BILL NUMBER: AB 671 CHAPTERED 09/22/05 CHAPTER 308 FILED WITH SECRETARY OF STATE SEPTEMBER 22, 2005 APPROVED BY GOVERNOR SEPTEMBER 22, 2005 PASSED THE ASSEMBLY AUGUST 30, 2005 PASSED THE SENATE AUGUST 29, 2005 AMENDED IN SENATE AUGUST 24, 2005 AMENDED IN ASSEMBLY MAY 9, 2005 AMENDED IN ASSEMBLY APRIL 21, 2005 INTRODUCED BY Assembly Member Klehs FEBRUARY 17, 2005 An act to amend Section 6487.06 of, and to add and repeal Section 18511 of, the Revenue and Taxation Code, relating to taxation. LEGISLATIVE COUNSEL'S DIGEST AB 671, Klehs Use taxes: collection: deficiencies: returns. The Sales and Use Tax Law imposes a tax on the gross receipts from the sale in this state of, or the storage, use, or other consumption in this state of, tangible personal property. The State Board of Equalization issues forms for the computation and payment of sales and use taxes collected or owed by those retailers. There is no requirement for persons, other than retailers, that owe use taxes to register with the State Board of Equalization for the reporting and payment of use taxes owed by those persons to the state. This bill makes findings with respect to the loss of use tax revenue attributable to those persons that fail to pay use tax that is owed to this state. This bill states the intent of the Legislature to inform taxpayers of their obligation to report and pay their use tax liability that is currently owed to this state. The Sales and Use Tax Law provides for an 8-year statute of limitations for the collection of use taxes that are not reported under that law. That law, until January 1, 2006, in the case of a qualified purchaser, limits the statute of limitations to 3 years for the collection of unreported use taxes on specified purchases, if a determination is made that the failure to report and pay the tax was due to reasonable cause. This bill would extend the operation of those provisions limiting the statute of limitations to 3 years until January 1, 2008, as provided. This bill would require the Franchise Tax Board to revise information accompanying income tax returns to inform taxpayers of their obligation to report and pay use taxes and the benefit of paying use taxes prior to the expiration of specified provisions of law. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. (a) The Legislature finds and declares the following: (1) California has not collected over $1.35 billion in use tax revenue that is legally owed to this state. (2) Of this total amount of uncollected use tax revenue, approximately $500 million is attributable to business-to-consumer transactions and the remainder is attributable to business-to-business transactions. (3) If California is able to collect those outstanding use taxes that are owed to this state, the Legislature will be able to, among other things, provide quality education to California's children, affordable health care to California's residents, repair California's aging infrastructure, and plan for California's future. (b) It is the intent of the Legislature to inform taxpayers of their obligation to report and pay use taxes on their purchases, and to encourage taxpayers to come forward to report and pay their use tax liability that is currently owed to this state. SEC. 2. Section 6487.06 of the Revenue and Taxation Code is amended to read: 6487.06. (a) Notwithstanding Section 6487, the period during which a deficiency determination may be mailed to a qualifying purchaser is limited to the three-year period beginning after the last day of the calendar month following the quarterly period for which the amount is proposed to be determined. (b) For purposes of this section, a "qualifying purchaser" is a person that voluntarily files an Individual Use Tax Return for tangible personal property that is purchased from a retailer outside of this state for storage, use, or other consumption in this state, and that meets all of the following conditions: (1) The purchaser resides or is located within this state and has not previously done either of the following: (A) Registered with the State Board of Equalization. (B) Filed an Individual Use Tax Return with the State Board of Equalization. (2) The purchaser is not engaged in business in this state as a retailer, as defined in Section 6015. (3) The purchaser has not been contacted by the State Board of Equalization regarding failure to report the use tax imposed by Section 6202. (4) The State Board of Equalization has made a determination that the purchaser's failure to file an Individual Use Tax Return or to otherwise report, or pay the use tax imposed by Section 6202 was due to reasonable cause and was not caused by reason of negligence, intentional disregard of the law, or by an intent to evade the taxes imposed by this part. (c) If the State Board of Equalization makes a determination that the purchaser's failure to timely report or remit the taxes imposed by this part is due to reasonable cause or due to circumstances beyond the purchaser's control, the purchaser may be relieved of any penalties imposed by this part. Any purchaser seeking relief from penalties imposed by this part shall file a statement, signed under penalty of perjury, setting forth the facts that form the basis for the claim for relief. (d) This section shall not apply to purchases of vehicles, vessels, or aircraft as defined in Article 1 (commencing with Section 6271) of Chapter 3.5 of this part. (e) The State Board of Equalization shall submit to the Legislature before January 1, 2008, a report that includes the following information: (1) The number of qualifying purchasers who received the benefits afforded by this section. (2) The amount of use tax revenue received by the state from the qualifying purchasers described in paragraph (1). (3) Recommendations for modifying, eliminating, or continuing the operation of, any or all of the provisions of this section. (f) This section shall remain in effect only until January 1, 2008, and as of that date is repealed. SEC. 3. Section 18511 is added to the Revenue and Taxation Code, to read: 18511. (a) The Franchise Tax Board shall revise information accompanying the returns required to be filed pursuant to this article, Article 2 (commencing with Section 18601), Section 18633, Section 18633.5, and Article 3 (commencing with Section 23771) of Chapter 4 of Part 11 to include information that informs taxpayers of their obligation to report and pay use taxes on their purchases of tangible personal property that are subject to the use tax imposed pursuant to Chapter 3 (commencing with Section 6201) of Part 7 and the benefit of paying the use taxes prior to the expiration of Section 6487.06. (b) This section shall remain in effect only until January 1, 2008, and as of that date is repealed.