BILL ANALYSIS Ó
AB 1424
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1424 (Perea)
As Amended September 2, 2011
Majority vote
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|ASSEMBLY: | |May 26, 2011 |SENATE: |21-15|(September 7, 2011) |
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(vote not relevant)
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|COMMITTEE VOTE: |5-3 |(September 8, 2011) |RECOMMENDATION: |Concur |
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Original Committee Reference: REV. & TAX.
SUMMARY : Requires a state governmental licensing entity (SGLE) to
suspend a state occupational, professional, or driver's license of
a tax debtor whose name appears on either the Franchise Tax Board
(FTB) or the State Board of Equalization (BOE) list of the largest
tax delinquencies on or after July 1, 2012, as specified.
The Senate amendments delete the Assembly version of this bill and
instead:
1)Increase the BOE and FTB public lists of the top 250 tax
delinquencies, in excess of $100,000, to 500 tax delinquencies
and require FTB to update its list at least twice in each
calendar year.
2)Require FTB to include additional information on its list of the
top 500 tax delinquencies, with respect to each delinquency,
including the type, status, and license number of any
professional or occupational license held by each person liable
for payment of the tax and the names and titles of the principal
officers of a limited liability company or corporation liable for
payment of the tax.
3)Authorize a SGLE, as defined, to suspend or refuse to issue or
renew a license to the licensee whose name is included on either
the FTB or BOE list of the 500 largest tax delinquencies. Require
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a SGLE to collect the social security number or federal taxpayer
identification number of each applicant for the purpose of
matching those applicants to the names on the lists of the 500
largest tax delinquencies.
4)Authorize the BOE and FTB to disclose to SGLEs the names, social
security numbers or taxpayer identification numbers, and the last
known address of the persons identified on the lists of the top
500 tax delinquencies.
5)Prescribe notice requirements, timeframes for compliance, and a
process for challenging the submission of a name on the FTB and
BOE lists.
6)Require BOE and FTB to create release forms that provide for the
removal of a person from the top 500 tax delinquency lists upon
payment of unpaid taxes or entry into an installment agreement,
or in cases of financial hardship.
7)Prohibit any state agency from entering into a contract for goods
and services with a tax debtor on the 500 largest delinquencies
lists, provided that the contract is executed on or after July 1,
2012.
8)Allow the FTB and BOE to contract with the Internal Revenue
Service (IRS) or other states to collect delinquent tax debts
owed to the FTB or BOE. Authorize the FTB and BOE to offset tax
refunds for delinquent tax debts owed to the IRS or other states,
but only upon a reciprocal agreement in which the IRS or other
state's tax refunds are offset for delinquent tax debts owed to
California.
FISCAL EFFECT : The FTB staff estimates that this bill will result
in an annual gain of $19 million in the 2011-12 fiscal year (FY),
$24 million in FY 2012-13, $26 million in FY 2013-14, $29 million
in FY 2014-15, and $31 million in FY 2015-16. The BOE staff
estimates that this bill will generate an additional $1.1 million
in annual state and local sales and use tax (SUT) collection, of
which $528,000 will be attributable to the General Fund.
AS PASSED BY THE ASSEMBLY , this bill:
1)Amended the Civil Code to allow the BOE to reimburse a
manufacturer of a new motor vehicle for the use tax refunded to a
buyer or lessee when the new motor vehicle was reacquired by the
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manufacturer pursuant to California's "Lemon Law."
2)Amended the SUT Law to remove the requirement that retailers and
lenders file an election form with the BOE prior to claiming a
bad debt in the case of accounts held by a lender that have been
found worthless and written off by the lender.
3)Amended the SUT Law to make a technical clarification to the
repair, retrofit, and modification exception related to the
12-month rebuttable presumption for vessels purchased outside
this state.
4)Amended the SUT Law to allow a taxpayer to file a claim for
reimbursement of bank charges and third party check charges
incurred by the taxpayer as a result of an erroneous processing
action or collection action by the BOE.
5)Provided the BOE and the State Controller's Office with express
authority to collect orders of restitution awarded to the BOE in
criminal proceedings in the same manner as tax liabilities.
EXISTING LAW:
1)Requires the BOE and FTB, respectively, to compile and make
available as public record a list that identifies the top 250 tax
delinquencies in excess of $100,000. Prior to disclosing a tax
delinquency to the public, requires FTB and BOE to provide a
preliminary written notice by certified mail, return receipt
requested, to the person or persons liable for the tax.
Specifies that the tax debt must have been recorded as a notice
of state tax lien in any county recorder's office in California
and that a delinquency that is being litigated or in bankruptcy
may not be made public. Furthermore, it may not be made public
if the taxpayer is complying with an installment payment
agreement.
