Bill Text: CA SB993 | 2017-2018 | Regular Session | Amended
Bill Title: Sales and use taxes: service tax: qualified business.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2018-05-16 - May 16 hearing: Heard for testimony only. [SB993 Detail]
Download: California-2017-SB993-Amended.html
|
Amended
IN
Senate
May 09, 2018 |
CALIFORNIA LEGISLATURE—
2017–2018 REGULAR SESSION
| Senate Bill | No. 993 |
| Introduced by Senator Hertzberg |
February 05, 2018 |
LEGISLATIVE COUNSEL'S DIGEST
SB 993, as amended, Hertzberg.
Sales tax: services. Sales and use taxes: service tax: qualified business.
Existing 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.
This bill would reduce the rate of tax imposed by the Sales and Use Tax Law incrementally every calendar year beginning on January 1, 2020, until January 1, 2022, at which time the rate would be reduced by a total of 2%. This bill would require the Director of Finance to estimate the amount of net revenue that will be derived for specified calendar years as a result of the changes made by this bill and would require the rate of tax
imposed by the Sales and Use Tax Law to be reduced or increased by a specified percentage amount for specified calendar years depending on the amount of the estimated revenue gains or losses.
Existing law imposes various taxes, including taxes on the privilege of engaging in certain activities. The Fee Collection Procedures Law, the violation of which is a crime, provides procedures for the collection of certain fees and surcharges.
This bill, beginning on and after January 1, 2020, would impose a tax on the receipt of a benefit in this state of a service that is purchased by a qualified business from any retailer, as measured by a percentage of the sales price for the service. This bill would incrementally increase the rate of the tax every calendar year until January 1, 2022, at which time the rate would be 3%.
This bill would require every seller and retailer engaged in business
in this state, as specified, and making sales of services whose benefit is received in this state, to, at the time of making the sales or if the receipt of the benefit is not then taxable hereunder at the time the receipt of the services becomes taxable, determine whether the purchaser is a qualified business, collect the tax from the qualified business purchasing the service, and give the qualified business a receipt, as specified. This bill would require those sellers and retailers to register with the California Department of Tax and Fee Administration. This bill would make any person that violates specified provisions relating to the collection of the tax, the advertisement of the tax, and the separate statement of price and tax guilty of a misdemeanor. By creating a new crime, this bill would impose a state-mandated local program.
This bill would require all amounts to be paid to the California Department of Tax and Fee Administration, and would require the
department to transmit those amounts, less refunds, to the Treasurer to be deposited into the General Fund.
This bill would provide for the administration and collection of this tax pursuant to procedures set forth in the Fee Collection Procedures Law. By expanding the application of the Fee Collection Procedures Law, the violation of which is a crime, this bill imposes a state-mandated local program.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The Sales and Use Tax Law imposes 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.
This bill would, on and after January 1, 2019, expand the Sales and Use Tax Law to impose a tax on the purchase of services by businesses in California at a specified percentage of the sales price of the service. The bill would require the tax to be collected and remitted by the seller of the purchased services. The bill would exempt certain types of services, including health care services, from the tax and would exempt from the tax a business with gross receipts of less than $100,000 in the previous 4
quarters. The bill would require the tax to be paid to the California Department of Tax and Fee Administration and would require the department to transmit the payments, less refunds and cost of administration, to the Treasurer to be deposited into the Retail Sales Tax on Services Fund, which this bill would create in the State Treasury. The bill would state that the moneys in that fund are to be appropriated to provide tax relief to middle-income and low-income Californians and to assist in securing greater stability for California’s infrastructure, its workforce, and its education services, including higher education. The bill would also state various related findings and declarations.
This bill would include a change in state statute that would result in a taxpayer paying a higher tax within the meaning of Section 3 of Article XIII A of the California Constitution, and thus would require for passage the
approval of 2/3 of the membership of each house of the Legislature.
This bill would take effect immediately as a tax levy.
Digest Key
Vote: 2/3 Appropriation: NO Fiscal Committee: YES Local Program:Bill Text
The people of the State of California do enact as follows:
SECTION 1.
The Legislature finds and declares all of the following:(a) California’s tax collections in recent years have been heavily dependent on the income of top earners. During the Great Recession, a 3.6 percent decline in California’s economy resulted in a 23 percent plunge in General Fund revenues – a loss of over $20 billion. To begin to address this, California enacted new constitutional requirements requiring new levels of budget reserves
to be maintained. Further efforts to modernize and restructure the state’s tax system are still needed.
