BILL ANALYSIS
AB 1365
Page 1
Date of Hearing: April 23, 2007
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles Calderon, Chair
AB 1365 (Karnette) - As Amended: April 10, 2007
2/3 vote. Fiscal committee.
SUBJECT : Sales and use tax revenues: funding of the California
Arts Council.
SUMMARY : Requires that all sales and use tax revenues derived
from the sale of art be allocated to the California Arts Council
(CAC). Specifically, the tax-related provisions of this bill
provide that:
1)All revenues, less refunds, derived from sales and use taxes
(SUT) raised in connection with the sale or use of a "work of
art" shall be allocated to the CAC. The CAC shall use this
money exclusively for the purposes specified in Government
Code Section 8753. These purposes include:
a) Encouraging artistic awareness, participation and
expression;
b) Promoting the employment of artists and those skilled in
crafts;
c) Providing for the exhibition of art works in public
buildings throughout California; and
d) Awarding prizes or direct grants to individuals or
organizations.
2)"Work of art" shall have the same definition as that provided
in Revenue and Taxation Code (R&TC) Section 6365(c).
EXISTING LAW :
1)Imposes a tax on the sale or use of tangible personal property
in this state, unless specifically exempted.
2)Exempts from state SUT original works of art sold to specified
governmental entities or nonprofit organizations for display
AB 1365
Page 2
in a museum.
3)Defines "work of art" to mean, "a work of visual art
including, but not limited to, a drawing, painting, mural,
fresco, sculpture, mosaic, film, or photograph, a work of
calligraphy, a work of graphic art (including, but not limited
to, an etching, lithograph, offset print, silk screen, or a
work of graphic art of like nature), crafts (including, but
not limited to, crafts in clay, textile, fiber, wood, metal,
plastic, glass, costume, dress, clothing, personal adornment,
and like materials), or mixed media (including, but not
limited to, a collage, assemblage, or any combination of the
foregoing art media)."
FISCAL EFFECT : The Board of Equalization (BOE) does not capture
data on sales of works of art. As a result of this fact, and
the measure's broad definition of the term "work of art", which
could conceivably include any commodity with arguable artistic
content, BOE has not been able to estimate this bill's fiscal
effects.
Proposition 98 Effect : Unknown.
COMMENTS :
1)According to the author, after years of cuts, General Fund
allocations to CAC are barely more than $1 million, from a
high of more than $32 million in the 2000-01 fiscal year. The
author states that this drop now places California last among
states in funding of the arts. As a result of the funding
cuts, the author notes that grants to hundreds of
community-based visual and performing arts groups throughout
the state have been eliminated. The author states that it is
the intent of this bill to redirect sales and use tax funds
that are derived from works of art to CAC to restore at least
some of the eliminated grant programs.
2)Proponents note, "California spends just three cents per
capita from the general fund on the arts going to the
California Arts Council. When compared with Guam spending
$1.55 per capita and Puerto Rico spending $6.45, California is
far too low in its support for a creative industry that
generates $5.4 billion and nearly $300 million in taxes. AB
1365 is a proposal that addresses that vast need for increased
funding to provide more art for more Californians and the
AB 1365
Page 3
millions of visitors to our great state."
3)BOE notes that, "This bill would only affect the state sales
and use tax revenues . . . as changing the allocation of local
revenues would be constitutionally prohibited."
BOE also notes that, "This bill would essentially require the
Board to provide precise information concerning the amount of
sales or use tax collected on the sale or purchase of works of
art. In order to allocate actual sales and use tax revenues
pursuant to the provisions of this bill, it would be necessary
to establish a mechanism for identifying taxable revenue
attributable to these sales. Taxable sales are reported by
retailers on a "gross receipts" basis, with no segregation
with respect to the sale of a specific commodity. Since
retailers of works of art may sell a variety of other
products, the information would not be available from tax
returns as currently filed. Consequently, [BOE] would have to
require retailers to separately account for their sales of
works of art. However, the reliability of the data reported
would be questionable, since taxpayers selling works of art
would be under no economic compulsion to accurately segregate
these sales."
4)BOE also has concerns regarding this bill's incorporation of
R&TC Section 6365(c)'s definition of "work of art".
Specifically, BOE states, "It's one thing to apply that
definition in relation to museum purposes, but in terms of
applying the definition in relation to general merchandise for
purposes of instructing taxpayers to segregate the taxable
sales, it would be profoundly troublesome. Administration of
the current limited exemption has even been difficult, as the
Board, in many cases, is required to make aesthetic judgments
regarding whether or not objects purchased for display at a
museum qualify as art. For example, for purposes of the
museum exemption, would A Chippendale sideboard constitute a
work of art or simply a piece of old furniture? . . .
Obviously standard items such as original paintings, original
statutes, etc., would be regarded as works of art, but the
definition contained in Section 6365 doesn't even require that
the work of art be original. So, virtually any creative items
such as candles, frames, photographs, posters, wood carvings,
and pottery could arguably fall within the definition."
5)Committee staff note that, if enacted, this bill would
AB 1365
Page 4
transfer the General Fund portion of SUT on works of art to
the CAC without annual overview by the legislative budget
committees.
6)This bill was double-referred with the Assembly Committee on
Arts, Entertainment, Sports, Tourism, and Internet Media and
passed out of that committee by a vote of 5-3 on April 17,
2007. For a more comprehensive discussion of this bill, refer
to that committee's analysis.
REGISTERED SUPPORT / OPPOSITION :
Support
Alliance for California Traditional Arts
Association of California Symphony Orchestras
Calaveras County Arts Council
California Arts Advocates
California Association of Museums
California Indian Basketweavers Association
California Presenters
Long Beach Museum of Art
Madison Project of Santa Monica College
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098