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 AB 1424 (Perea) Page 1 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 AB 1424 (Perea) Page 2 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. AB 1424 (Perea) Page 3 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.