1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 5901 GREEN VALLEY CIRCLE 3 CULVER CITY, CALIFORNIA 4 5 6 7 8 REPORTER'S TRANSCRIPT 9 FEBRUARY 23, 2016 10 11 12 13 14 15 LEGISLATIVE COMMITTEE 16 17 18 19 20 21 22 23 24 25 26 27 REPORTED BY: Kathleen Skidgel 28 CSR NO. 9039 1 1 P R E S E N T 2 3 For the Board of Equalization: Fiona Ma, CPA 4 Chair 5 Jerome E. Horton Member 6 Sen. George Runner (Ret.) 7 Member 8 Diane L. Harkey Member 9 Yvette Stowers 10 Appearing for Betty T. Yee, State Controller 11 (per Government Code Section 7.9) 12 13 Joann Richmond Chief 14 Board Proceedings Division 15 16 For the Department: Michele Pielsticker Chief, Legislative and 17 Research Division 18 19 20 ---oOo--- 21 22 23 24 25 26 27 28 2 1 5901 GREEN VALLEY CIRCLE 2 CULVER CITY, CALIFORNIA 3 FEBRUARY 23, 2016 4 ---oOo--- 5 MR. HORTON: Ms. Richmond, what is our 6 first matter? 7 MS. RICHMOND: Good morning, Mr. Chairman 8 and Board Members. Our first item on this morning's 9 agenda is the Legislative Committee. Ms. Yee -- 10 Ms. Ma is the Chair of that Committee. 11 Ms. Ma. 12 MS. MA: Thank you, Madam Clerk. 13 We will convene the Legislative Committee, 14 and we have a few items to discuss today. 15 Ms. Pielsticker. 16 MS. PIELSTICKER: Yes, thank you. Michele 17 Pielsticker. 18 The first suggestion is -- would add the 19 Revenue and Taxation Code section 6010.15 of the 20 Sales and Use Tax Law to exclude from the 21 computation of sales or use tax of transfer of 22 tangible personal property by a pawnbroker back to 23 the person that pledged the property. The source of 24 this proposal is the California Pawnbrokers 25 Association. 26 So just for a bit of background, 27 pawnbrokers lend money to the person who pledged 28 their property as collateral. And such property can 3 1 include items like gold, diamond jewelry, musical 2 instruments and electronics. 3 Pawnbrokers hold the collateral until the 4 customer's loan and related charges and interest 5 have been repaid. If a customer has not repaid the 6 loan by the end of the loan period and defaults, the 7 collateral becomes the pawnbrokers property. And 8 once their property is transferred to the 9 pawnbroker, the customer has to buy back the 10 property as would any other customer. 11 So under existing law, sales tax is imposed 12 on retailers for the privilege of selling tangible 13 personal property at retail. And so therefore, a 14 pawnbroker would be considered a retailer at that 15 point, which would then make the transaction subject 16 to sales and use tax. 17 So the proposed law would exclude from the 18 definition of sale and purchase a transfer of 19 tangible personal property by a pawnbroker to a 20 person who pledged the property and failed to pay 21 the loan within the specified time period. And the 22 exclusion applies if the repurchase occurs within 23 six months of title transferring to the pawnbroker. 24 Revenue loss is $33,000 annually. 25 MS. MA: Any questions from Members? 26 MS. HARKEY: No. I'd just like to make a 27 comment. 28 MS. MA: Ms. Harkey. 4 1 MS. HARKEY: I want to thank Ms. Ma for 2 judiciously moving this forward. It's -- you know, 3 it's a small amount and it protects a lot of small 4 people that don't have a lot of money and they just 5 have to -- they get into a bind and they just need 6 to get their money back or their products back. And 7 it's -- I think it's only equitable that they be 8 allowed to do so under certain time frames. So I 9 want to thank you both for working on this. 10 MR. HORTON: Madam Chair. 11 MS. MA: Mr. Horton. 12 MR. HORTON: Thank you, Madam Chair. 13 I'm supportive of the legislation. I 14 wanted to just get the input of staff as it relates 15 to providing the six-month period, or simply just 16 saying that the trans- -- I mean the return of the 17 property for a -- a -- or -- or saying that we're 18 basically reinstating the loan and it never was a 19 sales tax transaction. 20 MS. PIELSTICKER: Well, I-- 21 MR. HORTON: Let me give you more 22 background. 