California lumber consumers will begin paying a new 1 percent "lumber tax" beginning on January 1 if Governor Jerry Brown signs legislation approved by the Senate and Assembly on the last day of the legislative session (AB 1492, Assembly Budget Committee). This new tax is in addition to the existing sales tax on such products.
The new tax, enacted in a budget trailer bill, is imposed on both "lumber products" and "engineered wood products."
The definition of "lumber product" is limited, and includes some exemptions. A lumber product (Public Resources Code Section 4629.3) is one where wood or wood fiber is more than 10 percent of the volume of the product. Exempt are furniture, paper products, indoor flooring, bark and cork products, firewood and other products not typically considered lumber products.
There still are many gray areas of what will be taxable. For example, since toothpicks are not specifically excluded, they might be subject to the tax.
However, the definition of "engineered wood products" (Section 4629.3) is much more expansive, and might include a number of wood products that are exempt as lumber products. An "engineered wood product" includes "building products" with 10 percent or more of wood by volume, including veneer-based sheeting material, plywood, laminated veneer lumber, parallel-laminated veneer, laminated beams, I-joists, edge-glued material, or composite material such as cellulosic, fiberboard, hardboard, decking, particleboard, waferboard, flakeboard, oriented strand board, or any other panel or composite product where wood is a component part.
The new tax will be administered by the State Board of Equalization.
While the public wants to know how much they will have to pay in higher taxes, the "analysis" of the bill prepared by legislative staff incredibly describes the fiscal effect of the bill thusly: "This bill should not result in any changes to the budget act in related budget actions." Although the Department of Finance bill analysis and the legislative analysis do not reveal the size of the tax increase, the BOE estimates that the tax will cost taxpayers $35 million a year.
According to the BOE: "Adding an additional assessment that would be collected from lumber product purchasers would require retailers to keep track of lumber product sales separately from other sales of tangible personal property. Additionally, smaller lumber product retailers may find collecting the assessment burdensome. Cashiers at smaller supply stores, which are typically not computerized, would have to determine if the product is identified in the Fire Board's regulation for each product sold, which could likely lead to collection and reporting errors."
As a result, smaller stores, when audited, may show deficiencies that could result in huge assessments and penalties, which might put these stores out of business.
The new tax was approved by both houses in the early hours of September 1, with a 54-20 vote in the Assembly at 1:30 a.m. (Republican Assemblyman Cameron Smyth and independent Assemblyman Nathan Fletcher joined 52 Democrats in support of the bill) and a 27-9 vote in the Senate (with two Republicans – Senators Bill Emmerson and Tom Harman – joining 25 Democrats voting "aye.")
The bill initially failed in the Assembly, three shy of the two-thirds vote needed for passage, but it was brought back up for a vote just minutes later, and was approved.
As the bill reaches the governor's desk, it may present a dilemma for him, as he promised during his campaign that there would be no tax increases unless approved by a vote of the people.
September 7, 2012
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