BILL ANALYSIS
AB 969
Page 1
GOVERNOR'S VETO
AB 969 (Eng)
As Amended August 20, 2007
2/3 vote
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|ASSEMBLY: |45-33|(May 29, 2007) |SENATE: |21-16|(September 5, |
| | | | | |2007) |
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ASSEMBLY: 46-29 (September 7, 2007)
Original Committee Reference: REV. & TAX.
SUMMARY : Replaces permissive provisions with respect to
reporting use tax liability on an acceptable tax return with
mandatory provisions.
The Senate amendments :
1)State legislative intent to require individuals and businesses
that failed to report and pay their liability for use tax to
the Board of Equalization (BOE) to report and pay the use tax
liability on a return filed with the Franchise Tax Board
(FTB).
2)State legislative intent that the same rights and remedies
available under the Sales and Use Tax (SUT) Law are available
with respect to use tax liabilities reported on a return filed
with FTB.
3)Make minor technical corrections.
AS PASSED BY THE ASSEMBLY , this bill:
1)Required every person that had an obligation to report and
remit use tax to BOE, but failed 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) Defined "acceptable tax return" as an original income
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tax return timely filed with FTB;
b) Defined "qualified use tax" as the use tax due under SUT
laws 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 was registered with BOE as a cigarette
or tobacco products consumer;
c) Permitted 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 elected to report
one-half of the qualified use tax, the election was not
binding with respect to the other half of the qualified use
tax due;
d) Provided 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. Considered all qualified use tax as
timely reported and remitted for purposes of the SUT if it
was reported and remitted on a timely filed acceptable tax
return;
e) Allowed BOE to make determinations for understatements
of qualified use tax reported on an acceptable tax return
within a three-year period;
f) Established 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) Prevented 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)Eliminated the January 1, 2009 sunset requiring FTB to provide
a line for payment of use tax on the tax return forms it
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administered and amended various provisions of existing law to
conform to those changes.
FISCAL EFFECT : BOE estimates the total dollar amount of unpaid
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
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use tax.
Clearer statements related to use tax obligations will assist
taxpayers to satisfy those obligations.
GOVERNOR'S VETO MESSAGE :
"Although increasing use tax reporting is desirable, I have
concerns that the effective date of January 1, 2008, is too soon
for taxpayers to compile adequate records of their purchases
that are subject to the use tax for calendar year 2007.
Further, I would like to see a plan to better educate
taxpayers on the use tax, as I suspect that many taxpayers have
little knowledge of the tax and may unknowingly fail to pay it."
Analysis Prepared by : Kimberly Bott / REV. & TAX. / (916)
319-2098
FN:
0003617