BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1424| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1424 Author: Perea (D) Amended: 8/31/11 in Senate Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 6-3, 7/6/11 AYES: Wolk, DeSaulnier, Hancock, Hernandez, Kehoe, Liu NOES: Huff, Fuller, La Malfa SENATE APPROPRIATIONS COMMITTEE : 6-3, 8/25/11 AYES: Kehoe, Alquist, Lieu, Pavley, Price, Steinberg NOES: Walters, Emmerson, Runner ASSEMBLY FLOOR : Not relevant SUBJECT : Franchise Tax Board: delinquent tax debt SOURCE : Author DIGEST : This bill requires both the Franchise Tax Board and the Board of Equalization 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. ANALYSIS : Existing law requires the Franchise Tax Board (FTB) to annually publish, and the Board of Equalization (BOE) to quarterly publish, a list of the 250 largest tax delinquencies of more than $100,000 in taxes owed. A CONTINUED AB 1424 Page 2 delinquency would be defined as an amount owed under state tax 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 provides 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. This bill: 1. Increases 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. 2. Provides for the suspension of occupational, professional, and driver's licenses of tax delinquents who appear on the public list of the 500 largest tax delinquencies. 3. Requires 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 list. 4. Provides that suspension or refusal to renew a license does not constitute denial or discipline of a licensee for purposes of any reporting requirements to the National Practitioner Data Bank and and shall not be reported to the National Practitioner Data Bank or the Healthcare Integrity and Protection Data Bank. 5. Prescribes 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. CONTINUED AB 1424 Page 3 6. Requires 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 within three business days. 7. Prohibits a state agency from entering into a contract for goods or services with a contractor whose name appears on the tax delinquency lists. 8. Authorizes 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 requires the Attorney General, the Department of Insurance, the Department of Motor Vehicles, the State Bar, the Department of Real Estate, and any other state agency, board, or commission that issues an occupational or professional license to administer provisions related to license suspensions. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to the Senate Appropriations Committee: 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 each Special*** state entity to administer license suspensions * Staff notes that total sales and use tax revenue gains CONTINUED AB 1424 Page 4 are estimated at approximately $1.1 million annually. Figures shown reflect only the General Fund portion. ** Motor Vehicle Account *** Various Special Funds SUPPORT : (Verified 8/31/11) California/Nevada Community Action Partnership California Tax Reform Association Jericho SEIU 1000 Western Center on Law and Poverty OPPOSITION : (Verified 8/31/11) California Association of Realtors California Chapter of the American Fence Association California Fence Contractors Association California Landscape Contractors Association Engineering Contractors Association Flasher Barricade Association Marin Builders Association ARGUMENTS IN SUPPORT : The author's office indicates that each year $6.5 billion of taxes owed to California go unpaid. As of May 2011, the top 250 delinquent taxpayers owe more than $180 million dollars in delinquent personal income and business taxes, with individual debts ranging from $300,000 to over $14 million. The current budget problems have forced difficult cuts on education, public safety, health and human services and many other programs that hurt some of the most vulnerable Californians. Since 2007, the Top 250 list has enabled the state to collect $81 million in owed taxes. This bill would give the FTB additional authority to collect the full amount owed by the most delinquent taxpayers. Nearly 90 percent of Californians pay their taxes, however, to allow individuals to avoid paying their fair share, places an undue burden on those who do. This bill takes the necessary steps to hold the Top 500 debtors accountable and enable the FTB and BOE to recover the substantial amount of money owed to California. ARGUMENTS IN OPPOSITION : The California Association of CONTINUED AB 1424 Page 5 Realtors is opposed for several reasons, including (1) suspending the license of an individual impedes the ability of that individual to earn the compensation needed to feed, clothe and house themselves as well as members of their family; (2) suspending the license prevents the individual from having the income necessary to pay their tax debts; (3) the alleged tax debtor may have a legitimate dispute regarding the amount of the tax and it is unfair to suspend a license pending resolution of the dispute; (4) there is no nexus between an individual's tax debt and the individual's license - an individual's license should be suspended only for wrongdoing related to the license; and (5) the state already has several mechanisms at its disposal to collect the tax debt. AGB:mw 8/31/11 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED