bill together for any other potential issues that arise while the Bill is on suspense.

Very good. Do you have a primary witness?

I do not.

All right. Any other witnesses in support? Witnesses in opposition.

Brandon Knapp. California Tax Reform Association. In opposition.

All right. Questions or comments from the Committee? Assemblymember Gipson.

Right. I would ask the author. I was reading it, but can you describe for me what kind of safe would qualify for.

That's the next one.

Oh, I'm sorry. That's the next Bill. My apologies. I'll hold off until that time comes.

Okay. All right. So given that deductions tend to be more valuable for wealthier taxpayers, and that this Bill brings us out of conformity with the Federal Tax Code. Should we focus our efforts on less advantaged students or is this a problem for everybody?

I think that's a fair question. We see it as a problem for everybody. When you look at our workforce challenges in California, we want to make sure that we're not picking winners and losers and can apply it across the board so that we can make California more affordable for everyone.

All right, Mr. Wallis, would you like to close?

Just respectfully ask for an aye vote when the time is appropriate.

All right. And without objection, this Bill will be referred to our suspense file. And for file, item four. Mister Gipson, you'll get ready with your question. It's AB 2861.

Yeah, thank you. The second Bill I have before you today is Assembly Bill 2861. Gun safety is a pressing issue in California. Each year, over 3000 people in California die from gun related incidents, including suicide, homicide and accidental shootings. AB 2861 will promote responsible firearm safety and storage by providing a tax credit, of up to $300 for taxpayers who purchase a gun safe.

The proper storage of a firearm in a locked safe prevents unauthorized access to a firearm and enhances community safety, especially in households with children or individuals who are unfamiliar with gun safety. The Bill promotes firearm safety and encourages responsible gun ownership. I'd like to say thank you to the Committee staff for their analysis, and I look forward to continue our work on this Bill together for any other potential issues that arise while the Bill is on suspicion.

All right, very good. Do you have any primary witnesses?

Do not.

Witnesses in support.

Members, my name is Elizabeth Rose-May and this is Alexis. So I agree with you about how important it is for people to store their guns in a safe, protected way. I also think that there's some bills on the table right now that potentially could make it considerably more expensive for gun owners to exercise their Second Amendment rights.

And I think this Bill in particular is an important and symbolic gesture from the Legislature in regards to just kind of showing some cooperation and willingness to work with responsible law abiding gun owners. So I would just ask you to support this Bill.

Thank you very much. Do we have witnesses in opposition?

Hi, Katie Hardman with the California Teachers Association. Unfortunately, in opposition due to the impact on the General Fund and Prop 98. Thanks.

Thank you.

Brandon Knapp, CTRA in opposition.

All right, questions or comments from the Committee? Mister Gipson, thank you very much.

Just for the author, is there a particular safe that would be qualified to receive the tax credit if a person purchase it?

You know, I'm happy to get back to you on specifics of that. We didn't have anything in mind. The idea was how can we help incentivize responsible gun ownership here in California? And so I'm happy to get back to your office with more details on that.

Great, because I think it's a good Bill, and I appreciate your willingness to be in this space. It's a tough space to be in, but it's a right space to be in for 1. And 2, I was just looking at. Because there's a whole bunch of different kinds of safes out there, right? And if it was germane or very specific to a safe, that absolutely was made for not just, you know, people have safes for deeds and trust, wills and things of that nature. Right.

So I just want to just make sure that it's for a specific model make for such storage of guns. So if you get back with me on that, I'd appreciate it. I think it's a good idea.

Absolutely. Thank you.

All right, any other questions or comments? Mister Wallace, would you like to close?

Just respectfully request an I vote when the time's appropriate.

All right, thank you very much, Assemblymember Wallace. And with that objection, this Bill will be referred to our suspense file.

Thank you.

The next item up is file item five, AB 2524 by Assemblymember Ward. Assemblymember, whenever you are ready.

