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HomeMy WebLinkAboutLegislative Review - AB 80 (Houston) - Sales TaxCITY OF PALM DESERT COMMUNITY SERVICES DEPARTMENT STAFF REPORT REQUEST: CONSIDERATION OF LEGISLATIVE REVIEW COMMITTEE ACTION ON AB 80 (Houston) AT ITS MEETING OF FEBRUARY 22, 2005 DATE: March 10, 2005 CONTENTS: AB 80 Language Recommendation: By Minute Motion, concur with the action taken by the Legislative Review Committee at its meeting of February 22, 2005, and direct staff to prepare a letter of opposition for the Mayor's signature with regard to AB 80 (Houston) relative to sales tax. Executive Summary: Passage of AB 80 would make provisions for the exemption of certain sales and use tax. Background: The Sales and Use Tax Law imposes a tax on the gross receipts from the sale, storage, use, or other consumption of tangible property and provides various exemptions from these taxes. AB 80 would provide, for calendar years beginning on or after January 1, 2004, an exemption from those taxes for the gross receipts from the sale, storage, use, or consumption of tangible personal property purchased for use by those engaged in manufacturing, processing, refining, fabricating, or recycling of property. For qualified exemptions already purchased, the exemption would be implemented through a refund procedure. As a matter of policy, the City of Palm Desert opposes any legislation that affects the manner in which it collects sales and use tax that is used to fund local programs and services to ensure the public's safety, infrastructure implementation and maintenance, as well as other items necessary to ensure the comfort and convenience of the City's residents and guests. This bill appears to be yet one more attempt to circumvent the the Legislative Review Committee recommends that the City Council oppose AB 80 and direct staff to prepare a letter stating that position to appropriate legislators for the Mayor's signature. PA RICIA SCULLY, CFEE SENIOR MANAGEMENT ANAL SHEILA R. GIL PAUL S. GIBSON DIR OF FINANCE/CITY TREASURER CARLOS L. TEGA ASSISTANT CITY MAN»ER/PIO CITY MANAGER AB 80 Assembly Bill - INTRODUCED Page 1 of 5 BILL NUMBER: AB 80 INTRODUCED BILL TEXT INTRODUCED BY Assembly Member Houston JANUARY 4, 2005 An act to add Section 6377 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy. LEGISLATIVE COUNSEL'S DIGEST AB 80, as introduced, Houston. Sales tax: exemptions: manufacturing equipment: telecommunication equipment. The Sales and Use Tax Law imposes a tax on the gross receipts from the sale in this state of, or the storage, use, or other consumption in this state of, tangible personal property, and provides various exemptions from the taxes imposed by that law. This bill would provide, for calendar years beginning on or after January 1, 2004, an exemption from those taxes for the gross receipts from the sale of, and the storage, use, or other consumption of, tangible personal property, as defined, purchased for use by a qualified person, as defined, engaged in the manufacturing, processing, refining, fabricating, or recycling of property, as specified. This bill would provide that, for purchases made in 2004 and in 2005 prior to the operative date of this bill, the exemption would be implemented through a refund procedure. This bill would declare that the application of this bill to the 2004 calendar year would serve a public purpose by extending the application of the sales tax exemption in a consistent manner to all eligible taxpayers in order to ensure that all eligible and similarly situated taxpayers will be treated in a fair and equitable manner. This bill would take effect immediately as a tax levy. Vote: majority. Appropriation: no. Fiscal committee: yes. State -mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 6377 is added to the Revenue and Taxation Code , to read: 6377. (a) For calendar years beginning on or after January 1, 2004, there are exempted from the taxes imposed by this part the gross receipts from the sale of, and the storage, use, or other consumption in this state of, any of the following:(1) Tangible personal property purchased for use by a qualified person to be used primarily in any stage of the manufacturing, processing, refining, fabricating, or recycling of property, beginning at the point any raw materials are received by the qualified person and introduced into the process and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling has altered property to its completed form, including packaging, if required. (2) Tangible personal property purchased for use by a qualified person to be used primarily in research and development. (3) Tangible personal property purchased for use by a qualified http://info.sen.ca.gov/pub/bill/asm/ab_005 1 -01 00/ab_80_bill_2005 0 1 04_introduced.html 2/26/2005 AB 80 Assembly Bill - INTRODUCED Page 2 of 5 person to be used primarily to maintain, repair, measure, or test any property described in paragraph (1), (2), or (3). (4) Tangible personal property purchased for use by a qualified taxpayer to be used primarily in the telecommunication industry. (5) Tangible personal property purchased for use by a contractor purchasing that property