BILL NUMBER: ABX1 12 ENROLLED
BILL TEXT
PASSED THE SENATE DECEMBER 18, 2008
PASSED THE ASSEMBLY DECEMBER 18, 2008
AMENDED IN SENATE DECEMBER 18, 2008
INTRODUCED BY Assembly Member Evans
DECEMBER 8, 2008
An act to amend Sections 19002 and 19355 of the Revenue and
Taxation Code, and to amend Sections 2118, 13000, 13010, 13021,
13022, 13052, and 13052.5 of, and to add Sections 13020.1 and 13050.1
to, the Unemployment Insurance Code, relating to taxation.
LEGISLATIVE COUNSEL'S DIGEST
AB 12, Evans. Tax: withholding on payments for goods and services.
Existing law requires every employer who pays wages to an employee
for services performed in this state to withhold from those wages,
except as provided, specified income taxes, and authorizes the
Franchise Tax Board to impose specified requirements for withholding
of those taxes.
This bill would modify existing law to extend that withholding
requirement to payments made to a private entity or person pursuant
to a contract for goods or services, as provided. This bill would
specify that the withholding rate applicable to those payments would
be 3%, and would exempt from the withholding requirement, among other
payments, the first $600 of a payment for goods or services made to
the contracting party in a calendar year.
This bill would allow the Franchise Tax Board to have access to
the information filed with the Employment Development Department, and
would require the department to create and publish forms for
reporting and remitting payments made pursuant to a contract for
goods or services, as specified.
This bill would establish a new crime with respect to the failure
to withhold taxes, and thus would create a state-mandated local
program.
The California Constitution requires the state to reimburse local
agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
The California Constitution authorizes the Governor to declare a
fiscal emergency and to call the Legislature into special session for
that purpose. The Governor issued a proclamation declaring a fiscal
emergency, and calling a special session for this purpose, on
December 1, 2008.
This bill would state that it addresses the fiscal emergency
declared by the Governor by proclamation issued on December 1, 2008,
pursuant to the California Constitution.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 19002 of the Revenue and Taxation Code is
amended to read:
19002. (a) The amount withheld under Article 5 (commencing with
Section 18661) of Chapter 2 or Section 13020 or 13020.1 of the
Unemployment Insurance Code during any calendar year shall be allowed
to the recipient of the income or payment for goods or services as a
credit against the tax for the taxable year with respect to which
the amount was withheld.
(b) In the case of a partnership, limited liability company
classified as a partnership for California income tax purposes, or "S"
corporation filing a group return as agent for electing nonresident
partners or shareholders in accordance with Section 18535, for
purposes of this part, the amount withheld under Article 5
(commencing with Section 18661) of Chapter 2 during any taxable year
shall be allowed as a credit attributable to the partnership, limited
liability company, or "S" corporation on the group return for the
taxable year with respect to which that amount was withheld.
(c) (1) For purposes of Section 19306, any tax actually deducted
and withheld during any calendar year under Article 5 (commencing
with Section 18661) of Chapter 2 or Section 13020 or 13020.1 of the
Unemployment Insurance Code shall, in respect of the recipient of the
income or payment for goods or services, be deemed to have been paid
on the last day prescribed for filing the return under Article 1
(commencing with Section 18501) or Article 2 (commencing with Section
18601) of Chapter 2 (without regard to any extension of time for
filing the return), with respect to which the tax is allowable as a
credit under subdivision (a) or (b).
(2) For purposes of Sections 19306 and 19340, any amount paid as
estimated tax under Section 19025 or 19136 of this code or Section
13043 of the Unemployment Insurance Code for any taxable year shall
be deemed to have been paid on the last day prescribed for filing the
return under Article 1 (commencing with Section 18501) or Article 2
(commencing with Section 18601) of Chapter 2 (without regard to any
extension of time for filing the return).
(d) Notwithstanding subdivision (b) or (c), for purposes of
Section 19306 with respect to any tax deducted and withheld under
Article 5 (commencing with Section 18661) of Chapter 2, or Section
13020 or 13020.1 of the Unemployment Insurance Code both of the
following shall apply:
(1) If a return is filed before the due date for that return, the
return shall be considered filed on the due date.
(2) If a tax with respect to an amount paid is paid before the due
date for that return, the tax shall be considered paid on the due
date.
(e) If any overpayment of income tax is claimed as a credit
against estimated tax for the succeeding taxable year, that amount
shall be considered as a payment of estimated tax in accordance with
Section 19007, for the succeeding taxable year, and no claim for
credit or refund of the overpayment shall be allowed for the taxable
year in which the overpayment arises.