23 MS. PIELSTICKER: Okay, thank you. 24 MR. HORTON: So as I understand the 25 situation is, is that a individual would go in and 26 pawn their property; and then at some later date 27 they will come in and purchase or pay off the loan 28 that they were given, and then they will receive 5 1 their property back. 2 During that period of time, if it's beyond 3 a set time, set by the broker, they will transfer 4 the title over to protect themselves and to assure 5 that they can recoup the funds that they have lent 6 to the individual who brought the property in. 7 However, the amount that they loan initially is 8 somewhere around one-third of the actual cost. So 9 there is -- it's less than the 50 percent threshold. 10 And so, why not just say that whenever the 11 property is returned, we are -- it is a loan? It 12 never was a sale. 13 MS. PIELSTICKER: You know, I think that is 14 a question that might be better answered by the 15 pawnbrokers themselves -- 16 MR. HORTON: Okay. 17 MS. PIELSTICKER: -- since it has to do 18 with their business model. 19 MR. HORTON: Well, I think we can support 20 the -- I'm supportive of the legislation. I think 21 as we move forward we can take that under 22 consideration. The author can take it under 23 consideration, because in -- in essence, this is a 24 loan; it's not a sale. And when they come in six 25 months later, if they're just reverting it back to 26 the original loan, so they just revert the title. 27 I understand the transactional tax 28 component of this, but that is the same issue, even 6 1 with the six-month provision. And the concern is 2 is that we establish a six-month provision, we may 3 make the legislation -- I got to think about it -- a 4 little more restrictive because it's six months as 5 opposed to just making a definition of law. 6 MS. HARKEY: I think I can -- 7 MS. STOWERS: Ms. Harkey. 8 MS. HARKEY: -- kind of answer that. Thank 9 you. 10 Didn't this run afoul of a certain piece of 11 legislation that had a 10-day mark, so that they 12 could take title and that the pawnbrokers actually 13 wanted and had legislated last year. And so we were 14 trying not to interfere with that legislation 15 because they do want to be able to take title; it's 16 just these are really small and extenuating 17 circumstances. It's like, really like, only like 18 less than five percent of all loans that don't get 19 repaid fall into this category. 20 MS. PIELSTICKER: Right. It's a very small 21 set of circumstances, as is indicated by the small 22 revenue estimate annually. This applies only when 23 someone defaults on their loan -- 24 MR. HORTON: Yeah. 25 MS. PIELSTICKER: -- and title transfers. 26 MR. HORTON: Madam Chair. 27 The -- I'm not saying -- I'm concurring 28 that they should be able to take title. And so, 7 1 whatever period of time is comfortable for them to 2 minimize their risk, that should occur, 3 understanding of that. 4 But much like when you have -- when you 5 unwind a car deal because of whatever reason, the 6 law allows a dealer, when it's a lemon, to unwind it 7 altogether so the original transaction was not a 8 sale at all. 9 So to allow them to unwind the transaction 10 after they've taken title, customer comes in, 11 decides to pay off the loan and pays it off, gets 12 their property back, in essence, it would be an 13 unwind as it relates to the sale and revert right 14 back to a loan. It gives them the protection of 15 being able to transfer the title. 16 I'm just encouraging that we look at it to 17 determine what's the most expeditious, simplistic 18 way to do that because whenever you put something in 19 the law that has these time periods, it creates 20 another concern generally. 21 MS. PIELSTICKER: Well certainly we can 22 work with the pawnbrokers and come up with a 23 solution. 24 MR. HORTON: Move adoption. Support. 25 MS. HARKEY: Second. 26 MS. MA: Okay. We have a motion to 27 approve, Mr. Horton, second by Ms. Harkey. 28 MR. RUNNER: Can I just clarify real 8 1 quick -- 2 MS. MA: Yes. 3 MR. RUNNER: -- on these items. Are -- are 4 these to -- to -- to sponsor or to support? 5 MS. HARKEY: This is a sponsor bill. 6 MS. MA: To sponsor. 