2)Provides that, if a taxpayer has delinquent tax amounts, a tax
lien automatically arises by operation of law for that amount,
known as a statutory tax lien. A statutory tax lien is a claim
upon real and personal property for the satisfaction of a tax
debt. A statutory tax lien arises automatically when the debt
becomes final and exists for 10 years, unless the liability
becomes satisfied or, if the debt remains unpaid, a notice of
state tax lien is recorded. The recording of the notice provides
notice to the world of the debt against all real and personal
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property belonging to the taxpayer and located in the California
county where recorded.
3)Authorizes FTB to use several collection tools to collect
delinquent tax liabilities, including an Order to Withhold that
is issued to third parties in possession of funds or properties
of the debtor, a warrant to seize property, which is enforced by
a marshal and an Earnings Withholding Order for Taxes, which is
continuing wage garnishment.
4)Authorizes the registrar of the Contractor's State License Board
(CSLB) to suspend an existing license or to refuse the issuance,
reinstatement, reactivation, or renewal of a contractor's license
if a licensee fails to resolve all outstanding final liabilities,
including taxes and fees assessed by the CSLB, FTB, the
Department of Industrial Relations, or the Employment Development
Department, and permits the disclosure of certain information
from the licensing agency to FTB.
5)Authorizes professional license denial and suspension for failure
to pay court-ordered child support debts.
6)Authorizes the Department of Alcoholic Beverage Control and the
Department of Motor Vehicle, respectively, to suspend a
taxpayer's alcoholic beverage license or to cancel a dealer or
lessor-retail license under certain specified circumstances for
non-payment of BOE-related taxes.
7)Permits the disclosure of certain information on all licensees
from a SGLE to FTB.
8)Authorizes many SGLEs to impose fees on their licensees to cover
administrative costs.
9)Prohibits state departments and agencies from contracting with a
vendor, contractor, or their affiliates that does not possess a
seller's permit or a certificate of registration for use tax.
Exempts a state department or state agency from this prohibition
if the department or agency makes a written finding that the
contract is necessary to meet a compelling state interest, as
specified.
COMMENTS :
Author's Statement . The author states that, "Each year $6.5
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billion of taxes owed to California go unpaid, of which
approximately $1.4 billion is a result of uncollected tax
liabilities of taxpayers with professional or occupational
licensees.
"Every year, the state Franchise Tax Board and the State Board of
Equalization compile and publish lists of the Top 250 taxpayers
whose delinquent income tax liability exceeds $100,000. As of
September 6, 2011, 250 delinquent taxpayers on the FTB list owed
more than $156 million to the state, with income tax debts ranging
from $306,000 to over $14 million dollars. And, as of August 31,
2011, the 250 delinquent taxpayers on the BOE list owed
collectively more than $409 million to the State, with sales tax
debts ranging from $600,000 to over $18 million dollars.
"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. AB
1424 would give the state tax agencies the proper tools to go after
these debtors in order to collect their long overdue debts. Nearly
90 percent of Californians pay their taxes. Allowing certain
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 tax debtors accountable and recover the substantial amount of
money owed to California."
Arguments in Support . The proponents of this bill state that AB
1424 would strengthen tax collection processes. In recent years,
California has been forced to make difficult cuts and even
eliminate crucial programs in education, health services and public
safety. The proponents of this bill argue that to allow
"California's wealthiest individuals to neglect paying their taxes
is an affront to all taxpayers." They believe that the current law
"provides the California government with very limited authority to
make these delinquent taxpayers pay their fair share."
Arguments in Opposition . The opponents of this bill state that
they appreciate the intent of this bill to create more effective
means of collecting taxes. However, they argue that this bill
"will not significantly impact the largest debtors since they have
the means to transfer business licenses to other parties."
Professional and occupational licenses provide taxpayers with the
income necessary to pay their tax debts. Suspending the taxpayers'
ability to earn a living to force payment of tax delinquencies is
counterintuitive. The opponents are concerned that "this bill
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could have a detrimental effect on those working taxpayers who need
their professional, occupational and driver's licenses to earn
income necessary to resolve their tax debts." Thus, the opponents
believe that, "this measure could have the unintended consequence
of making tax compliance more difficult."
What Does This Bill Do ? First of all, AB 1424 expands the BOE and
FTB public lists from 250 tax delinquencies, in excess of $100,000,
to top 500 tax delinquencies, also in excess of $100,000.