SEC. 2. Section 19355 of the Revenue and Taxation Code is amended
to read:
19355. Any action of the Franchise Tax Board in refunding the
excess of tax withheld under Section 18662 or 18666 or estimated tax
paid pursuant to Section 19136, or any action of the Employment
Development Department in refunding to the employer the excess tax
withheld under Section 13020 or 13020.1 of the Unemployment Insurance
Code, shall not constitute a determination of the correctness of the
return of the taxpayer for purposes of this part.
SEC. 3. Section 2118 of the Unemployment Insurance Code is amended
to read:
2118. Any person or employer who, with or without intent to
evade, fails to withhold, pursuant to Section 13020 or 13020.1, or
fails to pay over any tax withheld, is guilty of a misdemeanor and,
upon conviction, shall be fined an amount not to exceed one thousand
dollars ($1,000), or imprisoned for not more than one year, or both
the fine and imprisonment, at the discretion of the court.
SEC. 4. Section 13000 of the Unemployment Insurance Code is
amended to read:
13000. The department shall have the powers and duties necessary
to administer the reporting, collection, refunding to the employer,
and enforcement of taxes required to be withheld by employers
pursuant to Section 13020 or by service-recipients pursuant to
Section 13020.1, except as otherwise provided by this division.
SEC. 5. Section 13010 of the Unemployment Insurance Code is
amended to read:
13010. "Withholding agent" means any person required to deduct
and withhold any tax under the provisions of Section 13020 or
13020.1.
SEC. 6. Section 13020.1 is added to the Unemployment Insurance
Code, to read:
13020.1. (a) Effective January 1, 2010, any service-recipient
that enters into a contract for goods or services shall deduct and
withhold tax prescribed in subdivision (b) on any payment for goods
or services made to the contracting party in any calendar year.
(b) The rate of tax to be deducted and withheld shall be 3
percent.
(c) All of the following payments required under this section are
exempt from withholding:
(1) The first six hundred dollars ($600) of remuneration for goods
or services paid to a contracting party in a calendar year.
(2) Payments to tax-exempt entities, foreign governments, and
intragovernmental payments.
(3) Payments of wages or any other payment with respect to which
mandatory withholding applies under Section 13020.
(d) For purposes of this section, "service-recipient" means any
business or government entity that is required to file a federal Form
1099-MISC for services performed by an independent contractor,
including any individual, person, corporation, association, or
partnership, or agent thereof, doing business in this state, deriving
trade or business income from sources within this state, or in any
manner in the course of trade or business subject to the laws of this
state. A "service-recipient" also includes this state or any
political subdivision thereof, including the Regents of the
University of California, any charter city, or any political body not
a subdivision or agency of the state, and any person, employee,
department, or agent.
(e) The Franchise Tax Board shall be allowed access to the
information filed with the department pursuant to this section.
(f) The department shall develop and publish forms for reporting
and remitting payments made and taxes withheld under this section.
SEC. 7. Section 13021 of the Unemployment Insurance Code is
amended to read:
13021. (a) Every employer required to withhold any tax under
Section 13020 and any service-recipient required to withhold any tax
under Section 13020.1 shall for each calendar quarter, whether or not
wages or payments are paid in the quarter, file a withholding report
and a report of wages or payments for goods or services in a form
prescribed by the department, and pay over the taxes so required to
be withheld. The report of wages or payments for goods or services
shall include individual amounts required to be withheld under
Section 13020 or withheld under Section 13028. Except as provided in
subdivisions (c) and (d), the employer or service-recipient shall
file a withholding report and remit the total amount of income taxes
withheld during the calendar quarter on or before the last day of the
month following the close of the calendar quarter.
(b) Every employer electing to file a single annual return under
subdivision (d) of Section 1110 shall report and pay any taxes
withheld under Section 13020 on an annual basis within the time
specified in subdivision (d) of Section 1110.
(c) (1) Effective January 1, 1995, whenever an employer or
service-recipient is required, for federal income tax purposes, to
remit the total amount of withheld federal income tax in accordance
with Section 6302 of the Internal Revenue Code and regulations
thereunder, and the accumulated amount of state income tax withheld
is more than five hundred dollars ($500), the employer shall remit
the total amount of income tax withheld for state income tax purposes
within the number of banking days as specified for withheld federal
income taxes by Section 6302 of the Internal Revenue Code, and
regulations thereunder.
