BILL ANALYSIS Ó
-----------------------------------------------------------------------
|Hearing Date:July 6, 2011 |Bill No:AB |
| |1307 |
-----------------------------------------------------------------------
SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 1307Author:Skinner
As Amended:June 21, 2011 Fiscal: Yes
SUBJECT: State Board of Equalization: administration: collections.
SUMMARY: Authorizes the Contractors State License Board to refuse to
issue, reinstate, reactivate, or renew a license or to suspend the
license of a contractor for the failure of the licensee to resolve all
outstanding final liabilities assessed by the State Board of
Equalization (BOE), if the licensee has not entered into an
installment payment agreement for that liability and is in compliance
with that agreement. Enhances BOE's ability to collect tax fees and
liabilities by establishing a Financial Institution Records Match
system; authorizes BOE to refuse to issue a seller's permit to any
person who has an outstanding tax liability and has not entered into
an installment payment agreement; allows BOE access to the information
filed by employers with the Employment Development Department
regarding new employees for the purpose of tax or fee enforcement.
NOTE: This measure was heard in Senate Governance and Finance
Committee on June 29, 2011, and passed out of Committee by a vote of 6
to 3.
Existing law, the Business and Professions Code (BPC):
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law by the Contractors State License Board
(CSLB) within the Department of Consumer Affairs (DCA). The CSLB is
under the direction of the Registrar of contractors (Registrar).
2)Authorizes the Registrar to refuse to issue, reinstate, reactivate,
or renew a license or to suspend the license of a contractor for the
failure of the licensee to resolve all outstanding final
AB 1307
Page 2
liabilities, including taxes, additions to tax, penalties, interest,
and any fees assessed by CSLB, the Department of Industrial
Relations, the Employment Development Department, or the Franchise
Tax Board. (BPC § 7145.5)
a) Prohibits a qualifying person and any other personnel named on
the license, whose license has been suspended due to outstanding
final liabilities with the State, as specified, from serving in
any capacity other than as a nonsupervising bona fide employee
until that debt is satisfied.
b) Provides that the license of any other renewable licensed
entity with any of the personnel of record that have been
assessed an outstanding liability, as specified, will be
suspended until the debt has been satisfied or until the same
personnel of record disassociate themselves from the renewable
licensed entity.
c) Allows the refusal or suspension of a license only if the
registrar of CSLB has mailed a notice at least 60 days prior to
the suspension that indicates that the license will be suspended
by a certain date, as specified.
Existing law, the Revenue and Tax Code (RTC):
1) Requires any person desiring to engage in business as a seller in
California to apply for a seller's permit with the Board of
Equalization (BOE). A seller's permit is valid for as long at the
seller maintains a business and remains in good standing with the
BOE. (RTC § 6066)
2)Provides that the BOE may revoke the seller's permit of a person who
fails to comply with any provision of the sales and use tax law,
including fulfilling the payments of amounts due. The BOE must
first provide an opportunity for a hearing in which that person may
show why the seller's permit should not be revoked. (RTC § 6070)
3)Provides that a seller whose permit has been revoked or suspended may
renew their permit after paying a $100 reinstatement fee to the BOE.
(RTC § 6069)
Existing law, the Unemployment Insurance Code (UIC):
1) Provides for the payment of unemployment compensation benefits to
eligible unemployed individuals, and requires the Employment
Development Department (EDD) to implement and administer the
AB 1307
Page 3
unemployment insurance system in the state.
2)Requires each employer to file with the EDD a report of wages paid to
his or her workers and to furnish to each employee a written
statement showing, among other things, the total amount of wages,
and total wages subject to personal income tax, as specified. (UIC
§ 1088)
3)Requires each employer to file with the EDD specified information on
new employees, and authorizes the use of that information for
specified purposes including, among other things, providing employer
or employee information to the Franchise Tax Board for the purpose
of tax enforcement. (UIC § 1088.5)
This bill:
1)Authorizes the CSLB to additionally refuse to issue, reinstate,
reactivate, or renew a license or to suspend the license of a
contractor for the failure of the licensee to resolve all
outstanding final liabilities assessed by the State Board of
Equalization.
2)Specifies that the Registrar shall not refuse to issue, reinstate,
reactivate, renew or suspend a contractor's license for outstanding
final liabilities to the BOE, if the licensee has entered into an
installment payment agreement for that liability with the BOE and is
in compliance with that agreement.
3)Requires the BOE to operate and implement a Financial Institution
Records Match system in cooperation with the Franchise Tax Board to
identify delinquent tax debtors.
4)Authorizes BOE to refuse to issue a seller's permit to any person who
has an outstanding liability with the BOE and has not entered into
an installment payment agreement. The bill requires BOE to provide
a notice, as specified, to the taxpayer who was refused a permit.
5)Allows the BOE access to the information filed by employers with EDD
regarding new employees for the purpose of tax or fee enforcement.
FISCAL EFFECT: The Assembly Appropriations Committee analysis dated
May 11, 2011, indicates that the BOE estimates minor additional
revenues from taxpayers entering into installment payment agreements.
COMMENTS:
AB 1307
Page 4
1.Purpose. This bill is sponsored by the Board of Equalization (BOE)
in order to provide additional incentives for taxpayers to pay their
outstanding BOE-related tax and fee liabilities and to enhance the
BOE's ability to collect those liabilities.
The BOE states the bill would do the following:
Authorize the BOE to request the Contractor's State License
Board for a denial or suspension of a contractor's license for
failure to resolve any outstanding BOE-related final tax or fee
liabilities.