(b) An underlying problem is that, while California’s economy has evolved, its tax system has failed to keep up with the times. Over the past 60 years, California has moved from an agriculture- and manufacturing-based economy to a service-based economy. As a result, state tax revenues have become less reliant on revenues derived from the Sales and Use Tax on goods and more reliant on revenues derived from the Personal Income Tax. In 1950, the Sales and Use Tax comprised 61 percent of state General Fund revenues; today, it accounts for about 30 percent. The Personal Income Tax accounted for 12 percent of the General Fund in 1950; today, it accounts for almost 70 percent.
(c) It is the intent of this act to:
(1) Realign the state’s outdated tax code with the realities of California’s 21st century economy.
(2) Ensure that out-of-state corporations that do business in California contribute their fair share to California’s economy.
(d) The intent of this act is to make two broad changes to the tax code:
(1) Broaden the tax base by imposing a modest sales tax on the purchase of services by businesses. These changes would more fairly apportion taxes between goods and services and would produce more stable revenues. Local jurisdictions would not be authorized to increase sales tax on services, as they now can do with the sales tax on goods. Health care services, education services, child care, rent,
interest, and services provided by very small businesses would be exempted from the sales tax on services.
(2) Reduce the sales and use tax rate on goods so as to ensure that the imposition of the tax on services is offset by a reduction in the tax rate on goods in a manner that is revenue neutral.
SEC. 2.
Section 6051 of the Revenue and Taxation Code is amended to read:6051.
(a) For the privilege of selling tangible personal property at retail a tax is hereby imposed upon all retailers at the(1) On and after April 1, 1974, and before January 1, 2020, 43/4 percent.
(2) On and after January 1, 2020, and before January 1, 2021, 41/4 percent.
(3) On and after January 1, 2021, and before January 1, 2022, 33/4 percent, subject to any adjustment specified in subdivision (b).
(4) On and after January 1, 2022,
23/4 percent, subject to any adjustment specified in subdivision (b).
(b) (1) On or before September 15, 2020, on or before September 15, 2021, and on or before September 15, 2022, the Director of Finance shall estimate the amount of net revenue that will be derived for the next calendar year as a result of the changes to the tax laws made by the act adding this subdivision.
(2) (A) If the Director of Finance estimates pursuant to paragraph (1) that the amount of net revenue that will be derived for the 2021 calendar year as a result of the changes to the tax laws made by the act adding this subdivision will exceed four hundred fifty million dollars ($450,000,000), the rates in paragraph (3) of subdivision (a) of this section and
subdivision (c) of Section 6201 shall be reduced by one-eighth percent or a multiple thereof as necessary for the period beginning on January 1, 2021, and before January 1, 2022, to reduce the estimated excess net revenue for that calendar year to less than four hundred fifty million dollars ($450,000,000).
(B) If the Director of Finance estimates pursuant to paragraph (1) that for the 2021 calendar year the changes to the tax laws made by the act adding this subdivision will result in a net revenue loss of more than four hundred fifty million dollars ($450,000,000), the rates in paragraph (3) of subdivision (a) of this section and subdivision (c) of Section 6201 shall be increased by one-eighth percent or a multiple thereof as necessary for the period beginning on January 1, 2021, and before January 1, 2022, to reduce the estimated net revenue loss for that calendar year to less than four hundred fifty million dollars ($450,000,000).
(3) (A) If the Director of Finance estimates pursuant to paragraph (1) that the amount of net revenue that will be derived for the 2022 calendar year as a result of the changes to the tax laws made by the act adding this subdivision will exceed four hundred sixty million dollars ($460,000,000), the rates in paragraph (4) of subdivision (a) of this section and subdivision (d) of Section 6201 shall be reduced by one-eighth percent or a multiple thereof as necessary for the period beginning on January 1, 2022, and before January 1, 2023, to reduce the estimated excess net revenue for that calendar year to less than four hundred sixty million dollars ($460,000,000).
(B) If the Director of Finance estimates pursuant to paragraph (1) that for the 2022 calendar year as a result of the changes to the tax laws made by the act adding this subdivision will result in a net
revenue loss of more than four hundred sixty million dollars ($460,000,000), the rates in paragraph (4) of subdivision (a) of this section and subdivision (d) of Section 6201 shall be increased by one-eighth percent or a multiple thereof as necessary for the period beginning on January 1, 2022, and before January 1, 2023, to reduce the estimated net revenue loss for that calendar year to less than four hundred sixty million dollars ($460,000,000).
