BILL ANALYSIS
AB 8 X8
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 8 X8 (Budget Committee)
As Amended February 17, 2010
Majority vote
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|ASSEMBLY: | |(February 4, |SENATE: |30-8 |(February 18, |
| | |2010) | | |2010) |
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(vote not relevant)
Original Committee Reference: RLS.
SUMMARY: Contains several provisions aimed at improving tax
compliance.
The Senate amendments delete the Assembly version of this bill,
and instead:
1)Create a financial institution record match system (FIRM)
similar to an existing program for child support collections.
Financial institutions would be required to perform quarterly
matches of their account records with a file of delinquent
taxpayers provided by the Franchise Tax Board (FTB) in order
to identify assets that can be applied to pay the delinquent
tax debts. It also authorizes FTB to institute civil
proceedings to enforce specified provisions of this measure.
2)Require out-of-state sellers, such as Amazon, that pay
commissions to California firms or residents for sales
referrals (often through a Web site link) to collect use tax
on their sales to California residents. Existing law requires
Californians to self-report and pay the use tax on these
purchases, but compliance is low.
3)Strengthen laws related to abusive tax shelters by: a)
providing a uniform definition for the application of several
statutes aimed at curtailing such activity; b) adopting
federal categories for reportable "transactions of interest;"
and; c) revising penalty provisions.
4)Permit the state to suspend state occupational and
professional licenses because of unpaid income tax
liabilities.
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Suspension could not occur until at least 60 days after all
due process provisions in current law have been exhausted.
Allow taxpayer to avoid suspension by entering into an
installment agreement with FTB.
FISCAL EFFECT : As shown in the accompanying table, the tax
compliance measures would raise GF collections by $15 million in
2009-10, $160 million in 2010-11, and $162 million in 2011-12.
These fiscal effects assume that this bill is enacted by June 1,
2010.
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Revenue Impact of Compliance and Acceleration Provisions
(General Fund Revenue Impacts, In millions)
----------------------------------------------------
| |2009-1|2010-1|2011-12 |
| |0 |1 | |
|---------------------------+------+------+----------|
|FIRM\a | | 32| 32|
|---------------------------+------+------+----------|
|Extended sales tax nexus\b | | 107| 107|
|---------------------------+------+------+----------|
|Strengthened definition of | 1| 2| 4|
|abusive tax shelters | | | |
|---------------------------+------+------+----------|
|Occupational license | 14| 19| 19|
|suspension for delinquent | | | |
|taxpayers\c | | | |
|---------------------------+------+------+----------|
|Total: | $15| $160|$162 |
| | | | |
----------------------------------------------------
a\ Does not include administrative costs and reimbursement costs
for the program, which FTB estimates would be $1.4 million in
2010-11, $5.1 million in 2011-12, and $3.6 million in 2012-13.
b\ Would also increase special and local sales and use tax
revenue by about $43 million per year.
c\ Does not include administrative costs for the program, which
FTB estimates would be $2.5 million in 2010-11 and $1.4 million
annually thereafter.
AS PASSED BY THE ASSEMBLY ; this bill was a vehicle for 2009
Budget legislation.
COMMENTS :
1)Financial institution record match system . The FIRM program
requires financial institutions to match a list for delinquent
tax debtors against its customer records, and provide to FTB,
on a quarterly basis, the name, record address, social
security number or taxpayer identification number for each
delinquent tax debtor in its customer records. The measure
requires FTB to reimburse a financial institution for its
actual costs incurred to implement FIRM, up to $2,500 for
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startup costs and no more than $250 per calendar quarter
thereafter.
2)Expanded sales tax nexus . A contentious issue in sales and
use tax administration relates to the extent to which a state
may compel an out-of-state retailer to collect use taxes from
its in-state customers. The issue is of considerable
importance because, although Californians are required to
self-report out-of-state purchases for use in this state, the
compliance rate is very low.
In general, an out-of-state retailer must have sufficient
business presence in the State (also known as "nexus") in
order to be required to collect and remit the tax. Under
current law, a retailer is considered "engaged in business in
this state" and required to collect the California use tax on
sales made to California consumers when it maintains storage
or warehousing facilities in the state or it has a
representative or independent contractor operating in this
state for the purpose of selling, delivering, installing,
assembling, or the taking of orders for the tangible personal
property.
Current Board of Equalization regulations specify that the use
of a computer server on the Internet to create or maintain a
web page or site by an out-of-state retailer is not considered
a factor in determining whether the retailer has a substantial
nexus with California. The regulations further state that an
Internet service provider or other Internet access service
provider, or World Wide Web hosting services shall not be
deemed the agent or representative of any out-of-state
retailer as a result of the service provider maintaining or
taking orders via a web page or site on a computer server that
is physically located in this state.
