BILL ANALYSIS                                                                                                                                                                                                    

                                                                  AB 1530
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          Date of Hearing:  August 26, 2010

                              Anthony Portantino, Chair

                    AB 1530 (Skinner) - As Amended:  June 30, 2010
           Majority vote.  Fiscal committee.
          SUBJECT  :  Tax Administration:  Franchise Tax Board:  collection  
          of restitution orders. 

           SUMMARY  :  Provides the Franchise Tax Board (FTB) with express  
          authority to collect restitution orders awarded to the FTB in  
          criminal proceedings in the same manner and with the same  
          priority as tax liabilities. Specifically,  this bill  :  

          1)Allows FTB to collect restitution orders or any other amounts  
            awarded to FTB by a court of competent jurisdiction in  
            criminal proceedings in the same way that FTB collects tax  

          2)Specifies that the provisions of the Personal Income Tax (PIT)  
            Law, the Administration of the Franchise and Income Tax Law,  
            the Taxpayers' Bill of Rights, and the Corporation Tax (CT)  
            Law shall apply to amounts collected under this bill, unless a  
            conflict exists.

          3)Allows taxpayers, notwithstanding the payment priority  
            established under existing law, to designate voluntary  
            restitution payments as payments for a PIT liability or  
            amounts authorized to be collected by the FTB under this bill.  

          4)Provides that for all amounts authorized to be collected that  
            are due and payable to the FTB before, on, or after January 1,  
            2011, all of the following shall apply:

             a)   Interest shall accrue for the collection amounts at the  
               rate of restitution orders (10% per year) or tax penalties,  
               whichever is greater, from and after the date the amounts  
               are established on the records of the FTB;

             b)   Collection amounts shall not be bound by statutes of  


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             c)   The FTB may file Notices of State Tax Lien at any time  
               until the amount is paid in full; and,  

             d)   The FTB may retain an amount to compensate for its  
               investigatory costs out of the restitution amount. 

           EXISTING LAW  :

          1)Allows all persons who suffer losses as a result of criminal  
            activity to seek and secure restitution from the persons  
            convicted of the crimes causing the losses. 

          2)Authorizes the FTB to administer the PIT Law and CT Law and to  
            refer cases for criminal prosecution for certain offenses.   
            Provides that the court may award restitution for the  
            following crimes:

             a)   Failure to file returns;

             b)   Forging a spouse's signature;

             c)   False, fraudulent, or deceptive conduct;

             d)   Tax evasion;

             e)   Conversion of a taxpayer refund by a tax preparer; and, 

             f)   Employer's failure to collect or deposit tax.

          3)Authorizes the FTB to file an action in civil court for a  
            civil judgment under the Code of Civil Procedure.

          4)Allows the FTB to collect criminal restitution fines under the  
            Court Ordered Debt (COD) program, in addition to fines, state  
            or local penalties, and forfeitures, in amounts that exceed  
            $100 in the aggregate and are more than 90 days delinquent.   
            Restitution orders must be imposed by a governmental entity  

             a)   Is authorized to collect on behalf of the state or  

             b)   Is responsible for distributing the restitution order  
               collections; and, 


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

          5)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 complied with the  
            obligation to pay the amount due.  Garnishments and levies are  
            treated like warrants issued as part of the civil process.

          6)Establishes a priority for payment of debts when multiple  
            debts are owed by the same taxpayer and are collected by the  
            FTB in the following order:

             a)   Child support delinquencies;

             b)   Payment of taxes, additions to tax, penalties and  

             c)   Delinquent wages;

             d)   Delinquent vehicle license fees;

             e)   Amounts due under the COD program;

             f)   Amounts referred for collection under the Cal-OSHA  
               targeted inspection program;

             g)   Delinquent penalties collected for the Department of  
               Industrial Relations;

             h)   Delinquent fees collected for the Department of  
               Industrial Relations; and, 

             i)   Delinquencies referred by the Student Aid Commission.

           FISCAL EFFECT  :   The FTB staff estimates that, as a result of  
          this bill, the collections by FTB will increase by $50,000 in  
          fiscal year (FY) 2009-10, $100,000 in FY 2010-11, and $100,000  
          in FY 2011-12.

           COMMENTS  :   

           1)Author's Statement  .  The author states that, "This bill would  
            provide the FTB express authority to collect orders of  


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            restitution awarded to the department for the State 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."

           2)The Purpose of this Bill  .  According to the sponsor, this bill  
            is intended to improve the collection process for orders of  
            restitution awarded to the FTB in criminal proceedings. 

           3)Background  .   Under existing law, the FTB, like any other  
            victim, can seek restitution for economic losses incurred as a  
            result of a specified crime.  Generally, the economic loss  
            suffered by FTB in criminal proceedings is the amount of state  
            income tax, plus any applicable penalties, interest, and costs  
            of investigation and/or prosecution, that the person convicted  
            of a crime failed to pay.  Since an order of restitution  
            issued by a court is not a tax or a tax penalty, it is unclear  
            whether the FTB may use its existing administrative tax  
            collection tools in collecting that order.  

          Currently, the FTB could collect its restitution orders either  
            via the COD provisions or as a civil money judgment using  
            collection remedies available under the Code of Civil  
            Procedure. Restitution orders awarded to FTB in federal cases  
            do not meet the requirements for referral under the COD  
            provisions.  Furthermore, as pointed out by the FTB in its  
            analysis of this bill, the FTB does not use COD to collect any  
            of its orders of restitution because of the following two  
            reasons.  First of all, the billing notices that the FTB  
            issues to taxpayers who owe both tax and restitution would be  
            inaccurate because the balances are maintained on two separate  
            systems - a billing system and a collection system.  The  
            collection of a restitution order requires higher level of  
            collection expertise than the average COD account that relies  
            primarily on automated processes.  Secondly, the COD system  
            does not assess interest; it is the state agency that refers  
            the debt to the FTB for collection that calculates the amount  
            of accrued interest and provides this information to the FTB. 


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          An existing process for enforcing a civil money judgment is  
            generally time consuming and cumbersome.  Those statutory  
            procedures can delay the collection of the restitution orders  
            and the FTB must rely on the availability of external  
            resources to collect amounts owed as a civil money judgment.   
            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.  

          The FTB estimates that, annually, it receives approximately 40  
            criminal orders of restitution valued at $15 million.  AB 1530  
            would expressly authorize the FTB to collect restitution  
            orders, which are awarded to the FTB by a court in criminal  
            proceedings, in the same manner and with the same priority as  
            regular tax liabilities.  


          Franchise Tax Board (sponsor)

          None on file
          Analysis Prepared by  :  Oksana G. Jaffe / REV. & TAX. / (916)