(4) (A) If the Director of Finance estimates pursuant to paragraph (1) that the amount of net revenue that will be derived for the 2023 calendar year as a result of the changes to the tax laws made by the act adding this subdivision will exceed four hundred seventy million dollars ($470,000,000), the rates in paragraph (4) of subdivision (a) of this section and subdivision (d) of Section 6201 shall be reduced by one-eighth percent or a multiple thereof as necessary to reduce the
estimated excess net revenue for the 2023 calendar year to less than four hundred seventy million dollars ($470,000,000), and those rates shall be applicable beginning on and after January 1, 2023.
(B) If the Director of Finance estimates pursuant to paragraph (1) that for the 2023 calendar year the changes to the tax laws made by the act adding this subdivision will result in a net revenue loss of more than four hundred seventy million dollars ($470,000,000), the rates in paragraph (4) of subdivision (a) of this section and subdivision (d) of Section 6201 shall be increased by one-eighth percent or a multiple thereof as necessary to reduce the estimated net revenue loss for the 2023 calendar year to less than four hundred seventy million dollars ($470,000,000), and those rates shall be applicable beginning on and after January 1, 2023.
(c) The Director of Finance shall notify the
California Department of Tax and Fee Administration and the Chairperson of the Joint Legislative Budget Committee within five days of making a determination pursuant to subdivision (b) that results in a change in the tax rates imposed by this section, Section 6201, or Section 7196.
SEC. 3.
Section 6201 of the Revenue and Taxation Code is amended to read:6201.
An excise tax is hereby imposed on the storage, use, or other consumption in this state of tangible personal property purchased from any retailer(a) On and after April 1, 1974, and before January 1, 2020, 43/4 percent.
(b) On and after January 1, 2020, and before January 1, 2021, 41/4 percent.
(c) On and after January 1, 2021, and before January 1, 2022, 33/4 percent, subject to any adjustment specified in subdivision (b) in Section 6051.
(d) On and after January 1,
2022, 23/4 percent, subject to any adjustment specified in subdivision (b) in Section 6051.
SEC. 4.
Part 1.4 (commencing with Section 7195) is added to Division 2 of the Revenue and Taxation Code, to read:PART 1.4. Service Tax Law
CHAPTER 1. General Provisions and Definitions
7195.
(a) This part is known and may be cited as the “Service Tax Law.”(b) “Services tax” means the tax imposed by this part.
7195.1.
Except where the context otherwise requires, the definitions given in this chapter govern the construction of this part.7195.3.
“Business” includes any activity engaged in by any person or caused to be engaged in by the person with the object of gain, benefit, or advantage, either direct or indirect.7195.4.
“Department” means the California Department of Tax and Fee Administration.7195.5.
“In this state” means within the exterior limits of the State of California and includes all territory within these limits owned by or ceded to the United States of America.7195.7.
“Occasional sale” means a sale of services not held or used by a seller in the course of activities for which the seller is required to register with the department or would be required to register with the department if the activities were conducted in this state, provided that the sale is not one of a series of sales sufficient in number, scope, and character to constitute an activity for which the seller is required to register with the department or would be required to register with the department if the activity were conducted in this state.7195.9.
“Person” means an individual, trust, firm, joint stock company, business concern, corporation, including, but not limited to, a government corporation, partnership, limited liability company, and association. “Person” also includes any city, county, city and county, district, commission, the state or any department, agency, or political subdivision thereof, any interstate body, and the United States and its agencies and instrumentalities to the extent permitted by law.7195.11.
“Purchase” means and includes any provision, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of service for a consideration.7195.12.
“Qualified business” means a person, including, but not limited to, a corporation, partnership, sole proprietorship, limited liability company, and limited liability partnership, engaged in business to provide a product or service for the purpose of producing income that is taxable under federal income tax law.7195.13.
“Receipt of the benefit of a service” means the receipt of services for any purpose other than resale of those services in the regular course of business.7195.15.
“Retail sale” or “sale at retail” means a sale for any purpose other than resale in the regular course of business in the form of services.7195.17.
(a) “Retailer” includes every seller who makes any retail sale or sales of a service.(b) Every person making more than two retail sales of services during any 12-month period shall be considered a retailer within the provisions of this part.
7195.19.
