BILL ANALYSIS                                                                                                                                                                                                    




            SENATE REVENUE & TAXATION COMMITTEE

            Senator Lois Wolk, Chair

                                                   AB 1530 - Skinner

                                                 Amended: June 14, 2010

                                                                       

            Hearing: June 23, 2010                          Fiscal: Yes




            SUMMARY: Allows FTB to Collect Restitution Orders in the  
                      Same Way that it Collects Tax Liabilities


                      

                 EXISTING LAW authorizes the Franchise Tax Board (FTB)  
            to administer the Personal Income Tax Law and Corporation  
            Tax Law.  FTB may refer cases for criminal prosecution for  
            certain offenses, and the court may require the  
            restitution, for the following crimes:

                             Failure to file returns
                             Forging a spouse's signature

                             False, fraudulent, or deceptive conduct

                             Tax evasion

                             Conversion of a taxpayer refund by a tax  
                      preparer

                             Employer's failure to collect or deposit  
                      tax

                 EXISTING LAW further authorizes FTB to file an action  
            in civil court for a civil judgment under the Code of a  
            Civil Procedure.









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                 EXISTING LAW allows the Franchise Tax Board (FTB) to  
            collect criminal restitution fines under the Court Ordered  
            Debt (COD) program, in addition to fines, state or local  
            penalties, forfeitures, in amounts that exceed $100 in the  
            aggregate and are more than ninety days delinquent to the  
            Franchise Tax Board (FTB) (AB 3343, Hannigan, 1994), and  
            subsequently expanded and extended (SB 246, Escutia, 2004).  
             Restitution orders must be imposed by a governmental  
            entity that:

                             Is authorized to collect on behalf of the  
                      state or victim.
                             Is responsible for distributing the  
                      restitution order collections

                             Ensures that it coordinates with any  
                      other related collection activities that may  
                      occur during that debt.

                 EXISTING LAW allows FTB to collect these amounts using  
            wage garnishments, bank levies, and Notices of State Tax  
            Liens when an amount is due and payable, and the taxpayer  
            has not paid.  Garnishments and levies are treated like  
            warrants issued as part of the civil process.

                 EXISTING LAW establishes a priority for payment of  
            debts when multiple debts are owed by the same taxpayer and  
            are collected by the FTB.  In order:

                         1.             Child Support Delinquencies
                         2.             Payment of taxes, additions to  
                           tax, penalties and interest,

                         3.             Delinquent wages

                         4.             Delinquent Vehicle License Fees

                         5.             Amounts due under the COD  
                           program

                         6.             Amounts referred for collection  
                           under the Cal-OSHA targeted inspection  








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                           program.

                         7.             Delinquent penalties collected  
                           for the Department of Industrial Relations

                         8.             Delinquent fees collected for  
                           the Department of Industrial Relations

                         9.             Delinquencies referred by the  
                           Student Aid Commission

                 THIS BILL allows FTB to collect restitution orders,  
            fines, penalties, or any other amounts awarded to FTB by a  
            court of competent jurisdiction in criminal proceedings in  
            the same way that it collects tax liabilities, although the  
            inclusion of fines, penalties, or any other amounts awarded  
            to FTB by the courts was erroneously included in the draft,  
            and will be removed to conform with the Author's intent  
            (See Comment D).  The measure specifies that the provisions  
            to the Personal Income Tax Law, the Administration of the  
            Franchise and Income Tax Law, the Taxpayers' Bill of  
            Rights, and the Corporation Tax Law shall apply to amounts  
            collected under this bill, unless a conflict exists.

                 THIS BILL allows taxpayers to designate voluntary  
            restitution payments as the taxpayer designates, but no  
            refund or credit is allowed.  

                 THIS BILL provides that for all amounts authorized to  
            be collected before, on, or after January 1, 2011:

                             Interest accrues for the above  
                      collections at the greater rate of restitution  
                      orders (10% per year) or tax penalties, which are  
                      computed according to a statutory formula.  
                             Collection amounts are not bound by  
                      statutes of limitation.  

                             FTB may file Notices of State Tax Lien at  
                      any time until the amount is paid in full.  

                             FTB may retain an amount to compensate  








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                      for its investigatory costs out of the  
                      restitution amount. 

