BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE AB 521 - Harvey Senator Mike Thompson, Chairman Amended: 3/29/95 Hearing: July 19, 1995 Fiscal: Yes SUBJECT: Sales & Use Tax: Exemption for ostriches. DIGEST -- WHAT THE BILL DOES EXISTING LAW exempts from the sales and use tax any form of animal life owhich ordinarily constitute food for human consumption.o The sale of ostrich meat to a consumer is exempt from tax. THIS BILL adds a new exemption from the sales tax for the sale of ostriches and feed for ostriches. This would make the sale of ostrich eggs and animals used in breeding programs not subject to tax. Feed for ostriches would also be exempt from tax. This bill also adds oostricho to the definition of ofowlo and opoultryo in the Food and Agricultural Code. This exemption would apply to ostriches purchased on or after January 1, 1996, the date this statute takes effect. AB 521 - Harvey Page 2 FISCAL EFFECT: (Board of Equalization) Estimating the revenue effects of an exemption for the sale of ostriches has been difficult because numbers vary on how many ostriches are purchased each year and how many are used for breeding stock. Based on California Ostrich Association data, the Board had estimated an annual revenue loss of $220,000 in General Fund revenues and $129,000 in local revenues due to sales of ostriches. This estimate was based on $3 million in sales of ostrich chicks -- about 750-1000 chicks -- and $1 million in sales of breeding pairs. More recent information provided by the California Farm Bureau seems to indicate that fewer birds are being sold. According to their survey, the following numbers of ostriches were sold in 1994: 15 breeder pairs 25 pairs aged 12-23 months 200 chicks under 12 months Using the Farm Bureauos estimates, the General Fund loss from the sale of ostriches would be about $50,000 and the local loss would be about $30,000. In past years, the estimate for this exemption has been much higher. According to the Board analysis, the price of ostrich chicks has fallen as the supply is rising. AB 521 - Harvey Page 3 COMMENTS: A. Purpose of the bill. AB 521 is intended to exempt the sales of ostriches used for breeding and the feed consumed by breeder ostriches from the sales tax. Proponents point out that ostrich meat is gaining acceptance as a food and should be exempt from tax as are other animals which are used to produce food. B. Does ostrich ordinarily constitute food for human consumption? Proponents of AB 521 note that ostrich meat is low in fat and cholesterol and is served in some restaurants. Several facilities licensed to slaughter ostriches have opened in California. But does ostrich oordinarily constitute food for human consumption,o the term used in the existing sales tax exemption for animals? It is expected that about 290,000 - 500,000 pounds of ostrich meat will be produced in California this year. This represents about .015% - .04% of the 2 billion pounds of beef and .02% - .03% of the 1.5 billion pounds of chicken and turkey produced annually in California. AB 521 - Harvey Page 4 Some ostrich growers indicate that growers are more directed to increasing their flocks rather than slaughtering them for market. oExperts indicate only 100,000 ratites (ostrich family) are in America now, with up to a million birds realistically needed before active slaughtering will begin,o according to one California rancher. C. Taxation of ostriches in other states. Several states now exempt ostriches from the sales tax -- Washington, Arizona, New Mexico, Nevada, Utah, Florida, Georgia, Indiana, Hawaii, Idaho, Oklahoma, and Wyoming. Proponents indicate that they may move their operations to states which provide an exemption if California continues to tax ostriches. D. Pyramid concerns. In the past two years, concerns have been raised in several states that promoters have tried to lure investors into ostrich farms which are more of a pyramid scheme than a legitimate business. In February 1994, the California Commissioner of Corporations ordered a California-based venture to halt the offer and sale of limited partnerships in an ostrich ranching venture. While proponents correctly point out that many new industries can be plagued with get-rich schemes, there is a concern that the state may inadvertently assist those schemes by making the sale and upkeep of ostriches more attractive through a sales tax exemption. AB 521 - Harvey Page 5 E. Some sales of ostriches now exempt. Sales of ostrich meat are exempt. Also exempt are sales of ostriches to a slaughterhouse. The sales which would be affected by this bill are primarily the sales of breeding stock -- the mature pairs of ostriches which may sell for as much as $20-30,000. Support and Opposition Support: California Ostrich Association California Farm Bureau Federation Lucking and Associates Akers R-Lazy-7 Ostrich Ranch West Coast Ostrich Company Sonoma Knolls Big Birds Pacific Egg and Poultry Association J & J Big Bird Ranch Brandywine Meats, Inc. Oppose: California Federation for Animal Legislation Contra Costa Humane Society Marin Humane Society State Humane Association of California California Animal Control Directorso Association Humane Society of the United States Assembly Votes AB 521 - Harvey Page 6 Agriculture: 10 - 0 Revenue & Taxation: 8 - 1 Appropriations: 10 - 6 Floor: 51 - 24 -------------------------- Consultant: Anne Maitland July 13, 1995 11:15 AM