(a) “Retailer engaged in business in this state” means any retailer that has substantial nexus with this state for purposes of the commerce clause of the United States Constitution and any retailer upon whom federal law permits this state to impose a use tax collection duty. “Retailer engaged in business in this state” specifically includes, but is not limited to, any of the following:(1) Any retailer maintaining, occupying, or using, permanently or temporarily, directly or indirectly, or through a subsidiary, or agent, by whatever name called, an office, place of distribution, sales or sample room or place, warehouse or storage place, or other place of business.
(2) Any
retailer having any representative, agent, salesperson, canvasser, independent contractor, or solicitor operating in this state under the authority of the retailer or its subsidiary for the purpose of selling, providing, or the taking of orders for any services.
(3) Any retailer that is a member of a commonly controlled group, as defined in Section 25105, and is a member of a combined reporting group, as defined in paragraph (3) of subdivision (b) of Section 25106.5 of Title 18 of the California Code of Regulations, that includes another member of the retailer’s commonly controlled group that, pursuant to an agreement with or in cooperation with the retailer, performs services in this state in connection with services to be sold by the retailer, including, but not limited to, design and development of services sold by the retailer, or the solicitation of sales of services on behalf of the retailer.
(4) (A) Any retailer entering into an agreement or agreements under which a person or persons in this state, for a commission or other consideration, directly or indirectly refer potential purchasers of services to the retailer, whether by an Internet-based link or an Internet Web site, or otherwise, provided that both of the following conditions are met:
(i) The total cumulative sales price from all of the retailer’s sales, within the preceding 12 months, of services to purchasers in this state that are referred pursuant to all of those agreements with a person or persons in this state, is in excess of ten thousand dollars ($10,000).
(ii) The retailer, within the preceding 12 months, has total cumulative sales of services to purchasers in this state in excess of one million dollars ($1,000,000).
(B) An agreement under which a retailer purchases advertisements from a person or persons in this state, to be delivered on television, radio, in print, on the Internet, or by any other medium, is not an agreement described in subparagraph (A), unless the advertisement revenue paid to the person or persons in this state consists of commissions or other consideration that is based upon sales of services.
(C) Notwithstanding subparagraph (B), an agreement under which a retailer engages a person in this state to place an advertisement on an Internet Web site operated by that person, or operated by another person in this state, is not an agreement described in subparagraph (A), unless the person entering the agreement with the retailer also directly or indirectly solicits potential customers in this state through use of flyers, newsletters, telephone calls, electronic mail, blogs,
microblogs, social networking sites, or other means of direct or indirect solicitation specifically targeted at potential customers in this state.
(D) For purposes of this paragraph, “retailer” includes an entity affiliated with a retailer within the meaning of Section 1504 of the Internal Revenue Code.
(E) This paragraph shall not apply if the retailer can demonstrate that the person in this state with whom the retailer has an agreement did not engage in referrals in the state on behalf of the retailer that would satisfy the requirements of the commerce clause of the United States Constitution.
(5) The retailer, within the preceding 12 months, has total cumulative sales of services in this state that exceed five hundred thousand dollars ($500,000). For purposes of this paragraph, sales of the retailer include sales
by an agent or independent contractor of the taxpayer. For purposes of this paragraph, sales in this state shall be determined using the rules for assigning sales under Sections 25135 and 25136 and the regulations thereunder, as modified by regulations under Section 25137.
(b) Except as provided in this subdivision, a retailer is not a “retailer engaged in business in this state” under paragraph (2) of subdivision (a) if that retailer’s sole physical presence in this state is to engage in convention and trade show activities as described in Section 513(d)(3)(A) of the Internal Revenue Code, and if the retailer, including any of his or her representatives, agents, salespersons, canvassers, independent contractors, or solicitors, does not engage in those convention and trade show activities for more than 15 days, in whole or in part, in this state during any 12-month period and did not derive more than one hundred thousand dollars ($100,000) of
net income from those activities in this state during the prior calendar year. Notwithstanding the preceding sentence, a retailer engaging in convention and trade show activities, as described in Section 513(d)(3)(A) of the Internal Revenue Code, is a “retailer engaged in business in this state,” and is liable for collection of the service tax, with respect to the receipt of the benefit of any services occurring at the convention and trade show activities and with respect to the receipt of the benefit of any services made pursuant to an order taken at or during those convention and trade show activities.
(c) Any limitations created by this section upon the definition of “retailer engaged in business in this state” shall only apply for purposes of tax liability under this part. Nothing in this section is intended to affect or limit, in any way, civil liability or jurisdiction under Section 410.10 of the Code of Civil
Procedure.
7195.21.