Require the BOE to operate and implement a Financial
Institution Records Match system in cooperation with the
Franchise Tax Board (FTB), by requiring financial institutions to
match their customer records against the BOE's database of
taxpayers with delinquent tax, fee or surcharge liabilities under
the BOE's programs, in order to enhance BOE's ability to collect
delinquent liabilities.
Authorize the BOE to refuse to issue a seller's permit to any
person who has an outstanding liability with the BOE and has not
entered into an installment payment agreement, as specified.
Allow the BOE to use the new employee registry information
maintained by the Employment Development Department (EDD) for tax
enforcement purposes.
1.Background. The BOE indicates that, under current law, it has
several tools to provide incentives for taxpayers to pay their tax
and fee liabilities and to assist in collecting delinquent tax or
fee liabilities. These include:
The imposition of penalties and interest on the amount of the
late tax or fee payment.
The authority for the BOE to revoke a taxpayer's seller's
permit for failure to pay outstanding sales and use tax
liabilities.
The opportunity for taxpayers to enter into affordable
installment payment plans.
The authority for the BOE to issue an Order to Withhold (OTW)
to any third-person in possession of funds or properties
belonging to the debtor, such as bank accounts, rental income, or
AB 1307
Page 5
accounts receivables, which, in turn, requires that third person
to submit to the BOE all the debtor's cash or cash equivalents
that would satisfy the OTW.
The authority for the BOE to use Earnings Withholding Orders
(EWO) to collect delinquent tax liabilities for which a state tax
lien is in effect. An EWO is a continuing wage garnishment based
on a percentage of a debtor's earnings, not to exceed 25 percent
of disposable income. The EWO remains in effect until the total
amount owing has been paid, or the order has been withdrawn.
The authority for the BOE to issue a warrant to seize property
and convert it to cash to satisfy a debt. Warrants are enforced
by a marshal. "Till-tap" or "keeper" warrants are warrants
served by the California Highway Patrol or the local sheriff that
allow them to enter a tax debtor's business and take possession
or personal property or collect the contents of the cash
registers.
In addition, a statutory tax lien automatically arises by
operation of law, which is a claim upon real and personal
property for the satisfaction of a tax debt. The lien is in
force for
10 years, unless the liability becomes satisfied or a Notice of
State Tax Lien is recorded with a county recorder's office or the
Secretary of State. The recording of the notice provides notice
to all parties of the debt against real and personal property
belonging to the tax debtor and located in the California county
where recorded.
1.CSLB's Authority to Refuse to Renew a License for Failure to Resolve
Outstanding Liabilities. Current law authorizes the CSLB to enhance
the collection efforts relative to the final obligations (taxes and
penalties) assessed against CSLB licensees by the Department of
Industrial Relations, the Employment Development Department, and the
Franchise Tax Board. For individuals who have such unpaid
obligations, the law prohibits all of the personnel of record from
serving in any capacity that is subject to licensure by the CSLB
until the debts are satisfied. In addition, the law provides for
the license suspension of a contractor whose license lists any
personnel of record that have DIR, EDD or FTB obligations assessed
against their primary license. All licenses on which such
individuals are listed remain suspended until the debt has been
satisfied or the personnel of record disassociate themselves from
the licensee.
AB 1307
Page 6
This bill would add to CSLB's authority by authorizing the Board to
refuse to issue a license or refuse to renew the license of a
contractor who owes taxes or penalties to the BOE, unless the
contractor has entered into an installment payment agreement for
that liability with the BOE and is in compliance with that
agreement.
Although CSLB has not yet taken a position on the bill, CSLB staff has
indicated that expanding the Board's enforcement authority to also
include taxes and fees owed to BOE is consistent with what CSLB
currently does with regard to FTB liabilities.
2.Related Legislation. AB 2456 (Nakanishi, Chapter 122, Statutes of
2006) prohibited the qualifying person, and any other personnel
named on the license whose license has been suspended due to
outstanding final liabilities with the State, from serving in any
capacity other than as a nonsupervising bona fide employee.
SB 886 (Corbett) relates to sprinkler fitters licensing and amends
Section 7145.5 to add the State Fire Marshall to the list of
agencies that the Registrar could suspend or revoke a license if the
contractor owed money to the agency. This bill is a two-year bill
in this Committee.
3.Arguments in Support. In sponsoring the bill, BOE states:
"California's sales and use tax system is one based on the principal
of voluntary compliance. Most retailers are honest and generally
comply with the tax laws. However, the BOE's number of overdue
accounts receivable, as well as the overall balance, continues to
increase - further complicating the state's budget woes. Within the
last three-year period, the BOE's accounts receivable balances for
unpaid final liabilities (liabilities that are due and not under
appeal) have nearly doubled. As of the end of 2010, these
outstanding liabilities totaled over $1.5 billion.
"Recent economic turmoil is one factor contributing to this increase.
However, other reasons include the fact that some businesses
purposefully fail to remit the tax, such as when a taxpayer diverts
the sales tax reimbursement collected from a customer for his or her
own purposes instead of remitting the tax to the State. Those
businesses that fail to pay their tax liabilities have in many cases
an unfair competitive advantage over taxpayers who comply with the
law and pay their fair share.
"This bill would provide additional tools that would assist the BOE in
AB 1307
Page 7
reducing its growing outstanding accounts receivable balances from
taxpayers' failure to remit the taxes that are owed, and would
assist in reducing the unfair competitive advantage these tax
debtors have over law-abiding taxpayers."
SUPPORT AND OPPOSITION:
Support: Board of Equalization (Sponsor)
Opposition: None on file as of June 29, 2011
Consultant: G. V. Ayers