BILL ANALYSIS
------------------------------------------------------------
|SENATE REVENUE & TAXATION COMMITTEE |AB1077 - Cardoza |
| | and Villaraigosa|
------------------------------------------------------------
------------------------------------------------------------
|Senator Wesley Chesbro, | Amended: May 6, 1999|
|Chair | |
------------------------------------------------------------
------------------------------------------------------------
| |
------------------------------------------------------------
-----------------------------------------------------------
|Hearing: June 16, 1999 | Tax Levy | Fiscal: Yes|
-----------------------------------------------------------
AB 1077 - Cardoza and Villaraigosa
Page
SUBJECT: Sales and Use Tax: Exempts newspapers and
photographs transferred on a one-time basis from
the sales tax
DIGEST
EXISTING LAW since July 15, 1991, generally imposes
the sales and use tax on newspapers and periodicals.
Exemptions have been created for free newspapers,
periodicals sold by subscription, and newspapers or
periodicals issued by non-profit groups if the printing
cost is less than 10% of the membership fee. Photographs
sold or leased to a newspaper for publication are also
subject to tax.
THIS BILL :
1. Reinstates the sales and use tax exemption for
regularly-issued newspapers and for photographs when
possession (but not title) is transferred for the
purpose of reproduction one time only in a
regularly-issued newspaper.
2. Provides that the exemption does not apply to the
sale or use of any newspaper during the term of a
prepaid subscription provided that both of the
following apply: a) the sale of the subscription was
subject to the tax prior to the operative date of the
bill and b) the subscription was entered into, and
paid for prior to the operative date of the bill.
Local governments would not be reimbursed for revenue
losses resulting from the bill. The provisions of the bill
would be operative on the first day of the first calendar
quarter beginning more than 90 days after enactment.
AB 1077 - Cardoza and Villaraigosa
Page
FISCAL EFFECT:
The Board of Equalization estimates a total annual
revenue loss of $42.6 million, based on exempting $538.5
million in daily newspaper sales from the tax. The revenue
loss would be as follows:
State loss (5%) $26.9 million
Local loss (2.25%) 12.1 million
Transit loss (0.67%) 3.6 million
Total $42.6 million
COMMENTS:
A. Purpose of the bill
This bill is intended to reinstate the sales tax
exemption for single copy newspapers. According to
supporters, the tax discriminates against daily newspapers,
puts newspapers at a competitive disadvantage with other
media for advertising dollars, and harms the free flow of
daily information.
B. What impact does the tax have on newspapers' prices?
According to sponsors, publishers typically bear the
cost of the tax for newsrack sales, since coin-operated
machines can't easily accommodate additional coins. As a
result, a paper that costs 50 cents in a newsrack will cost
54 cents at a newsstand.
It should be noted that publishers' marketing
strategies may have a greater impact on the amount charged
for newspapers than the sales tax. For example, in some
areas, the L.A. Times may sell at a 50% discount to
encourage new readership. Similarly, subscription prices
are typically less than newsstand prices.
AB 1077 - Cardoza and Villaraigosa
Page
C. Does tax act as a barrier for advertising?
A newspaper's profit depends more upon the advertising
revenue it generates than the revenue it generates from
selling newspapers. It is not clear how the sales tax on
newspapers makes them less competitive for advertising
dollars than other media.
D. What happened to the 1991 tax increase?
The tax on newspapers and magazines was enacted in 1991
as part of a $7 billion tax package to close a $14 billion
budget gap. Proponents point out that this tax is one of
the few remaining taxes left from the 1991 action.
The sales tax on candy, bottled water, and snack foods
was repealed by a 1992 initiative. The Legislature
repealed the tax on fuel and petroleum products sold to
water common carriers. The newspaper and periodical
exemption has been partially restored; the fuel and
petroleum products exemption for air and rail common
carriers remains repealed. The 1 1/4% sales tax increase
remains in place, however the 10% and 11% income tax rates
have sunsetted.
E. Prior Legislation
SB 256 (Johannessen) of 1999 was amended by the Senate
Revenue and Taxation Committee to state legislative intent
to reinstate the exemption and to apply only to newspapers.
This bill is similar to AB 1608 (Pringle) and AB 2081
(Villaraigosa) of the 1997-98 session.
AB 1077 - Cardoza and Villaraigosa
Page
Support and Opposition
Support: California Teamsters Public Affairs Council
Cal-Tax
Oppose: California State Association of Counties
City of Barstow
-------------------------------
Consultant: Jeanette Rapp
June 10, 1999 11:29 AM