either as an agent of a qualified person or for the contractor's own account and subsequent resale to a qualified person for use in the performance of a construction contract for the qualified person who will use the tangible personal property as an integral part of the manufacturing, processing, refining, fabricating, or recycling process, or as a research or storage facility for use in connection with the manufacturing process. (b) This exemption does not apply to any tangible personal property that is used primarily in administration, general management, or marketing. (c) For purposes of this section: (1) "Fabricating" means to make, build, create, produce, or assemble components or property to work in a new or different manner. (2) "Manufacturing" means the activity of converting or conditioning property by changing the form, composition, quality, or character of the property for ultimate sale at retail or use in the manufacturing of a product to be ultimately sold at retail. Manufacturing includes any improvements to tangible personal property that result in a greater service life or greater functionality than that of the original property. (3) "Primarily" means tangible personal property used 50 percent or more of the time in an activity described in subdivision (a). (4) (A) "Process" means the period beginning at the point at which any raw materials are received by the qualified taxpayer and introduced into the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer and ending at the point at which the manufacturing, processing, refining, fabricating, or recycling activity of the qualified taxpayer has altered tangible personal property to its completed form, including packaging, if required Raw materials shall be considered to have been introduced into the process when the raw materials are stored on the same premises where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted. (B) Raw materials that are stored on premises other than where the qualified taxpayer's manufacturing, processing, refining, fabricating, or recycling activity is conducted, shall not be considered to have been introduced into the manufacturing, processing, refining, fabricating, or recycling process. (5) "Processing" means the physical application of the materials and labor necessary to modify or change the characteristics of property. (6) "Qualified person" means any person that is primarily engaged in: (A) Manufacturing activities that are described in Sector 31-33 of the North American Industry Classification System Manual published by the United States Office of Management and Budget, 1997 edition. (B) Telecommunications activities that are described in Codes 513310 through 513390, inclusive, of the North American Industry Classification System Manual published by the United States Office of Management and Budget, 1997 edition. (7) "Recycling" means using, reusing, or reclaiming a recyclable material to produce new or recycled property. (8) "Refining" means the process of converting a natural resource to an intermediate or finished product. http://info.sen.ca.gov/pub/bill/asm/ab_0051-0100/ab_80 bill_20050104_introduced.html 2/26/2005 AB 80 Assembly Bill - INTRODUCED Page 3 of 5 (9) "Research and development" means those activities that are described in Section 174 of the Internal Revenue Code or in any regulations promulgated under that section. (10) "Tangible personal property" does not include any of the following: (A) Consumables with a normal useful life of less than one year, except as provided in subparagraph (E) of paragraph (11). (B) Furniture, inventory, equipment used in the extraction process, or equipment used to store finished products that have completed the manufacturing process. (11) "Tangible personal property" includes, but is not limited to, all of the following: (A) Machinery and equipment, including component parts and contrivances such as belts, shafts, moving parts, and operating structures. (B) All equipment or devices used or required to operate, control, regulate, or maintain the machinery, including, without limitation, computers, data processing equipment, and computer software, together with all repair and replacement parts with a useful life of one or more years, whether purchased separately or in conjunction with a complete machine and regardless of whether the machine or component parts are assembled by the taxpayer or another party. (C) Property used in pollution control that meets or exceeds standards established by this state or any local or regional governmental agency within this state. (D) Special purpose buildings and foundations used as an integral part of the manufacturing, processing, refining, or fabricating process, or that constitute a research or storage facility used during the manufacturing process. Buildings used solely for warehousing purposes after completion of the manufacturing process are not included. (E) Fuels used or consumed in the manufacturing process. (F) Property used in recycling. (d) No exemption is allowed under this section unless the purchaser furnishes the retailer with an exemption certificate, completed in accordance with any instructions or regulations as the board