(2) Effective January 1, 1996, the five hundred dollar ($500)
amount referred to in paragraph (1) shall be adjusted annually as
follows, based on the annual average rate of interest earned on the
Pooled Money Investment Fund as of June 30 in the prior fiscal year:
Average Rate of Interest
Greater than or equal to 9 percent: $ 75
Less than 9 percent, but greater than
or equal
to 250
7 percent:
Less than 7 percent, but greater than
or equal
to 400
4 percent:
Less than 4 percent: 500
(d) (1) Notwithstanding subdivisions (a) and (c), for calendar
years beginning prior to January 1, 1995, if in the 12-month period
ending June 30 of the prior year the cumulative average payment made
pursuant to this division or Section 1110, for eight-month periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was fifty thousand dollars ($50,000) or more,
the employer or service-recipient shall remit the total amount of
income tax withheld within three banking days following the close of
each eight-month period, as defined by Section 6302 of the Internal
Revenue Code and regulations thereunder. For purposes of this
subdivision, payment shall be made by electronic funds transfer in
accordance with Section 13021.5, for one calendar year beginning on
January 1. Payment is deemed complete on the date the electronic
funds transfer is initiated if settlement to the state's demand
account occurs on or before the banking day following the date the
transfer is initiated. If settlement to the state's demand account
does not occur on or before the banking day following the date the
transfer is initiated, payment is deemed complete on the date
settlement occurs. The department shall, on or before October 31 of
the prior year, notify all employers required to make payment by
electronic funds transfer of these requirements.
(2) Notwithstanding subdivisions (a) and (c), for calendar years
beginning on or after January 1, 1995, if in the 12-month period
ending June 30 of the prior year, the cumulative average payment made
pursuant to this division or Section 1110 for any deposit periods,
as defined under Section 6302 of the Internal Revenue Code and
regulations thereunder, was twenty thousand dollars ($20,000) or
more, the employer or service-recipient shall remit the total amount
of income tax withheld within the number of banking days as specified
for federal income taxes by Section 6302 of the Internal Revenue
Code and regulations thereunder. For purposes of this subdivision,
payment shall be made by electronic funds transfer in accordance with
Section 13021.5, for one calendar year beginning on January 1.
Payment is deemed complete on the date the electronic funds transfer
is initiated if settlement to the state's demand account occurs on or
before the banking day following the date the transfer is initiated.
If settlement to the state's demand account does not occur on or
before the banking day following the date the transfer is initiated,
payment is deemed complete on the date settlement occurs. The
department shall, on or before October 31 of the prior year, notify
all employers required by this paragraph to make payments by
electronic funds transfer of these requirements.
(3) Notwithstanding paragraph (2), effective January 1, 1995,
electronic funds transfer payments that are subject to the one-day
deposit rule, as defined by Section 6302 of the Internal Revenue Code
and regulations thereunder, shall be deemed timely if the payment
settles to the state's demand account within three banking days after
the date the employer or service-recipient meets the threshold for
the one-day deposit rule.
(4) Any taxpayer required to remit payments pursuant to paragraphs
(1) and (2) may request from the department a waiver of those
requirements. The department may grant a waiver only if it determines
that the particular amounts paid in excess of fifty thousand dollars
($50,000) or twenty thousand dollars ($20,000), as stated in
paragraphs (1) and (2), respectively, were the result of an
unprecedented occurrence for that employer or service-recipient, and
were not representative of the employer's or service-recipient's
cumulative average payment in prior years.
(5) Any state agency required to remit payments pursuant to
paragraphs (1) and (2) may request a waiver of those requirements
from the department. The department may grant a waiver if it
determines that there will not be a negative impact on the interest
earnings of the General Fund. If there is a negative impact to the
General Fund, the department may grant a waiver if the requesting
state agency follows procedures designated by the department to
mitigate the impact to the General Fund.
(e) Any employer not required to make payment pursuant to
subdivision (d) of this section may elect to make payment by
electronic funds transfer in accordance with Section 13021.5 under
the following conditions:
(1) The election shall be made in a form, and shall contain
information, as prescribed by the director, and shall be subject to
approval by the department.
(2) If approved, the election shall be effective on the date
specified in the notification to the employer of approval.
(3) The election shall be operative from the date specified in the
notification of approval, and shall continue in effect until
terminated by the employer or the department.
(4) Funds remitted by electronic funds transfer pursuant to this
subdivision shall be deemed complete in accordance with subdivision
(d) or as deemed appropriate by the director to encourage use of this
payment method.
(f) Notwithstanding Section 1112, no interest or penalties shall
be assessed against any employer who remits at least 95 percent of
the amount required by subdivision (c) or (d) if the failure to remit
the full amount is not willful and any remaining amount due is paid
with the next payment. The director may allow any employer to submit
the amounts due from multiple locations upon a showing that those
submissions are necessary to comply with subdivision (c) or (d).
(g) The department may, if it believes that action is necessary,
require any employer or service-recipient to make the report required
by this section and pay to it the tax deducted and withheld at any
time, or from time to time but no less frequently than provided for
in subdivision (a).