This bill provides that the term "retailer engaged in business
in this state" includes any retailer that enters into an
agreement with a California business or other entity under
which the California entity, for a commission or other
consideration that depends on actual sales, directly or
indirectly refers potential customers of tangible personal
property to the retailer. The referral can be by a link or an
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Internet Web site, or some other means, provided that the
cumulative sales price from sales by the retailer to customers
in California who are referred pursuant to these agreements
exceeds $10,000 during the preceding 12 months.
The measure does not apply to advertising on television,
radio, in print, on the Internet, or any other medium, unless
the payment for advertising consists of a commission or other
consideration that is based on sales of tangible personal
property. Thus, banners and "click-throughs" on internet
sites, such as Google, which are based on models other than
sales commissions for referrals, would not create nexus with
California. However, the bill could apply to out-of-state
sellers using California-based marketplace sites, such as
e-Bay.
The bill is based on legislation enacted in the state of New
York in 2008. That law has been challenged on Constitutional
grounds, but the challenges were dismissed at the trial court
level. Currently, three states (New York, North Carolina, and
Rhode Island) have enacted laws requiring remote sellers using
on-line affiliates to collect use taxes, and lawmakers in
several other states have introduced similar legislation.
3)Abusive tax shelters . Current federal and state laws place
reporting requirements and restrictions on abusive tax shelter
(ATS) and related transactions designed to avoid taxes. The
use of, and failure to report, such transactions is subject to
assessment, substantial penalties, and interest by the FTB up
to eight years after the tax return is filed by the taxpayers.
According to the FTB, current law suffers from inconsistencies
in definitions among various ATS provisions, hampering the
enforcement of these provisions. This bill would eliminate
these inconsistencies by providing a single, consistent
definition for abusive tax shelters, which would be referred
to as "potentially abusive tax avoidance transactions." It
also adopts the federal reportable transaction categories for
"transactions of interest" for California purposes, and it
provides similar authority to the FTB to determine
transactions of interest for California income or franchise
tax purposes (thereby enabling the state to seek additional
AB 8 X8
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information related to such transactions).
Abusive tax shelter penalties can currently be avoided if a
taxpayer that has been contacted by the FTB about such
activities files an amended return prior to when FTB issues a
deficiency notice. The measure would impose a reduced
penalty, equal to 50% of the full penalty, for taxpayers that
file an amended return in these circumstances. The reduced
penalty is aimed at encouraging taxpayers to file amended
returns and pay taxes owed, while at the same time maintaining
some penalty on taxpayers that had previously reduced their
tax by the use of abusive transactions.
4)Suspension of occupational licenses . Taxpayers facing
collections for unpaid taxes are afforded a variety of due
process protections. Under this process, the FTB must attempt
to notify taxpayers multiple times, provide ample time periods
for taxpayer response, and give taxpayers opportunities to
dispute or appeal the amounts. Once this process has run its
course and tax assessments remain unpaid, FTB can take several
actions to enforce collections. These include the issuance of
orders to withhold taxes, placement of filing liens against an
individual's property, and the seizure of property. While
these enforcement actions are effective in cases where
taxpayers receive paychecks from employers, and/or have
financial accounts and other property that can be located,
they can be ineffective in cases where taxpayers are self
employed, and operate on a cash basis.
The FTB states that there are approximately 25,000 delinquent
taxpayers with a state-issued occupational or professional
license; this figure excludes taxpayers that have filed for
bankruptcy or those who agreed to a payment installation plan
and are working to pay off their tax liability.
This bill provides an additional enforcement tool by allowing
the state to suspend occupational licenses once all due
process provisions have been completed and the FTB has issued
a tax lien. Prior to suspension, the taxpayer would be
provided with additional notice and given 60 days to satisfy
his or her obligation or enter into an installment agreement.
The measure also provides that a licensee's suspension be
canceled upon compliance with tax obligations.
5)Previous legislation . All of these provisions were contained
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in SBX3 17 (Ducheny), which was vetoed by the Governor in
2009. The FIRM provisions were also contained in SB 401
(Wolk), the expanded sales tax nexus provisions were also in
AB 178 (Skinner), the abusive tax shelter provisions were also
in versions of SB 402 (Wolk), and the occupational license
provisions were also in AB 484 (Eng), all of the 2009 session.
Analysis Prepared by : Brad Williams / APPROPS. / (916)
319-2081
FN:
0003688