Secondly, this bill requires state licensing entities to suspend
state occupational, professional, or driver's license of a tax
debtor whose name appears on either the FTB or BOE list of the
largest tax delinquencies on or after July 1, 2012. However,
instead of requiring, this bill simply authorizes the State Bar of
California and the Alcoholic Beverage Control (ABC) Board to
suspend licenses or refuse to issue or renew a license. Further,
it prohibits any state agency from entering into a contract for
goods or services with a tax debtor whose name is included on
either the FTB or BOE certified list. Any contract entered into in
violation of this provision would be void and unenforceable.
Finally, AB 1424 expands the FTB's and BOE's authority to enter
into reciprocal contracts with the IRS and other states to collect
tax debts owed to the state.
Expanding the Top 250 Tax Delinquencies List to Include 500 Tax
Debtors . Public humiliation has long been used to influence social
behavior and enforce societal rules and laws. In 2006, when the
requirement to publish the Top 250 tax delinquencies list was
enacted, the FTB estimated an annual revenue gain of $1.5 million
attributable to the publication of this list. Instead, the FTB's
Top 250 list has enabled the state to collect, since 2007, $81
million in owed taxes. Currently, the lowest amount of income tax
owed by a debtor on the FTB list is $306,000. The FTB staff
estimates that the expansion of the list to the top 500 tax
delinquencies, as well as the provision allowing for the suspension
of professional, business and driver's licenses, will allow the FTB
to collect over $120 million in additional revenues over the next
five FYs.
The BOE list, updated quarterly, currently includes debtors with
over $400 million in tax liabilities. In 2006, the BOE anticipated
increased annual tax revenue collections of $12 million due to the
publication of large tax delinquencies. According to the BOE,
since the inception of this program, 37 qualifying taxpayers whose
account balances with BOE represent a total of $39.8 million in SUT
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liabilities have come forward to take care of their debts. Of the
$39.8 million in liabilities, $5.2 million has been collected to
date. The debts have been taken care of in the following ways: 26
through installment payment agreements and 11 by making payment in
full. The BOE staff estimates that, by increasing the BOE list to
the top 500 delinquencies, an additional $105 million in SUT
liabilities would be added to the list, thereby increasing the
potential for more taxpayers to come forward and resolve their
outstanding tax liabilities. The BOE staff estimates that this
bill will result in an annual gain of approximately $1.1 million.
Unlike income taxes, the sale tax is regarded as a "trust tax"
because the retailers are designated by statute to collect the
sales tax from their customers and to hold and remit the money to
the state. These retailers hold the funds in trust for the state,
and thus, can be held personally liable when the funds are not
remitted. When these individuals fail to perform their role as
trustees, the public, as well as other honest retailers, should be
made aware. The members of the BOE recognize that if these 500
taxpayers continue ignoring their tax debts, the public should have
a right to know who the debtors are.
The Power to Suspend One's License . AB 1424 expands the power of
the state agencies to suspend professional, occupational, and
driver's licenses of delinquent taxpayers, enhancing the state's
tax enforcement powers. Currently, only the appropriate regulatory
boards and commissions may take disciplinary actions against those
licensees. However, the idea of suspending one's license for
failure to satisfy some sort of a financial obligation is not new.
In some cases, based on a referral from local child support
agencies, boards and commissions may suspend or decide to deny
renewal of licenses for individuals who fail to pay child support.
Further, the Contractor's State License Board may refuse to issue,
reinstate, reactivate, or renew or suspend a contractor's license
for the failure of a licensee to resolve any outstanding final
liabilities, including taxes, penalties, interest, and any fees
assessed by the BOE Board, the FTB, the Employment Development
Department, or the Department of Industrial Relations.
According to the BOE staff, there are two instances in which a tax
debtor's license is suspended for unpaid taxes administered by the
BOE: an alcoholic beverage license and a DMV dealer license. A
taxpayer's alcoholic beverage license is automatically suspended if
the taxpayer is at least three months delinquent in the payment of
sales or use or alcoholic beverage taxes or penalties. The
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suspension remains in effect until those liabilities are paid. The
DMV is permitted to cancel a dealer or lessor-retail license
automatically when the BOE has revoked or suspended the licensee's
seller's permit.
The power to suspend licenses would certainly enhance tax
compliance and reduce the "tax gap." However, the suspension of
licenses would also create a precedent for extending FTB's and
BOE's tax enforcement powers beyond frozen bank accounts and
garnished wages to the privilege of holding an occupational,
professional, or driver's license. By limiting its application
only to the top 1,000 tax debtors, AB 1424 carefully balances the
state's needs to collect taxes owed with the taxpayers' needs to
earn living in order to pay off those tax debts.
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098
FN: 0002872