“Sale” means and includes any provision, exchange, or barter, conditional or otherwise, in any manner or by any means whatsoever, of a service for a consideration.7195.23.
(a) “Sales price” means the total amount for which a service is sold, valued in money, whether paid in money or otherwise, without any deduction on account of the cost of any expenses.(b) Notwithstanding subdivision (a), “sales price” does not include cash discounts allowed and taken on sales.
7195.25.
(a) “Seller” includes every person engaged in the business of selling services of a kind the sales price from the retail sale of which is required to be included in the measure of the services tax.(b) For the purposes of this section, the phrase “services of a kind the sales price from the retail sale of which are required to be included in the measure of the services tax” includes all services of a kind the sales price from the retail sale of which is, or would be, required to be included in the measure of the services tax if sold at retail, whether or not the service is ever sold at retail or is suitable for sale at retail.
7195.27.
(a) “Service” means a commodity consisting of activities engaged in by a person for another person for consideration.(b) “Services” does not include any of the following:
(1) Activities performed by a person who is not in a regular trade or business offering its services to the public.
(2) (A) Intercompany services rendered, furnished, or performed by and to members of an affiliated group of companies.
(B) For the purposes of this section, an
affiliated group would consist of any of the following:
(i) Corporations that are members of a commonly controlled group as defined by subdivision (b) of Section 25105, as that section read on the effective date of the act adding this section.
(ii) Entities considered as a single unit for purposes of Section 28 of Article XIII of the California Constitution.
(3) Services rendered, furnished, or performed by an individual for an employer that pays the individual wages subject to Division 6 (commencing with Section 13000) of the Unemployment Insurance Code.
CHAPTER 2. Imposition of Tax
CHAPTER 2.
7196.
(a) An excise tax is hereby imposed on the receipt of the benefit of a service in this state that is purchased by a qualified business from any retailer at the following rates of the sales price of the services:(1) On and after January 1, 2020, and before January 1, 2021, 3/4 percent.
(2) On and after January 1, 2021, and before January 1, 2022, 11/2 percent.
(3) On and after January 1, 2022, 3 percent.
(b) The place in which the benefit of a service is received is the location where the qualified business that has purchased the service has either directly or indirectly received value from delivery of that service.
7196.1.
Every qualified business receiving a benefit from a service in this state purchased from a retailer is liable for the tax. The liability of the qualified business is not extinguished until the tax has been paid to this state except that a receipt from a retailer engaged in business in this state or from a retailer who is authorized by the department, under the rules and regulations as it may prescribe, to collect the tax and who is, for the purposes of this chapter relating to the tax, regarded as a retailer engaged in business in this state, given to the qualified business pursuant to Section 7196.2, is sufficient to relieve the qualified business from further liability for the tax to which the receipt refers.7196.2.
Every retailer engaged in business in this state and making sales of services whose benefit is received in this state, not exempted under Article 1 (commencing with Section 7196.60) of Chapter 4, shall, at the time of making the sales or, if the receipt of the benefit is not then taxable hereunder, at the time the receipt of the services becomes taxable, determine whether the purchaser is a qualified business, collect the tax from the qualified business purchasing the service, and give to the qualified business a receipt therefor in the manner and form prescribed by the department.7196.3.
The department, in consultation with the Franchise Tax Board, shall adopt regulations to implement the taxes imposed pursuant to this part that establish an apportionment methodology with respect to the receipt of the benefit of a service by a qualified business of a service that is engaged in business in this state and outside this state or is a part of an affiliated group of businesses as defined in Article 1 (commencing with Section 25101) of Chapter 17 of Part 11 that are engaged in business in this state and outside this state.7196.4.
Section 6203.5, regarding worthless and charged-off accounts, shall apply to this part. Except where the context otherwise requires, for purposes of this part the references in that section to tangible personal property shall include services.7196.5.
(a) The tax required to be collected by the retailer and any amount unreturned to the purchaser which is not tax but was collected from the purchaser under the representation by the retailer that it was tax constitutes debts owed by the retailer to this state.(b) It is unlawful for any retailer to advertise or hold out or state to the public or to any purchaser, directly or indirectly, that the tax or any part thereof will be assumed or absorbed by the retailer or that it will not be added to the selling price of the property sold or that if added it or any part thereof will be refunded.
(c) The tax required to be collected by the retailer from the purchaser shall be
displayed separately from the list price, the price advertised in the premises, the marked price, or other price on the sales check or other proof of sales.
(d) Any person violating Section 7196.2 and subdivision (b) or (c) is guilty of a misdemeanor.