may prescribe, and the retailer subsequently furnishes the board with a copy of the exemption certificate. The exemption certificate shall contain the sales price of the machinery or equipment that is exempt pursuant to subdivision (a). (e) Notwithstanding any provision of the Bradley -Burns Uniform Local Sales and Use Tax Law (Part 1.5 (commencing with Section 7200)) or the Transactions and Use Tax Law (Part 1.6 (commencing with Section 7251)), the exemption established by this section does not apply with respect to any tax levied by a county, city, or district pursuant to, or in accordance with, either of those laws. (f) (1) Notwithstanding subdivision (a), the exemption provided by this section does not apply to any sale or use of property which, within one year from the date of purchase, is either removed from California or converted from an exempt use under subdivision (a) to some other use not qualifying for the exemption. (2) The exemption established by this section does not apply with respect to any tax levied pursuant to Sections 6051.2 and 6201.2, or pursuant to Section 35 of Article XIII of the California Constitution. (g) If a purchaser certifies in writing to the seller that the property purchased without payment of the tax will be used in a manner entitling the seller to regard the gross receipts from the sale as exempt from the sales tax, and within one year from the date of purchase, the purchaser (1) removes that property outside http://info.sen.ca.goy/pub/bill/asm/ab_005 1 -01 00/ab_80_bill_20050104_introduced.html 2/26/2005 AB 80 Assembly Bill - INTRODUCED Page 4 of 5 California, (2) converts that property for use in a manner not qualifying for the exemption, or (3) uses that property in a manner not qualifying for the exemption, the purchaser shall be liable for payment of sales tax, with applicable interest, as if the purchaser were a retailer making a retail sale of the property at the time the property is so removed, converted, or used, and the sales price of the property to the purchaser shall be deemed the gross receipts from that retail sale. (h) This section applies to leases of tangible personal property classified as "continuing sales" and "continuing purchases" in accordance with Sections 6006.1 and 6010.1. The exemption established by this section applies to the rentals payable pursuant to a lease, provided the lessee is a qualified person and the property is used in an activity described in subdivision (a). Rentals that meet the foregoing requirements are eligible for the exemption for a period of six years from the date of commencement of the lease. At the close of the six -year period from the date of commencement of the lease, lease receipts are subject to tax without exemption. (i) (1) A qualified person who has paid sales tax reimbursement to a retailer or use tax on a purchase or purchases of property for which an exemption is allowed pursuant to this section for purchases made in 2004, or in 2005 prior to the enactment of the act adding this section, may file a claim for refund equal to the amount that would otherwise be allowed as an exemption pursuant to subdivision (a). Any claim so filed shall be submitted to the board on a form prescribed by the board, and may be filed no earlier than the date of the transaction for which a sales tax exemption under this section is allowed. A claim for refund shall, unless the sale or use of the property is otherwise exempt under this part, be accompanied by proof of payment of the tax to a retailer, including, but not limited to, a copy of an invoice or purchase contract that indicates the following: (A) The date on which the purchase occurred. (B) A description of the property purchased. (C) The price paid for the property. (D) The amount of tax paid with respect to the purchase. (2) In the case of a person who has self -reported use tax to the board, the claim for refund shall also indicate the amount of use tax paid and the period for which that tax was remitted. (3) Notwithstanding Section 6961, the board may recover any refund or part thereof that is erroneously made pursuant to this section. In recovering any erroneous refund made pursuant to this section, the board, in its discretion, may issue a deficiency determination in accordance with Article 2 (commencing with Section 6481) or Article 4 (commencing with Section 6536) of.Chapter 5. Except in the case of fraud, that determination shall be made within three years from the last day of the month following the quarterly period in which the board approved the refund. SEC. 2. The Legislature finds and declares that this act, by authorizing a sales tax exemption for the 2004 calendar year as it applies to qualified persons engaged in manufacturing and telecommunications activities serves a public purpose by, among other things, extending the application of that exemption in a consistent manner to all eligible taxpayers in order to ensure that all eligible and similarly situated taxpayers are treated in a fair and equitable manner. SEC. 3. This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect. http://info.sen.ca.gov/pub/bill/asm/ab_0051-0100/ab_80 bill 20050104_introduced.html 2/26/2005