(h) Any employer or service-recipient required to withhold any tax
and who is not required to make payment under subdivision (c) shall
remit the total amount of income tax withheld during each month of
each calendar quarter, on or before the 15th day of the subsequent
month if the income tax withheld for any of the three months or,
cumulatively for two or more months, is three hundred fifty dollars
($350) or more.
(i) For purposes of subdivisions (a), (c), and (h), payment is
deemed complete when it is placed in a properly addressed envelope,
bearing the correct postage, and it is deposited in the United States
mail.
(j) In addition to the withholding report and report of wages or
payments for goods or services described in subdivision (a), each
employer or service-recipient shall file with the director an annual
reconciliation return showing the amount required to be withheld
under Section 13020, and any other information the director shall
prescribe. This annual reconciliation return shall be due on the
first day of January following the close of the prior calendar year
and shall become delinquent if not filed on or before the last day of
that month.
SEC. 8. Section 13022 of the Unemployment Insurance Code is
amended to read:
13022. In determining the amount to be deducted and withheld
under Sections 13020 and 13020.1, the wages and payments for goods or
services may, at the election of the employer or service-recipient,
be computed to the nearest dollar.
SEC. 9. Section 13050.1 is added to the Unemployment Insurance
Code, to read:
13050.1. (a) Every service-recipient required to withhold under
Section 13020.1 shall furnish to each person whose name is required
to be set forth in a return reporting withholding pursuant to Section
13020.1 a written statement during the calendar year, or before
January 31 of the succeeding calendar year, showing all of the
following:
(1) The full name, address, and taxpayer identification number of
the person with respect to whom a return or statement is required
under this section.
(2) The service-recipient's name, business name, address, and
telephone number.
(3) The service-recipient's federal employer identification
number, California state employer account number, social security
number, or other identifying number as required by the department in
consultation with the Franchise Tax Board.
(4) The aggregate amount of payments to the person required to be
shown on the return.
(5) The amount withheld pursuant to Section 13020.1.
(b) The statement required to be furnished pursuant to this
section shall be furnished at other times and shall contain other
information as the department may by authorized regulations
prescribe.
(c) A duplicate of any statement made pursuant to subdivision (a)
shall be filed with the department by February 28 of the succeeding
calendar year.
(d) An itemized statement showing the information required under
subdivision (a) shall be furnished to each service-provider at the
time of payment of remuneration.
SEC. 10. Section 13052 of the Unemployment Insurance Code is
amended to read:
13052. Any person or employer required under Section 13050 or
Section 13050.1 to furnish a statement to an employee or to a person
who furnishes a false or fraudulent statement, or who fails to
furnish a statement in the manner, at the time, and showing the
information required under Section 13050 or 13050.1, or regulations
prescribed thereunder, shall for each such failure, unless due to
reasonable cause, pay a penalty of fifty dollars ($50). The penalty
shall be assessed and collected in the same manner as the tax.
SEC. 11. Section 13052.5 of the Unemployment Insurance Code is
amended to read:
13052.5. (a) In addition to the penalty imposed by Section 19183
of the Revenue and Taxation Code (relating to failure to file
information returns), if any person, or entity fails to report
amounts paid as remuneration for personal services as required under
Section 13050 or 13050.1 of this code or Section 6041A of the
Internal Revenue Code on the date prescribed thereof (determined with
regard to any extension of time for filing), that person or entity
may be liable for a penalty determined under subdivision (b).
(b) For purposes of subdivision (a), the amount determined under
this subdivision is the maximum rate under Section 17041 of the
Revenue and Taxation Code multiplied by the unreported amounts paid
as remuneration for personal services.
(c) The penalty imposed by subdivision (a) shall be assessed
against that person or entity required to file a return under Section
13050 or 13050.1 of this code or Section 6041A of the Internal
Revenue Code.
(d) Sections 1221 and 1222 of the Unemployment Insurance Code
shall not apply to assessments imposed by this section.
(e) The penalty imposed under this section shall be in lieu of the
penalty imposed under Section 19175 of the Revenue and Taxation
Code. In the event that a penalty is imposed under both this section
and Section 19175 of the Revenue and Taxation Code, only the penalty
imposed under this section shall apply.
(f) The penalty imposed by this section may be assessed in lieu
of, or in addition to, the penalty imposed by Section 13052 with
respect to the failure to furnish a withholding statement to an
employee or to a person.
SEC. 12. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 13. This act addresses the fiscal emergency declared by the
Governor by proclamation on December 1, 2008, pursuant to subdivision
(f) of Section 10 of Article IV of the California Constitution.