CHAPTER 3. Permits and Registration, Presumptions, and Resale Certificates
7196.50.
(a) Every person desiring to engage in or conduct business as a seller within this state, or a retailer engaged in business in this state, selling services whose benefit is received in this state shall register with the department on a form prescribed by the department, providing information as the department may require.(b) An application filed pursuant to this section may be filed using electronic media as prescribed by the department.
(c) “Electronic media” includes, but is not limited to, computer modem, magnetic media, optical disk, facsimile machine, or telephone.
7196.51.
(a) For the purpose of the proper administration of this part and to prevent evasion of the service tax and the duty to collect the service tax, if a service is purchased from a seller or a retailer engaged in business in this state, then it shall be presumed that the receipt of the benefit of that service is in this state until the contrary is established. The burden of proving the contrary is upon the person who makes the sale unless the person takes from the purchaser a certificate to the effect that the service is purchased for resale.(b) The certificate relieves the person selling the service from the duty of collecting the service tax only if taken in good faith from a person who is engaged in the business of selling services and
who holds the permit provided for by Section 7296.50.
(c) (1) The certificate shall be signed by and bear the name and address of the purchaser, shall indicate the number of the permit issued to the purchaser, and shall indicate the general character of the service sold by the purchaser in the regular course of business. The certificate shall be substantially in such form as the department may prescribe.
(2) If the purchaser is a contractor of services that purchases services from a subcontractor of services for resale, the contractor may provide the subcontractor with a certificate that complies with this section.
(d) If a purchaser who gives a resale certificate or purchases services for the purpose of reselling receives the benefit of that service purchased in this state, that receipt of the
benefit of that service is taxable as of that time of receipt.
7196.52.
The department, whenever it deems necessary to ensure compliance with this part, may require any person subject to this part to place with it any security that the department determines to be reasonable, taking into account the circumstances of that person. The department may sell the security at public auction if it becomes necessary to do so in order to recover any fee or any amount required to be collected, including any interest or penalty due. Notice of the sale shall be served upon the person who placed the security personally or by mail.If service is made by mail, the notice shall be addressed to the person at his or her address as it appears in the records of the department. Service shall be made at least 30 days prior to the sale in the case of personal service, and at
least 40 days prior to the sale in the case of service by mail. Upon any sale, any surplus above the amounts due shall be returned to the person who placed the security.
CHAPTER 4. Exemptions
Article 1. Exemptions for Service Tax
7196.60.
There are exempt from the taxes imposed by this part the receipt of the benefit of, in this state of, all of the following:(a) Services, the receipt of the benefit of which this state is prohibited from taxing under the Constitution or laws of the United States or under the Constitution of this state.
(b) Services provided by a person engaged in a line of business described in Subsector 611 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition, but limited only to those services that directly involve the providing of education or training.
(c) (1) Services provided by a person engaged in those lines of business described in Subsectors 621 to 623, inclusive, of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2012 edition, but limited only to those services that directly involve the providing of health care and assisted living.
(2) The exemption provided by this section from the taxes imposed by this chapter for services provided by a managed care organization shall not be interpreted to exempt managed care organizations from taxes imposed by other provisions of law.
(d) Services provided by a person engaged in those lines of business described in Subsector 624410 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget (OMB), 2012 edition, but
limited only to those services that directly involve the providing of child care.
(e) Services provided by a person engaged in those lines of business described in Sector 22 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(f) Services provided by a person engaged in those lines of business described in Code 2361 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition, but limited only to those services that directly involve residential building construction.
(g) Services provided by a person engaged in those lines of business described in Sector 42 of the North American Industry Classification System (NAICS) published by the United States Office
of Management and Budget, 2017 edition.
(h) Services provided by a person engaged in those lines of business described in Subsector 491 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(i) Services provided by a person engaged in those lines of business described in Code 4413 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(j) Services provided by a person engaged in those lines of business described in Sector 71 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(k) Services provided by a
person engaged in those lines of business described in Subsector 722 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(l) Services provided by a person engaged in those lines of business described in Code 721199 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(m) Services provided by a person engaged in those lines of business described in Sector 81 of the North American Industry Classification System (NAICS) published by the United States Office of Management and Budget, 2017 edition.
(n) Services provided by a person with gross receipts that are subject to tax pursuant to this chapter from that business of less than one hundred thousand
dollars ($100,000) in the previous four quarters.
(o) Services subject to any tax imposed pursuant to Part 7 (commencing with Section 12001).