Thank you, Madam Chair Members. Assembly Bill 2524 is before you and aims to align state law with federal law to provide additional flexibility to families who wish to start investing towards their own or their children's future.

California scholarship 529 accounts are a versatile savings vehicle for families with nontraditional post secondary educational needs. Currently, families who invest in a 529 college savings account can only roll over funds into a Roth IRA under specific conditions.

The 529 account must have been open for 15 years. Contributions must have been in the account for more than five years with a limit of $35,000 per designated beneficiary permitted to be rolled over one of the primary reasons families hesitate, decline or delay investing in these accounts is the fear that their child may not ultimately go to college.

By conforming state law with federal law, AB 2524 will provide individuals and families with additional flexibility and the option to avoid taxation and penalties for non qualified withdrawals.

This bill will result in higher confidence in investing into a 529 account and result in increased contributions and savings to existing and new accounts. With me to provide testimony today, I have witnesses Julio Martinez with the California State Treasurer's office and I respectfully request your aye vote.

Good afternoon, Madam Chair and Members. My name is Julio Martinez and I'm the executive director of the Scholarshare Investment Board, which oversees the state's 529 college savings plan. Thank you. Thank you for allowing me to be here this afternoon. I'm testifying on behalf of state Treasurer Fiona Ma, who serves as chair of the Scholarship Investment Board and is proudly sponsoring Assembly Bill 2524 by Assemblymember Ward.

By conforming state law with federal law to allow for the rollover of unused fund balances from a 529 plan to a Roth IRA retirement account, we could remove one of the biggest psychological barriers that prevent to families from opening 529 plan accounts and saving more for future higher education costs.

We speak to countless families year after year, and one of the most common concerns we hear is about what if my child decides not to pursue a higher education?

The mere thought of having to pay taxes and penalties for taking non qualified withdrawals causes parents like the Assemblyman said, to delay, underfund or completely avoid planning financially and save me for this very important endeavor. And this is problematic for a number of reasons.

Number one, the resident cost of a four year education at a CSU can be as much as $113,000. Now, that amount goes up to about $168,000 for a UC education. For private institutions, the average is closer to $218,000.

Second, because federal and state aid typically do not cover the entire cost, many California families often turn to student loans. Collectively, Californians owe more than $141 billion, with each Californian owing on average $37,000. Yet the average balance for families saving with a 529 account is only $25,000 nationally.

Parents who sacrificed by having a 529 account for the long term benefit of their loved ones should not be punished with taxes and penalties if the beneficiary ultimately decides to pursue other opportunities or interests, such as less expensive educational and training options, military service, employment, and even entrepreneurship.

Allowing families to roll over these unused monies from a 529 plan to a Roth IRA will not only make families more confident about saving with a 529 plan, but it will give families comfort in knowing that they've taken a positive step in providing their loved ones with a brighter future, financial future, regardless of what steps they take after graduating from high school.

It is for these reasons that the state treasurer proudly sponsors AB 2524 and respectfully requests your support. With me today is Vivian Tsai, who is our representative for TIAA-CREF Tuition Financing, Inc, who serves as the financial plan manager for scholarship 529. And we're both here available to answer any questions you may have. Thank you very much.

Thank you. I'm sorry, you said just for questions.

Yes. Let me introduce yourself.

Yes, hi, I'm Vivian Tsai. I'm with TIAA on the education savings side of the business. All we do is manage 529 plans across the country for nine states. I also wear a hat involved in the College Savings foundation, which is an organization of states sponsors and state participants in 529 plans.

And as Julio mentioned, you know, these products have been around for about 20 years, these savings vehicles, and they've really.

You would have thought that the adoption would have been more because we all know the values of education in this country. But what we've really seen is this fear that parents have when their infant is six months old. They don't know what the future is going to bring.

So we're not going to start now for college because we're thinking about the next day. And what ends up happening is most people don't open their 529 plan accounts until they're about 12 years old.

