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9.A - BOARD OF EQUALIZATION COMMITTEE TAKES UP BUSINESS TAXES ON AUGUST 6 The State Board of Equalization (SBOE) Busi- ness Taxes Committee has scheduled a meeting for August 6 and will discuss two items of interest to cities: sales tax on discounts, coupons, rebates and other incentives; and tax policy on resale inventory that is converted to a capital asset and used for demonstration purposes. In both instances, public accounting fines and business are arguing that the current SBOE practice should be changed, effectively reducing the sales tax liability. Cities are encouraged to review the issue papers on the SBOE website http: / /www.boe.ca.gov /meetings/ btc2003.htm and provide comments directly to SBOE, with a copy to the League of Cities. subject to sales and use tax when the goods are used for demonstration purposes and transferred to capital assets. Goods may be held in inventory for resale and used for demonstration purposes and not be subject to tax until they are sold. Representatives of some computer manufactur- ers contend that some demonstration equipment rotates between customers and is carried in a capital asset category to be depreciated rather than in an inventory account, which would later be written down to the lower of cost or market. They claim that no sales tax should apply to the demonstration equip- ment. Staff contends this claim is inconsistent with current Revenue and Tax Code and would result in an estimated $31.3 million annual revenue loss. Rebates and Other Incentives Regulation 1671.1 as proposed by SBOE staff would stipulate that gross receipts for purposes of calculating sales tax include any amount received by the retailer from a third party (vendor or manufac- turer) when the vendor requires the seller to pass along the "rebate" to the retail purchaser. Presently this is the procedure used for manufacturers rebates. Current regulation, however, does allow the retailer to receive a purchase discount or other incentive and not include it as gross receipts if the vendor does not require the discount to be passed along to the consumer. Stating that the gross receipts should only be the amount paid by the purchaser, the California Taxpay- ers' Association, Cigarettes Cheaper! and the Califor- nia Grocer's Association expressed opposition to the proposed regulation during the interested parties hearing process. One industry representative suggested that the regulation should add language requiring that the consumer have knowledge that the manufacturer provided the discount. Resale to Capital Assets The second issue will be discussed under pro- posed changes to Audit Manual Chapter 4. The SBOE staff proposes to incorporate current practice into the audit guidelines on merchandise that is moved from inventory held for resale to capital assets. Presently, inventory that is held for resale is League Urges Support of Staff Recommenda- tion A lively debate of both issues at the Business Taxes Committee meeting is expected. Cities should send letters to board members supporting the staff recommendation. Please contact Jean Korinke at jkodnke @cacities.org or Frances Madame medemaf @cacities.org with you comments or ques- tions and forward copies of your correspondence. NOW AVAILABLE! The 2003 City Hall Directory Don't miss this opportunity to get the League's most useful reference tool. This comprehensive California directory provides important contact information for mayors, council members and city department heads. The directory also features the League's staff directory, corporate partners, affiliate organizations and a wide variety of advertisers. Purchase this publication on -line at www.cacities.org /store or call 916 - 658 -8257 for an order form. City officials price: $30 Non - city official price: $45 PAGE 2 /PRIORITY FOCUS Visit the League's Official Web Site -- www.cacities.org