(p) Interest.
7196.62.
There are exempted from the taxes imposed by this part the receipt of the benefit of services in this state, the transfer of which to the purchaser is an occasional sale.7196.64.
There are exempted from the taxes imposed by this part the receipt of the benefit of services by a tenant from the rental, lease, or provision of real property for personal or commercial use.7196.66.
There are exempted from the taxes imposed by this part the receipt of the benefit of services that the retailer or purchaser establishes to the satisfaction of the department that the sales price was included in the measure of tax imposed by Chapter 2 (commencing with Section 6051) or Chapter 3 (commencing with Section 6201) of Part 1, or would have been included in the measure of tax imposed by Chapter 2 (commencing with Section 6051) or Chapter 3 (commencing with Section 6201) of Part 1 but was exempted by Chapter 4 (commencing with Section 6351) of Part 1.7196.68.
(a) There are exempted from the taxes imposed by this part an amount equal to an amount that is attributable to the rate of tax imposed by this chapter with respect to the sales price of services whose benefit is received in this state if the retailer is obligated to provide, or the purchaser is obligated to purchase, the services for a fixed price pursuant to a contract entered into prior to January 1, 2017.(b) For purposes of this section, services shall not be deemed obligated pursuant to a contract for any period of time for which any party to the contract has the right to terminate the contract upon notice, whether or not the right is exercised.
7196.70.
There are exempted from the taxes imposed by this part the receipt of the benefits of services by:(a) The United States, its unincorporated agencies and instrumentalities.
(b) Any incorporated agency or instrumentality of the United States wholly owned by the United States or by a corporation wholly owned by the United States.
(c) The American National Red Cross, its chapters and branches.
7196.72.
There are exempted from the taxes imposed by this part the receipt of the benefit of municipal services in this state provided by a city, county, city and county, or special district, or the receipt of the benefit of municipal services in this state by an entity with which the city, county, city and county, or special district has entered into a contract to provide those services.7196.74.
A credit shall be allowed against, but shall not exceed, the taxes imposed on any person by this part by reason of the receipt of the benefit of services in this state to the extent that the person has paid a retail sales or use tax, or reimbursement therefor, imposed with respect to that service by any other state, political subdivision thereof, or the District of Columbia prior to the receipt of the benefit of that service in this state. The credit shall be apportioned to the taxes against which it is allowed in proportion to the amounts of those taxes.Article 2. Exemption Certificates
7196.90.
A purchaser may certify in writing that the receipt of the benefit of the service in this state purchased from a seller or a retailer engaged in business in this state will be exempt from the service tax. The certificate shall relieve the seller from the obligation to collect the service tax only if it is taken in good faith.CHAPTER 5. Determinations
7197.
Except where the context otherwise requires, Chapter 3 (commencing with Section 55040) of Part 30, regarding determinations, shall apply to this part. For purposes of this part, any references to fees in Chapter 3 (commencing with Section 55040) of Part 30 shall include the tax imposed by this part and any reference to feepayer in that chapter shall include a person liable for the payment of the tax imposed by this part.CHAPTER 6. Collection of Tax
7197.5.
Except where the context otherwise requires, Chapter 4 (commencing with Section 55121) of Part 30, regarding collection of fees, shall apply to this part. For purposes of this part, any references to fees in Chapter 4 (commencing with Section 55121) of Part 30 shall include the tax imposed by this part, and any reference to feepayer in that chapter shall include a person liable for the payment of the tax imposed by this part.CHAPTER 7. Overpayments and Refunds
7197.10.
Except where the context otherwise requires, Chapter 5 (commencing with Section 55221) of Part 30, regarding overpayments and refunds, shall apply to this part. For purposes of this part, any references to fees in Chapter 5 (commencing with Section 55221) of Part 30 shall include the tax imposed by this part and any reference to feepayer in that chapter shall include a person liable for the payment of the tax imposed by this part.CHAPTER 8. Administration and Taxpayers’ Bill of Rights
7197.20.
Except where the context otherwise requires, Chapter 6 (commencing with Section 55301) of Part 30, regarding administration and taxpayers’ bill of rights, shall apply to this part, and any reference to feepayer in that chapter shall include a person liable for the payment of the tax imposed by this part.CHAPTER 9. Disposition of Proceeds
7197.30.
All amounts of tax required to be paid to the state under this chapter shall be paid to the California Department of Tax and Fee Administration in the form of remittances payable to the department. The department shall transmit the payments, less refunds, to the Treasurer to be deposited into the General Fund.CHAPTER 10. Violations
7197.40.
