BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 1158                     HEARING:  4/11/12
          AUTHOR:  Price                        FISCAL:  Yes
          VERSION:  2/22/12                     TAX LEVY:  No
          CONSULTANT:  Grinnell                 

                      ABATEMENT OF INTEREST FOR DISASTERS
          

          Allows Postponement of Deadlines and Abatement of Penalties 
          and Interest for Taxpayers Affected by Disasters Declared 
          by the Governor.


                           Background and Existing Law  

          Federal law allows the Internal Revenue Service (IRS) to 
          specify a period for up to one year to postpone tax-related 
          deadlines in the event of a President-declared disaster or 
          terrorist or military action that affects the taxpayer.  
          During that period, the taxpayer is eligible for later 
          deadlines, as well as relief from any penalty, interest, or 
          addition to tax.  

          Currently, state law provides that a taxpayer that misses a 
          deadline for filing an income tax return, paying tax, or 
          filing a claim for refund is subject to penalties and 
          payment of interest, assessed by the Franchise Tax Board 
          (FTB).  However, FTB may abate interest when an 
          unreasonable delay occurs in the administrative process is 
          due to the tax agency's error or delay.  Additionally, FTB 
          may also abate interest for disaster victims if the tax 
          agency extends the period for any single taxpayer residing 
          in a disaster area as declared by the President of the 
          United States or the Governor of California.  However, 
          while penalty abatement is automatic, FTB only abates 
          interest in either case at its discretion, and no specific 
          authority exists to abate interest when the delay is 
          attributable to FTB sending a notice that requires response 
          from the taxpayer affected by the disaster.  Additionally, 
          while state law conforms to federal law relating to 
          disaster-affected taxpayers when the President declares a 
          disaster, it does not provide similar authority for FTB to 
          postpone deadlines due to disasters declared by the 
          Governor, but not the President.  




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          Generally, taxpayers may appeal FTB determinations of the 
          appropriate tax due to the State Board of Equalization 
          (BOE) once they have exhausted their administrative 
          remedies.  Among the determinations, taxpayers denied 
          interest abatement due to FTB's error or delay may appeal 
          that determination to BOE.



                                   Proposed Law  

          Senate Bill 1158 conforms state law to federal law, 
          allowing FTB to postpone deadlines for a period up to one 
          year for Governor-declared disasters, and abate interest to 
          the extent that the interest is attributable to FTB's delay 
          in mailing a notice of correspondence that requires a 
          response from the taxpayer affected by a disaster declared 
          by either the President or the Governor.  The measure 
          provides a process for taxpayers to appeal FTB denials of 
          requests for interest abatement to BOE.  Taxpayers must 
          apply in writing, and have 30 days to file an appeal for 
          unpaid interest, and 90 days for paid interest.  The appeal 
          process mirrors existing law on BOE appeals for interest 
          abatement for errors made by FTB.  

          The measure applies to taxable years starting on or after 
          January 1, 2013.  The measure also corrects an erroneous 
          cross-reference.


                               State Revenue Impact
           
          According to FTB, "Due to the unpredictable nature of 
          disasters, department staff is unable to provide a revenue 
          estimate." 


                                     Comments  

          1.   Purpose of the bill  .  According to the Author, "SB 1158 
          is needed to provide equitable treatment to 'all' taxpayers 
          located in presidentially or gubernatorially declared 
          disaster areas.   Currently, only taxpayers who are 
          "affected by the disaster" can request abatement of 
          interest. This bill ensures that taxpayers who live in the 





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          disaster area but who are "unaffected" by the disaster, can 
          also request abatement of interest when circumstances are 
          beyond their control and for which they are not responsible 
          (i.e., the FTB sends out delayed notices).   During a 
          presidentially-declared disaster, the FTB routinely delays 
          billings, notices, and correspondence to affected taxpayers 
          in a disaster area.  (An FTB public service bulletin is 
          published to inform the public of the period of the 
          suspended notices and the counties affected by the 
          disaster.)   As a result of the delayed mailings to 
          disaster areas, many taxpayers in the area who are 
          "unaffected" by the disaster, but who are engaged in the 
          tax audits, protests, or appeals, suffer delays in these 
          processes, which ultimately could result in additional 
          interest being accrued.  This bill gives the FTB the 
          authority, in these instances, to abate the interest.  In 
          addition, this bill gives FTB the authority to delay 
          tax-related deadlines when a disaster is declared by the 
          Governor for specific areas in California, but these areas 
          were not declared a disaster by the President.   

          2.   We're one, but we're not the same  .  Each year, the 
          Legislature responds to individual disasters by enacting 
          legislation that provides taxpayers in affected areas 
          excess disaster loss treatment on personal and corporate 
          income taxes, provide that the assessor cannot revoke a 
          taxpayer's homeowners' exemption from property tax when he 
          or she must vacate the property due to the disaster, and 
          reimburses property tax revenue losses to local agencies 
          attributable to downward reassessments of disaster-affected 
          property.  SB 1158 provides different, disaster-related tax 
          benefits: first, it applies to all future Governor-declared 
          disaster, not specific ones, and second, it provides 
          authority for FTB to delay tax-related deadlines and allow 
          interest abatement in a wide set of circumstances.


                        Support and Opposition  (04/05/11)

           Support  :   State Board of Equalization Chair Jerome Horton 
          (Sponsor)

           Opposition  :   None received.   








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