Bill to Ease Sales Tax Exemptions on Exports Clears Assembly Panel

Legislation triggered by a dispute between a North Hollywood manufacturer of airline stretchers and state tax authorities over an obscure law sailed through the Assembly Revenue and Taxation Committee on Monday.

Under existing law, sales of equipment to foreign airlines for use overseas are exempt from state sales tax. But to secure the exemption, businesses must obtain proof at the time of sale that the items are for use outside the United States.

The legislation, carried by Sen. Alan Robbins (D-Tarzana), would allow exporters, including Air Medic of North Hollywood, to retain the tax exemption even if they failed to secure documentation at the time of the sale.

The Senate approved the measure 27 to 3 in April and sent it to the Assembly, where the Revenue and Taxation Committee approved it Monday without discussion on a 11-0 vote.

Commission Support

The measure, which now goes to the Ways and Means Committee, was supported by the California State World Trade Commission, the state agency charged with promoting exports, which labeled the present law “an impediment to the pursuit of free trade by California exporters.” There was no known opposition.

Robbins introduced his bill after receiving a complaint from a constituent, Marvin Keogh, president of Air Medic, a company that makes and sells to foreign air carriers stretchers for sick and injured passengers.

Terri Burns, an aide to Robbins, said the measure is being pressed “so other people don’t suffer the same problem” as Air Medic. Janice McEntee, a spokeswoman for the World Trade Commission, said her panel was aware of at least two other exporters who have had problems similar to Air Medic’s.

In a telephone interview Monday, Keogh called the existing law “the most ridiculous thing” and said he hopes that the Robbins proposal will bolster his case. But a spokeswoman for the Board of Equalization, the state taxing agency, said that even if the bill became law, it would apply only to future disputes.

For Keogh, the legislation is the latest chapter in a long-running controversy.

Unaware of Requirement

Keogh said he was unaware that he needed statements from the airlines that his firm’s stretchers were only being used overseas until a 1984 audit. The audit determined that he owed about $8,000 in back taxes because at the time he sold the stretchers, he failed to obtain the statements. Keogh said he later obtained letters from the airlines. The tax board, however, still wants to collect the fine.

Keogh’s case first surfaced publicly in 1985, when he complained to Conway Collis, a member of the Board of Equalization, during an “open office” day held by Collis. At the time, Keogh said that in 1984, a state auditor told him that he owed back taxes on hundreds of sales to foreign airlines, which Keogh maintained did not fly to California. Keogh said that he sold his stretchers to such airlines as Air Tunis and that he had purchase orders for the stretchers that said “For Export Only.”

Collis, in a letter dated June 5, 1985, told Keogh that “I believe you when you state the stretchers were not used in California” but that the provisions of the law requiring the documentation could not be waived.

Collis acknowledged that “the law has an unfair impact” on Keogh and said that he would make that point to other board members. Nonetheless, Keogh said because of Collis’ assessment of his chances, he did not appeal the audit to the board.

Instead, Keogh approached Robbins, who attempted to resolve the dispute by talking to the board, according to Burns. But, she said, the board failed to “recognize a problem,” prompting introduction of the bill, which initially sought to delete the requirement for proof of use overseas.

The Board of Equalization opposed the initial proposal, prompting Robbins to water it down to provide a grace period of “a reasonable time” for manufacturers to seek documentation from foreign customers to support the tax exemptions. “Reasonable” was not defined, but in cases triggered by an audit, the period could be retroactive for several years.