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Home My WebLink About02/19/1991, C-3 - CONSIDERATION OF LEGISLATION IN SUPPORT OF THREE SPECIAL SESSION BILLS (SB 1X, 2X AND 5X) THAT WOULD ELIMINATE EXEMPTIONS FROM THE STATE AND LOCAL SALES AND USE TAXES. MEETING DATE:9/ l'i�j city of San 1111 S OBISPO COUNCIL. AGENDA REPORT ITEM FROM: Ken Hampian, Assistant City Administrative Officer Prepared By: Alison Lloyd, Administrative Analyst C:P� SUBJECT: Consideration of legislation in support of three Special Session bills (SB lx, 2x and 5x) that would eliminate exemptions from the state and local sales and use taxes. CAO RECOMMENDATION: Adopt a resolution supporting three Special Session bills (SB ix, 2x and 5x) to eliminate exemptions from the state and local sales and use taxes. DISCUSSION: Background The existing California Sales and Use Tax Law imposes taxes on the sale and use of tangible personal property, unless the sale or use is exempt from tax. Counties and cities are authorized to impose local sales and use taxes in conformity with these state sales taxes (the State sales tax rate is 4.75%; the local rate is 1.25%; in addition local districts are authorized to levy a Transactions and Use Tax up to a maximum of 1%) . Exemptions from state sales and use taxes enacted by the Legislature are automatically incorporated into the local taxes. On January 23 , 1991, the State Revenue and Taxation Committee met to hear three Special Session bills that would remove special interest exemptions from the sales tax. All three of these measures would improve tax equity by closing special interest loopholes, and take a significant step in effectively dealing with state and local budget problems. Each of the bills is discussed below: SUPPORT. SB IX: SALES TAX: Elimination of Special Interest Exemptions (Boatwright) . This bill would eliminate total or partial exemptions from the state and local sales and use taxes on a number of items or activities that benefit specific businesses and foreign governments. Included in the elimination of the tax exemptions are the following: 1. The lease of motion pictures or animated motion pictures, including television, films, and tapes; 2 . The design, development, writing, translation, fabrication, lease or transfer for a consideration of title or posession of a custom computer program; 3 . The lease of reusable cargo shipping containers; 6 �. 3 � 1 QIIIII IWIJJJII city of San LUIS OBISPO COUNCIL AGENDA REPORT Page Two Council Agenda Report 4 . A cargo container which is purchased and delivered as specified; 5. The gross receipts from the sale and storage, use, or other consumption of aircraft which is sold or leased; 6. The gross receipts from the sale and storage, use or other consumption of watercraft and any sales of tangible personal property becoming a component of that watercraft, if specified conditions are met; 7. The gross receipts from the sale of tangible personal property and fuel and petroleum products to specified carriers; 8. The gross receipts from the sale and storage, use, or other consumption of specified catalogs, letters, circulars, brochures, and pamphlets shipment consisting substantially of printed sales messages for goods and services. Examples include: Newspaper shoppers, direct mail brochures, retailer advertising mailers, "Pennysaver type newspapers without significant news content, and "Yellow Pages" and; 9. Sales by aircraft jet fuel dealers. Effective Date: SB 1X is. an urgency measure that would become effective immediately; however, the provisions of the bill would become operative on the first day of the first calendar quarter commencing more than 90 days after the effective date of this act. If the bill is passed and signed by the end of March, its provisions would become effective July 1, 1991. Fiscal Impact: The Board of Equalization has been unable to estimate revenues from many of these items, some of which could produce major revenue. However, for those items for which an estimate is available from the Board of Equalization or other sources, it is anticipated that local government would receive at least an additional $180 million and the state would receive at least $686 million. (Attachment No.1 and No. la) I city of san tuis oBispo WMiGe COUNCIL AGENDA REPORT Page Three Council Agenda Report SUPPORT SB 2X Sales Tax: Elimination of Exemption for Candy and Confectionery Products (Boatwright) This bill would eliminate an exemption that was enacted in 1972 for for candy and confectionery items. Before 1972, candy was taxed and was specifically excluded from an exemption for food which has existed since the 19301s. Under the existing law, the only candy and confectionery products currently not exempt are those which are consumed at a seller's premises, sold in a park where there is an admission charge, or sold through a vending machine for more than 15 cents. Effective Date: As in the case of SB1X, SB 2X is an urgency measure that would become effective immediately, but the provisions of the bill would become operative on the first day of the first calendar quarter commencing more than 90 days after the effective date of the act. Fiscal Impact: Elimination of the candy and confectionery products exemption would broaden the tax base and provide revenue for both state and local government. It is estimated that passage of this bill would increase revenue for local government by $26 million annually and $100 million for the state. (Attachment No.2 and No. 2a) SUPPORT SB 5X Sales Tax: Elimination of Exemptions for Candy. Snack Food, Newspapers, and Periodicals (Deddeh) This bill would eliminate current sales tax exemptions for the gross receipts from the sale and storage, use, or other consumption of candy or confectionery, nonmedicated chewing gum, snack foods, certain kinds of newspapers and periodicals, specified catalogs, letters, circulars, brochures, and pamphlets (consisting substantially of printed sales messages for goods and services) , and a specified type of photograph reproduced one time only in a newspaper. It should be noted that nonprofit groups would be exempt from the tax with respect to candy, confectionery, and snack foods when these items are purchased in bulk quantites for resale for fundraising purposes. I 1IIIII1p1JJlU city Of San Lacs OBISPO COUNCIL AGENDA REPORT Page Four Council Agenda Report Effective Date: If passage of Senate Bill 5X is approved, the provisions of this bill become effective April 1, 1991. Fiscal Impact: It is estimated that local government sales tax revenue would increase by approximately $12.4 million in the current fiscal year and an additional $74 million in 1991-92 (cities would get approximately 80% of the local government amounts) . State revenue over the 15-month period would increase by over $300 million. (Attachment No. 3 and No. 3a) Follow-Up The League of California Cities strongly supports all three pieces of legislation. The League is also urging cities to communicate their support for SB 1X, 2X and 5X to their State Legislators. Staff will forward the Council's resolution to appropriate State Legislators, other cities within San Luis Obispo County, and the County. ATTACHMENTS: 1. Resolution NOTE: Copies of the bills are available in the Council Reading File in the City Clerk's Office. AL\ix2x5x I C -3 — A RESOLUTION OF THE SAN LUIS OBISPO CITY COUNCIL IN SUPPORT OF SENATE BILL 1X, 2X AND 5X WHEREAS, the City of San Luis Obispo wishes to communicate its support for legislation to improve tax equity by closing special interest loopholes; and WHEREAS, the City of San Luis Obispo endorses the League of California Cities proposal to initiate a joint program to establish State and county financing by removing legislatively enacted special interest exemptions to the sales tax base; and WHEREAS, the City of San Luis Obispo urges other local entities in San Luis Obispo County to communicate their support for the League's proposal; NOW, THEREFORE, BE IT RESOLVED that the San Luis Obispo City Council does hereby endorse Senate Bill 1X, 2X and 5X to eliminate the sales and use tax exemptions that benefit specific businesses and foreign governments. Upon motion of seconded by and on the following roll call vote: AYES: NOES: ABSENT: the foregoing resolution was adopted this day of 1991. e -3-9 Resolution No. (1991 Series) MAYOR RON DUNIN ATTEST: PAM VOGES, CITY CLERK APPROVED: CITY ADM IST TIVE FICER AT O AL\resolx e -3 -4,