7 MR. RUNNER: That's what I wanted to ask. 8 Okay, sponsor. Okay, thank you. 9 MS. MA: Ms. Stowers, you're okay with it? 10 MS. STOWERS: I'm okay with it. 11 MS. MA: Okay. So unanimous support to 12 sponsor it. 13 Do we have an author who's carrying the 14 bill yet? 15 MS. PIELSTICKER: Yes, we do, 16 Assemblymember Mike Gipson. 17 MS. MA: Okay. So we will work with Mike 18 Gipson's office on this. 19 Okay, next item, Ms. Pielsticker? 20 MS. PIELSTICKER: Yes. The next item is 21 Suggestion 2-5. It would amend the Revenue and 22 Taxation Code to provide that sellers with 23 de minimis sales of prepaid mobile telephony 24 services or prepaid MTS are not required to register 25 as prepaid MTS sellers with the Board of 26 Equalization. It would also amend the law to align 27 the prepaid MTS surcharge known transaction 28 qualifying circumstances to the local prepaid MTS 9 1 known transaction circumstances. 2 So under existing law the prepaid MTS 3 requires every seller to register with the BOE and 4 to collect and remit the prepaid MTS surcharge on 5 retail sales of prepaid MTS. 6 As of January 1, 2017, the act establishes 7 a threshold of $15,000 in annual sales under which a 8 prepaid MTS seller is not required to collect and 9 remit the surcharge. These sellers, however, still 10 must register as MTS sellers and file returns even 11 though they're not required to collect the 12 surcharge. 13 So the proposed law would remove the MTS 14 registration and return filing requirement for 15 prepaid MTS sellers who fall under the $15,000 16 threshold in the previous calendar year. And it 17 preserves the ability to voluntarily register with 18 the BOE if the MTS sellers desire to do so. 19 The second part of Suggestion 2-5 has to do 20 with known address transactions. So under existing 21 law the Prepaid MTS Act provides that a retail 22 transaction occurs in this state if the consumer 23 makes a retail transaction in person at a business 24 location in this state. 25 If this is not applicable, a retail 26 transaction occurs in this state if the consumer's 27 address is in this state, which is known as a known 28 address transaction. 10 1 A retail sale is a known address 2 transaction in the following circumstances: 3 If it involves shipping an item to be 4 delivered or picked up by the prepaid consumer in 5 this state; 6 If the prepaid consumer's address is known 7 by the seller to be in this state; 8 If the prepaid consumer provides an address 9 during completion of the retail transaction in this 10 state; 11 And the -- or the mobile telephone number 12 associates with a location in this state. 13 And the act also references the above 14 circumstances to determine the location for purposes 15 of imposing the correct local surcharge rate and a 16 known address transaction. However, in that case, 17 the known address circumstances apply in descending 18 order looking only to the phone number if the 19 address isn't known. 20 And so this law would limit the 21 circumstances under which a transaction is 22 considered to be a known address transaction 23 occurring in this state to the prepaid consumer's 24 address, relying upon the consumer's area code only 25 if the address is unknown. 26 MS. MA: Any questions? 27 MS. HARKEY: Move approval. 28 MR. HORTON: Second the adoption for 11 1 support of the bill. 2 MS. MA: Okay. We have a motion by Ms. 3 Harkey, second by Mr. Chairman, to sponsor the bill. 4 Any questions? Mr. Runner, no? 5 MR. RUNNER: No. 6 MS. MA: Okay. Unanimous vote. 7 Thank you, Ms. Pielsticker. This concludes 8 the Legislative Committee hearing. 9 ---oOo--- 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 12 1 REPORTER'S CERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, Kathleen Skidgel, Hearing Reporter for 8 the California State Board of Equalization certify 9 that on February 23, 2016 I recorded verbatim, in 10 shorthand, to the best of my ability, the 11 proceedings in the above-entitled hearing; that I 12 transcribed the shorthand writing into typewriting; 13 and that the preceding pages 1 through 12 14 constitute a complete and accurate transcription of 15 the shorthand writing. 16 17 Dated: April 5, 2016 18 19 20 ____________________________ 21 KATHLEEN SKIDGEL, CSR #9039 22 Hearing Reporter 23 24 25 26 27 28 13