                   


            FISCAL EFFECT: 

                 FTB estimates increases collections of $50,000 in  
            2009-10, $100,000 in 2010-11, and $100,000 in 2011-12.




            COMMENTS:

            A.   Purpose of the Bill

                 The author provides the following statement:

                 AB 1530 is sponsored by the Franchise Tax Board.

                 This bill would provide the FTB express authority to  
                 collect orders of restitution awarded to the  
                 department in criminal proceedings in the same manner  
                 as tax debts.  Authorizing the FTB to use its  
                 efficient electronic tax collection tools would  
                 improve the process of collecting orders of  
                 restitution awarded to the FTB and ensure prompt  
                 follow up on debts by allowing the tax collection  
                 system to monitor accounts for assets that could lead  
                 to satisfaction of the debt.  Orders of restitution  
                 consist primarily of the taxes, penalties, and  
                 interest owed to the FTB and should be collected as  
                 such.



            B.   The Long Arm of the Law

                 FTB provides the following background on AB 1530:









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            "The FTB can seek restitution for economic losses incurred  
            as a result of a crime.  The order of restitution provides  
            that the FTB (as a victim of the crime) receive restitution  
            of the FTB's economic loss from a person convicted of a  
            crime.  The FTB's economic loss in these situations is the  
            amount of state income tax (including applicable penalties,  
            interest and costs of investigation or prosecution) that  
            the person failed to pay as a result of the crime for which  
            the person is guilty.  Because an order of restitution is  
            not specifically a tax or a tax penalty, when awarded in  
            any criminal case, the FTB's administrative tax collection  
            tools are unavailable for use in collecting restitution  
            orders owed to the FTB.

            Currently, the FTB could collect its orders of restitution  
            either through the existing COD provisions in the Revenue  
            and Taxation Code or as a civil money judgment using  
            collection remedies available under the Code of Civil  
            Procedure.  The FTB does not use COD to collect its orders  
            of restitution for the following reasons:



                   The billing notices that the FTB issues to  
                 taxpayers owing both tax and restitution would be  
                 inaccurate because the balances are maintained on two  
                 separate systems that do not communicate in either  
                 billing or collection processes.  The average balance  
                 due for an order of restitution is substantially  
                 larger and more complex, thereby requiring higher  
                 levels of collection expertise to resolve than the  
                 average COD account that relies primarily on automated  
                 processes.

                   The COD system does not assess interest--the client  
                 agency that refers the debt to the FTB for collection  
                 provides updates for accrued interest.  Restitution  
                 orders accrue interest until paid.


            When the FTB collects an order of restitution as a civil  
            money judgment, the FTB must use the collection remedies  








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            available to any creditor under the Code of Civil  
            Procedure, which are generally time consuming and  
            cumbersome.  The statutory procedures for obtaining levies  
            can delay the collection of the order of restitution, and  
            the FTB must rely on the availability of external resources  
            to collect amounts owed as a civil money judgment.  In  
            general, depending on the nature of the assets involved,  
            the civil process can take anywhere from 90 days to one  
            year from the date of seizure to the date of the auction to  
            complete.



            FTB Investigations estimates that orders of restitution are  
            received in approximately 40 criminal cases annually with  
            an estimated value of $15 million.



            C.   Reach Out and Touch Someone

                 Not only does FTB enforce California's Personal Income  
            and Corporation Tax laws, FTB also enforces collections on  
            behalf of state and local agencies separate from its child  
            support enforcement duties.  FTB collects 1.1 million  
            restitution orders referred from 43 counties.  FTB issues a  
            preliminary notice to the debtor, the collects the amount  
            in the same way that FTB collects delinquent personal  
            income taxes, often garnishing wages and bank levies.   
            After the Legislature expanded the program in 2004, FTB  
            implemented the Court Ordered Debt Expansion project to  
            develop and implement a scalable debt collection and  
            billing system, and finished the program last year.  FTB  
            hopes the improved system to handle eight million cases  
            from 190 different courts.



            D.   A Little Bit Less

                 At the hearing, the Author will offer amendments to  
            limit FTB's powers granted by this bill solely to criminal  








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            restitution, and not to fines, penalties, or any other  
            amounts awarded to FTB by the Courts.




            Support and Opposition

                 Support:Franchise Tax Board (sponsor)



                 Oppose:None received.



            ---------------------------------

            Consultant: Colin Grinnell