BILL ANALYSIS
AB 969
Page 1
ASSEMBLY THIRD READING
AB 969 (Eng)
As Amended April 25, 2007
Majority vote
RULES REVENUE & TAXATION 6-3
(vote not relevant)
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| | |Ayes:|Charles Calderon, |
| | | |Arambula, Eng, Feuer, |
| | | |Hayashi, Ma |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|DeVore, Plescia, Spitzer |
| | | | |
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APPROPRIATIONS 12-5
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|Ayes:|Leno, Caballero, Davis, | | |
| |DeSaulnier, Huffman, | | |
| |Karnette, Krekorian, | | |
| |Lieu, Ma, Nava, Solorio, | | |
| |Evans | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Walters, Emmerson, La | | |
| |Malfa, Nakanishi, Sharon | | |
| |Runner | | |
| | | | |
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SUMMARY : Replaces permissive provisions with respect to
reporting use tax liability on an acceptable tax return with
mandatory provisions. Specifically, this bill :
1)Requires every person that has an obligation to report and
remit use tax to the Board of Equalization (BOE), but fails to
do so, to report and remit qualified use tax on an acceptable
tax return for all purchases made on or after January 1, 2007.
Specifically:
a) Defines "acceptable tax return" as an original income
tax return timely filed with the Franchise Tax Board (FTB);
AB 969
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b) Defines "qualified use tax" as the use tax due under the
sales and use tax laws (SUT) other than use tax imposed on:
i) a vehicle, vessel, or aircraft; ii) a lessee of
tangible personal property; and, iii) purchasers of
cigarettes or tobacco products for which the purchaser is
registered with BOE as a cigarette or tobacco products
consumer;
c) Permits an individual using the "married, filing
separately" filing status with FTB to elect to report
either one-half of the qualified use tax or the entire
qualified use tax on his/her separate California personal
income tax return. If an individual elects to report
one-half of the qualified use tax, the election is not
binding with respect to the other half of the qualified use
tax due;
d) Provides that all penalties and interest imposed under
the SUT, and rules with respect to claims for refunds or
credits apply to the qualified use tax reported on an
acceptable tax return. Considers all qualified use tax as
timely reported and remitted for purposes of the SUT if it
is reported and remitted on a timely filed acceptable tax
return;
e) Allows BOE to make determinations for understatements of
qualified use tax reported on an acceptable tax return
within a three-year period;
f) Establishes the order for application of payments
received on an acceptable tax return as amounts due under
the personal income or corporation tax laws, then qualified
use tax; and,
g) Prevents a person otherwise required to hold a seller's
permit or to register with BOE from using the procedures
set out in this bill.
2)Eliminates the January 1, 2009, sunset requiring FTB to
provide a line for payment of use tax on the tax return forms
it administers and amends various provisions of existing law
to conform to these changes.
FISCAL EFFECT : BOE estimates the total dollar amount of unpaid
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use tax by consumers is over $400 million but the expected
revenue increase from this bill is $6 million per fiscal year.
COMMENTS : The author states that AB 969 will raise public
awareness of the California use tax and increase compliance
among the growing number of California consumers that use
electronic commerce. The author attributes the minimal use of
the existing FTB forms to misleading language: Use of the term
"elect" adds to the misconception that reporting use tax
liabilities is optional. The author states, "By clarifying that
consumers are required to report and pay use tax liabilities on
their income tax returns after failing to pay BOE directly, this
measure will enable both tax practitioners and consumers to have
a better understanding of their obligation to properly report
use tax liabilities."
FTB analyzed data on use tax payments reported on income tax
returns for the three tax filing periods. The total amount of
use tax reported was: $2.8 million in 2004 (for tax year 2003);
$4.6 million in 2005 (for tax years 2004); and $5.5 million in
2006 (for tax year 2005). Other facts gleaned from FTB's
receipt of use tax payments in 2004 include: taxpayers
preparing their own tax returns were eight times more likely to
report use tax owed than taxpayers filing tax returns prepared
by tax professionals; tax returns prepared by tax professionals
represented 63% of all returns received by FTB but prepared only
16.6% of the returns with use tax declarations. Reporting use
tax on an income tax return protects the taxpayer from late
payment penalties, but some tax professionals advise their
clients reporting use tax due is voluntary. Additional problems
arise if tax software companies do not allow the election in
their tax programs.
BOE believes requiring consumers, who fail to report use tax to
BOE, to report and remit the use tax on their income tax returns
will cause both consumers and tax practitioners, including tax
return preparers, to be more aware of current law about unpaid
use tax.
Many consumers that use mail-order or the internet to purchase
tangible personal property are unaware of their responsibility
to pay use tax. FTB tax forms have comprehensive instructions
with respect to paying use tax on income tax returns. However,
if these mail-order or Internet purchasers are among the 63% of
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taxpayers whose returns are prepared by tax professionals, they
may not see the actual tax forms or instructions. They rely on
their tax professionals for information with respect to the use
tax reporting obligation. Also, the competitive disadvantage of
in-state retailers when compared to out-of-state retailers will
lessen as purchasers pay the use tax due.
Committee staff note that use tax is due four times every year
and is based upon taxable purchases made during the preceding
calendar quarter. Therefore, the very latest date that a use
tax obligation may be timely paid (thereby avoiding penalties
and interest) for any purchase during a calendar year is January
31 of the following calendar year. Therefore, if a taxpayer has
not paid the use tax by the time that income tax return is
prepared (the filing period generally commencing in early
February), the use tax due will always be untimely. Revenue and
Taxation Committee staff question the conduct of tax
professionals that fail to inform clients of the opportunity to
report and pay use tax obligations which are technically late in
a manner that will prevent imposition of penalties and interest.
Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098
FN: 0000772