BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair AB 1352 (Logue) Hearing Date: 08/25/2011 Amended: 07/14/2011 Consultant: Mark McKenzie Policy Vote: G&F 9-0 _________________________________________________________________ ____ BILL SUMMARY: AB 1352 would authorize the Board of Equalization (BOE) to relieve interest imposed as a result of failure to make a timely payment, if the failure was due to extraordinary circumstances, as specified. The bill would also provide that specified vehicle license fee (VLF) revenues that are deposited into the Local Revenue Fund of 2011 for local law enforcement realignment purposes would not be subject to expenditure requirements of a local ordinance in Nevada County. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Nevada County VLF no state costs Local _________________________________________________________________ ____ STAFF COMMENTS: SUSPENSE FILE. AS PROPOSED TO BE AMENDED. Existing law requires payment of penalties and interest for failure to pay sales and use tax obligations on time. Simple interest is charged on a monthly basis at a rate of seven percent annually from the date the tax is due to the date of payment. The BOE currently has the authority to relieve a late payment penalty when there is a finding that the failure to make a timely payment was due to a disaster or reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and the absence of willful neglect. The BOE may only relieve interest on a late payment in cases of a disaster or when failure to make a timely payment was due to an unreasonable error or delay by a BOE employee. AB 1352 would allow the Members of the BOE, meeting as a public body, to relieve all or part of the interest imposed on late payments, up to $50,000 total in a 12-month period, if the failure to make a timely payment was due to extraordinary AB 1352 (Logue) Page 1 circumstances. The person seeking relief must have been granted relief from all penalties, paid the tax on which the interest is imposed, requested an oral hearing before the Members, and filed a statement under penalty of perjury that includes facts and information about the claim. The failure to make a payment must be a result of the following "extraordinary circumstances:" the death or medical incapacity of the person's next of kin; the occurrence of an emergency, as specified in current law (state of war, emergency, or local emergency); or criminal misconduct by a person other than the claimant. It is unclear how many taxpayers would seek relief, and how many would be granted relief, as a result of the discretionary authority provided by this bill. The BOE cites one case in which a taxpayer was victim of embezzlement by a bookkeeper who had falsified the taxpayer's accounting records, resulting in an unpaid tax liability that was subject to penalties and interest. The accumulated interest was $15,662 when that case came before the BOE. Since the demand for interest relief related to this bill is unknown, the magnitude of any potential interest revenue loss is indeterminable, but the bill limits the aggregate relief in a 12-month period to $50,000. If demand exceeds this limitation, the bill could create additional General Fund cost pressures. In addition, since the limit on aggregate relief is based on a 12-month period, the impact in any fiscal year could be greater or less than $50,000. Staff notes that the BOE provisions of this bill are substantially similar to AB 2375 (Knight), which failed passage in the Senate Revenue and Taxation Committee last year. AB 1352 was recently amended to add a provision to address an issue unrelated to the Sales and Use Tax law. Specifically, the bill was amended to specify that any VLF revenues that are deposited into the Local Law Enforcement Services Account in the Local Revenue Fund of 2011 and distributed to counties would not be subject to requirements of a local ordinance in Nevada County that otherwise requires that 50% of all VLF revenues received by that county be expended on county roads. In March 1996, Nevada County voters approved Measure F, an ordinance which required that all funds received from the State of California from motor vehicle license fee funds, as defined in the State Constitution and in statute, must be segregated AB 1352 (Logue) Page 2 into a separate accounting fund. The County must spend at least half of those funds in each fiscal year only for public roads, ways, and highways for maintenance, repair, circulation enhancement, general road safety, and fire access. Following the enactment of a temporary increase to the VLF as part of the February 2009 budget agreement, SB 636 (Ashburn), Chapter 605 of 2009, was enacted to ensure that the increased VLF revenues dedicated for local law enforcement purposes would not be subject to the requirements of Measure F. This bill would enact similar provisions to ensure that VLF revenues dedicated to local law enforcement as part of the realignment package, as specified in SB 89 (Committee on Budget and Fiscal Review), Chapter 35 of 2011, are not subject to the requirements of Nevada County's local ordinance. There is no state fiscal impact associated with this provision of AB 1352. Staff notes that the recent amendments appear to be a violation of Joint Rule 9, which requires that a "substitute or amendment must relate to the same subject of the original bill." It is unclear, however, whether the bill is a violation of Article IV, Section 9 of the California Constitution, which states in part that "a statute shall embrace but one subject, which shall be expressed in its title." It should be noted that the courts have construed single subject provisions in a lenient manner so as not to unduly restrict the Legislature's or the people's right to package provisions in a single bill or initiative (Californians for an Open Primary v. McPherson (2006) 38 Cal.4th 735). PROPOSED COMMITTEE AMENDMENTS would delete provisions that would authorize BOE to relieve interest imposed as a result of failure to make a timely payment.