And by then they have maybe six years to save. As someone in the industry, I put money away in small amounts from the day my kids came home from the hospital. And I still having sent them to both a UC and a CSU, had not enough money. I ran out of money and had to take some student loans on their behalf.

So anything we can do for people to think and not worry about saving by thinking about, well, if junior doesn't go to college, this is their kickstart on a Roth 529 plan. That's something phenomenal. We can leave our kids.

Very good. Thank you. Any other supporters in the room?

Good afternoon. Joanne Bettencourt. On behalf of SIFMA, the Securities industry and Financial Markets Association, we're a national trade association of broker dealers, investment advisors and asset managers in proud support of this bill. Thank you.

Thank you.

Good evening. Johnny Vue with the California Student Aid Commission in support of this bill. Thank you all.

Alright. Thank you. Any witnesses in opposition? Questions or comments from the Committee? The great thing about this is you're solving two problems at once. People don't save enough for college and they certainly don't save enough for retirement. So I think this is a great approach and so do we have. Well, would you like to close?

Well, thank you, Madam Chair. Appreciate those comments. Again, it's about the flexibility for the family, not knowing what the future holds, to be able to conform to federal policy as well. I think that the state should follow suit, and I would appreciate and respectfully request your aye vote.

All right. So we're looking for a motion. Without objection. This will be moved to our suspense file.

Thank you.

Great. Thank you. Thank you. All right. You're taking over.

All right. So the final Bill is file item six, AB 2854 authored by Assemblymember Irwin.

All right. Good afternoon, colleagues. Today I am presenting AB 202854 which will bring much needed transparency to local tax revenue, how local tax revenues are allocated. The inspiration for this Bill came from an informational hearing that I organized on this topic last fall when we heard from the Director of the California Department of Tax and Fee Administration, Nick Maduros, the LAO and several city leaders.

Existing law and subsequent decisions by the Board of Equalization provide that for the purposes of the Bradley Burns uniform sales and use tax law. When a retailer has multiple places of business in California, the sales tax should be allocated at the place of principal negotiations. This has created opportunities for businesses to condense their operations into a single location, such as a standalone sales office or a buying company.

By doing so, a business can negotiate with various cities and enter into an agreement whereby they agree to allocate the Bradley Byrne sales revenue to that city in exchange for a certain portion, portion of of those dollars being rebated back to the company. This puts cities and counties, this pits cities and counties against one another in a zero sum game where the jurisdiction that has the agreement with the business sees an increase in overall revenue at the expense of other jurisdictions.

In some cases, these agreements make sense. For example, we heard at the informational hearing when the Carquinez Channel Bridge, maybe that was pronounced correctly, was being constructed. There was an agreement to allocate sales tax dollars to the City of Benicia because there was significant impacts in that community as the staging area for construction. In many cases, however, these agreements are negotiated to maximize the amount of tax dollars that are rebated back to some of the largest and most profitable companies in California.

The city manager for Simi Valley testified at our hearing and explosion how their community roads are in a constant State of disrepair due to a steady stream of heavy trucks entering and exiting a concrete batch plant in the city.

Despite these and other environmental impacts, the City of Simi Valley doesn't receive a single cent of Bradley burns revenue from the concrete sales because all the sales made by the concrete manufacturer are booked out of the sales office in a city that is miles away from any of the batch plants and their associated impacts. To be clear 2854 does not change a city's ability to enter into any of these agreements.

It does, however, advance a key policy recommendation that is endorsed by a broad cross section of California cities and counties as well as the State Auditor. The League of Cities has been working on this issue for years and AB 2854 advances one of the recommendations their leadership has adopted as outlined in the analysis. I will be working with the cities to address their implementation concerns. With me today to prevent tech technical expertise is Michael Coleman.

While he is here representing no one but himself, I want to mention that he literally wrote the book on municipal finance that is relied upon by numerous cities across the state.