Chapter 7 (commencing with Section 55361) of Part 30, regarding violations, shall apply to this part. For purposes of this part, any references to fees in Chapter 10 (commencing with Section 7152) shall include the taxes imposed by this part.CHAPTER 11. Res Judicata
7197.50.
In the determination of any case arising under this part the rule of res judicata is applicable only if the liability involved is for the same quarterly period as was involved in another case previously determined.CHAPTER 12. No Authorization of Local Tax
7197.60.
This part does not authorize a city, county, city and county, governmental subdivision, district, public and quasi-public corporation, or municipal corporation, whether or not incorporated or chartered, to levy or collect or cause to be levied or collected any tax on the receipts from the sale of, or the receipt of the benefit in this state of, services. A state agency shall not agree to administer any such tax for the benefit of any local agency.SEC. 5.
No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.SEC. 6.
This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.(a)The Legislature finds and declares all of the following:
(1)In order to mitigate the negative impacts in California of the recently enacted federal tax bill (Public Law 115-97), California needs to reform the state’s tax system to more equitably share responsibility for supporting critical public programs.
(2)Under the new federal tax law (Public Law 115-97), over 6 million Californians who itemize their taxes could lose on average over $8,000 in deductions. This is because the deduction for state and local income and property taxes would be capped at $10,000 by the new federal law (Public Law 115-97).
(3)The federal tax changes, coupled with potential reductions to federal programs, pose a risk to California’s economy, California families, and state government.
(4)While California’s economy has evolved, its tax system has failed to keep up with the times. Over the past 60 years, California has moved from an agriculture-based and manufacturing-based economy to a service-based economy. In California, goods are subject to sales or use tax while services generally are not.
(5)As a result, state tax revenues have become less reliant on revenues derived from the sales and use tax on goods and more reliant on revenues derived from the personal income tax. In 1950, the sales and use taxes comprised 61 percent of the state General Fund; however, today they account for about 30 percent. The personal income tax accounted for
12 percent of the General Fund in 1950; however, today it accounts for almost 70 percent.
(b)It is the intent of this act to do all of the following:
(1)Provide tax relief to middle-income and low-income Californians to make up in part for tax increases and reductions to federal programs recently enacted or proposed by the federal government.
(2)Ensure that out-of-state corporations that do business in California contribute their fair share to California’s economy.
(3)Realign a portion of the state’s outdated tax code with the realities of California’s 21st century service-based economy.
(4)Broaden the tax base by imposing a modest sales tax on services used by businesses in
California:
(A)This tax would offset a portion of the significant financial benefits provided to businesses under the new federal law. However, businesses would still be able to deduct from their federal taxes the state sales and use tax imposed on the services they use, which would mean most businesses will still pay lower taxes than before the federal changes.
(B)Health care services, education services, child care, and interest and insurance payments subject to the state gross premiums tax would be exempt from the sales tax on services.
(C)These changes would more fairly apportion taxes between goods and services and would produce more stable revenues.
(a)On and after January 1, 2019, in addition to the other taxes imposed by this part, a sales tax is hereby imposed the purchase of services by businesses in California at the rate of ____ percent of the sales price of the service.
(b)The tax shall be collected and remitted by the seller of the service purchased by a business for benefit or use in California. In cases where the service benefits or is used by a purchaser’s California and non-California operations, an appropriate share of the services shall be apportioned to California for purposes of determining the tax.
(c)The following are exempt from the tax imposed by this section:
(1)Health care, education, and child care services, and interest and insurance payments subject to the gross premiums tax.
(2)A business with gross receipts of less than one hundred thousand dollars ($100,000) in the previous four quarters.
(a)The Retail Sales Tax on Services Fund is hereby created in the State Treasury.
(b)All amounts of tax required to be paid to the state under this chapter shall be paid to the California Department of Tax and Fee Administration in the form of remittances payable to the California Department of Tax and Fee Administration. The California Department of Tax and Fee Administration shall transmit the payments, less refunds and cost of administration, to the Treasurer to be deposited into the Retail Sales Tax on Services Fund.
(c)Moneys in the fund shall be appropriated for the following purposes:
(1)Providing tax
relief to middle-income and low-income Californians negatively affected by recent changes to federal tax law as well as other changes to federal programs.
(2)Assisting in securing greater stability for California’s infrastructure, its workforce, and its education systems, including higher education.
This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
