January 20, 2012
from Kevin Pedrotti, Legislative Advocate of the Golden State Builders Excvhanges
The second year of the two-year legislative session is ramping up. While the bill introduction deadline for 2012 is not until February 24, it is expected there will be numerous bills that will be of interest to the construction industry.
Another attempt will be made to address fixed price contracts. With the certainty of the Governor having a ballot measure in November 2012 to temporarily increase both sales and personal income tax rates, contractors could again be caught in a situation where the increased sales tax on contracted materials cannot be passed on to owners of construction projects. While the proposed tax increase provides more advanced warning and contractors should be able to anticipate and protect themselves in fixed price contracts, legislation clarifying the rights of contractors is important and necessary.
After the passage of a temporary sales tax increase in April 2009, contractors who had entered into fixed price contracts prior to the sales tax increase were forced to absorb the additional tax because the increase was not anticipated when the contract was executed. AB 1523 was introduced to provided that during the period of the sales tax increase, materials and supplies purchased or obligated by a fixed price contract entered into prior to the sales tax increase would be exempt from paying the additional tax. AB 1523 was held on the Appropriations Committee suspense file due to estimates of lost revenue to the state. The following year, AB 2060 was introduced but only applied to any future state sales tax increase. This measure was vetoed. And last year, AB 780, another attempt to address this issue, was held in the Senate Appropriations Committee.
In previous years, legislation enacting sales and use tax increases has historically contained provisions that exempt fixed price contracts from rate increase provisions. For example, when a state sales and use tax increase occurred in July 1991 and rates were increased by 1.25 percent, an exemption for fixed price contracts entered into prior to the operative date of the increase was included in that legislation. Prior to that increase, for a 13-month period beginning December 1, 1989 and ending December 31, 1990, a 0.25 percent state sales and use tax increase was enacted in response to the October 1989 earthquake in the San Francisco Bay Area. That measure also contained an exemption for fixed price contracts entered into prior to the date of the rate increase.
Other (but not all) legislation that is anticipated:
- Removing or extending the sunset for requiring no (zero) retention on CALTRANS construction projects;
- Continuous payment of HUTA funds should the state budget be delayed;
- Protection of court construction funds;
- Requirements to certify the safety of CARB imposed equipment modifications for on-road vehicles;
- Requirements for and certification of workers’ compensation insurance for roofers.
We will keep you updated as new legislation is introduced.
***