All right, thank you so much and thank you, Chairwoman. It's good to see you again. Members of the Committee, I'm an author, an educator, and a consultant on California local government finances. I want to thank the Assembly Member for taking on this very important topic. Sales and use tax revenues are second only to property tax revenues and their importance to city and county General funds. And some cities sales tax revenues are the top source of General revenues.

While we're talking here about the local 1% Bradley burns rate, which is allocated according to sidus, the location of the transaction for a taxable event over the counter transaction, the location is obviously but sometimes the seller and buyer are different locations and when the transactions occurs, this is often called a remote transaction is what I would call it.

Nowadays it's mostly online sales, but historically it's also included telephone and mail order transactions for the local Bradley Burns tax, the law defines the sidus, the location of the sale, as taxable sale, as the seller's location, specifically the seller's location that's involved in the principal negotiations of the sale. In tax nerd parlance, we call this origin based sourcing. The reason for this goes back to the fifties when the Bradley Burns law was first adopted, long before computers and our digital economy.

To ease the Administration of the tax, especially on retailers of taxable goods who were responsible for collecting and remitting the sales taxes, the law established the in state retailer's location as the sidus. For a transaction with an out of state retailer and a remote transaction, the use tax applies and that generally goes to the location of the purchaser. But the use tax is another story. It's not an issue today.

Add on sales taxes, legally called transactions and use taxes, a different section of the statute, are also another story. Generally allocated to the location of the product's delivery rather than to the retailer's location. Because they're allocated to the location of the products recipient or use these add on sales taxes or transactions. And use taxes aren't vulnerable to these tax rebates and are also not at an issue today.

So these tax sharing agreements are exclusively an issue with the 1% Bradley Burns sales tax transactions where the purchaser and the retailer are located within the state. And with the growth of our digital economy, the growth of taxable transactions from online sales is far outpacing that of over the counter sales, and the pandemic only accelerated this trend.

Cities and counties with sales offices and warehouses that are the retailers location in these online transactions are seeing massive growth in these revenues as more commerce shifts from over the counter to online. With this has come these tax sharing agreements where large amounts of tax revenues are rebated back to businesses. We can view these rebates as tax expenditures, as spending of government dollars for economic incentives rather than for public services.

And the public policy question that we must ask is this the best use of these public funds? Is it necessary for our local and state economies? What are the tradeoffs for funding local public services? These are appropriate questions for any public expenditure. We can find the amount of each local government that each local government in California spends on park employees, on library books, on fire inspections, on road maintenance.

That data is all published in budgets, in standard annual comprehensive financial reports, and in the required annual reports to the state controller. But you or I or any citizen would be hard pressed to find data on the amounts and details of these taxes. Sales tax rebate agreements that today amount to hundreds of millions of dollars.

AB 2584 would strengthen the transparency around these agreements and the tax revenue involved and provide us with the necessary information to evaluate the utility of these expenditures of public tax dollars.

Thank you so much. And with that, are there any witnesses in the room who wish to speak in favor?

Good afternoon. Ben Trivot with the League of California Cities. We have no official position on this Bill yet, but we've had a number of productive conversations with the chair's office, and we look forward to continuing those as the Bill moves forward thank you.

Brandon Knapp, CTRA. Gladly in support.

Good afternoon. Daniel Pearl. On behalf of the American Federation of State County Municipal employees in strong support.

Thank you so much. Are there any other witnesses in the room wishing to speak in opposition? All right. Any question? Comment from Committee Members?

Good Bill.

All right. So thank you. Do we have a motion and second. Oh, sorry.

This is just about transparency at the very lowest level. Thank you.

Okay, so we have a, we have a motion and a second on the floor. Roll call vote, please.

On item number six, AB 2854. The motion is do pass, as amended, to appropriations. [Roll Call]

All right. So the Bill is out.

Thank you very much.

Thank you.

[Roll Call]

Thank you very much, and the meeting is adjourned.