BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          AB 1424 (Perea)
          
          Hearing Date: 08/25/2011        Amended: 08/18/2011
          Consultant: Mark McKenzie       Policy Vote: G&F 6-3
          _________________________________________________________________
          ____
          BILL SUMMARY: AB 1424 would require both the Franchise Tax Board 
          (FTB) and the Board of Equalization (BOE) to expand public lists 
          of tax delinquents to include the 500 largest tax delinquencies 
          and provide for the suspension of professional, occupational and 
          driver's licenses of those whose names appear on the lists.
          _________________________________________________________________
          ____
                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           FTB: tax revenue collections      ($19,000)   ($24,000) 
          ($26,000)              General
          BOE: tax revenue collections      ($264)      ($528)    
          ($528)General*
          FTB administration     $750       $600        $600      General
          BOE administration     $75        $125        $125      General
          DMV: license suspensions          $400        $98       
          $91Special**
          DCA, DRE, CDI, CHP     Unknown, likely moderate costs for 
          eachSpecial***
                                 state entity to administer license 
          suspensions
          ____________
          * Staff notes that total sales and use tax revenue gains are 
          estimated at approximately $1.1 million annually.  Figures shown 
          reflect only the General Fund portion.
          **Motor Vehicle Account
          *** Various Special Funds
          _________________________________________________________________
          ____

          STAFF COMMENTS:  SUSPENSE FILE. 

          Existing law requires the FTB to annually publish, and the BOE 
          to quarterly publish, a list of the 250 largest tax 
          delinquencies of more than $100,000 in taxes owed.  A 
          delinquency would be defined as an amount owed under state tax 








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          laws administered by each agency and recorded as a notice of 
          state lien in any county recorder's office.  A delinquency would 
          not be included on the list if: it is currently under 
          litigation; payment arrangements have been agreed to by both the 
          taxpayer and the agency; the taxpayer has filed for bankruptcy 
          protection; or FTB has not rejected a proposal for resolution of 
          the delinquency, as specified.  Existing law also requires BOE 
          and FTB to provide 30-day advance notice by certified mail to 
          allow a taxpayer the opportunity to make arrangements to resolve 
          the delinquency prior to inclusion on the list, and would 
          provide a mechanism for removal of a delinquency from the list.

          This bill is intended to increase tax compliance and enforcement 
          in order to reduce the tax gap.  Among other things, this bill 
          would:
           Increase the BOE and FTB public lists of the top 250 tax 
            delinquencies to the top 500 tax delinquencies and require FTB 
            to publish its list twice a year.  FTB's list would also 
            include information on any professional or occupational 
            licenses held by each tax delinquent.
           Provide for the suspension of occupational, professional, and 
            driver's licenses of tax delinquents who appear on the public 
            lists.
           Require specified state governmental licensing entities to 
            refuse to issue or renew a license, and to suspend a license 
            if a licensee's name appears on the public lists.
           Prescribe notice requirements, timeframes for compliance, and 
            a process for challenging the submission of a name on the 
            lists in order to provide due process to those who may be 
            subject to license suspension.
           Require BOE and FTB to create release forms that provide for 
            the removal of a person from the tax delinquency lists upon 
            payment of unpaid taxes or entry into an installment 
            agreement, or in cases of financial hardship.
           Prohibit a state agency from entering into a contract for 
            goods or services with a contractor whose name appears on the 
            tax delinquency lists.
           Authorize BOE and FTB to enter into reciprocal agreements with 
            the Internal Revenue Service or other states to provide for 
            the collection of tax debts.

          This bill would require the Attorney General, the Department of 
          Insurance (CDI), the Department of Motor Vehicles (DMV), the 
          State Bar, the Department of Real Estate (DRE), and any other 








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          state agency, board, or commission that issues an occupational 
          or professional license to administer provisions related to 
          license suspensions.  Each of these entities would be required 
          to revise application forms, collect the social security numbers 
          of applicants for purposes of matching names on BOE and FTB 
          lists, and administer the prescribed due process provisions 
          prior to suspending licenses.  The DMV indicates that it would 
          incur one-time programming costs of $400,000 and ongoing 
          administrative costs of nearly $100,000 for .7 PY of staff time. 
           Administrative costs incurred by the other specified entities 
          are currently unknown, but likely minor to moderate, depending 
          on the number of licensees who appear on the lists.  Staff notes 
          that the bill authorizes state governmental licensing entities 
          to impose a fee on a licensee whose license has been suspended, 
          not to exceed administrative costs incurred.  Most of the 
          occupational and professional licensing entities are likely to 
          suspend very few licenses in any given year, so it is unclear 
          whether fees charged to those whose licenses are suspended would 
          be sufficient to cover costs.  FTB indicates, for example, that 
          42 of the individuals on the current list of 250 tax delinquents 
          possess an occupational license.

          Since the publication of the top 250 tax delinquencies by the 
          BOE and FTB in 2007, the state has collected an additional $81 
          million in income and corporate taxes, and over $5 million in 
          taxes owed to the BOE.  Increasing the list to include the top 
          500 tax delinquencies in conjunction with additional collection 
          tools is anticipated to increase tax revenue collections by 
          approximately $25 million annually.  

          The BOE indicates that the current list of 250 sales and use tax 
          accounts of over $100,000 amounts to over $400 million in 
          aggregate tax delinquencies.  Expanding the list to 500 
          delinquent accounts is expected to add $100 million in 
          outstanding delinquencies to the list, for a total of over $500 
          million.  BOE estimates that increasing the list of tax 
          delinquencies and providing authority to suspend professional, 
          occupational, and driver's licenses could generate an additional 
          $1.1 million in annual state and local sales and use tax 
          collections, of which $528,000 would be attributable to the 
          General Fund.  BOE would incur administrative staffing costs of 
          approximately $75,000 in 2011-12 and ongoing costs of $125,000 
          to manage the list of tax delinquencies.  









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          FTB estimates first year implementation costs would be $750,000 
          and ongoing annual costs would be approximately $600,000.  These 
          amounts do not include costs to manage reciprocal collections 
          with the IRS or other states because any costs would be 
          contingent upon other states enacting legislation that provides 
          similar authority.  As of May of 2011 the top 250 delinquent 
          taxpayers owed more than $180 million in personal income and 
          corporate taxes, with individual debts ranging from $300,000 to 
          over $14 million.  FTB estimates that this bill would result in 
          increased tax collections of $19 million in 2011-12, $24 million 
          in 2012-13, and $26 million in 2013-14.