BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1548| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1548 Author: Wyland (R) Amended: 5/8/12 Vote: 21 SENATE GOVERNANCE & FINANCE COMMITTEE : 8-0, 4/25/12 AYES: Wolk, Dutton, DeSaulnier, Fuller, Hancock, Hernandez, Kehoe, La Malfa NO VOTE RECORDED: Liu SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : Board of Equalization: offer in compromise SOURCE : Board of Equalization DIGEST : This bill extends the sunset, from January 1, 2013 to January 1, 2018, on the Board of Equalizations (BOE) authority to accept offers in compromise from firms currently in operation. ANALYSIS : The Legislature first allowed the Franchise Tax Board to accept offers in compromise (SB 94, Chesbro, Chapter 931, Statutes of 1999), then later authorized the Board of Equalization to do so for final tax liabilities for owners of defunct businesses under the Sales and Use Tax Law, the Use Fuel Tax Law, and the Underground Storage Tank Maintenance Fee Law (AB 1458, Kelley, Chapter 152, Statutes of 2002). The Legislature then extended the authority for the BOE to make offers in compromise for CONTINUED SB 1548 Page 2 final tax liabilities under the Cigarette and Tobacco Products Law, Alcoholic Beverage Tax Law, Timber Yield Tax Law, Energy Resources Surcharge Law, Emergency Telephone Users Surcharge Law, Hazardous Substances Tax Law, Integrated Waste Management Fee Law, Fee Collection Procedures Law, Diesel Fuel Tax Law, and the Oil Spill Response Prevention and Administration Fees law (AB 3076, Assembly Revenue and Taxation Committee, Chapter 364, Statutes of 2006). Under the BOE and Franchise Tax Board (FTB) programs, the taxpayer must establish that the amount offered in payment is the most that can be expected to be paid or collected and they do not have reasonable prospects of acquiring increased income or assets that would enable them to satisfy a greater amount of the tax liability than the amount offered. BOE and FTB can reestablish the final tax liability should the taxpayer have sufficient annual income during the succeeding five-year period following the date of the compromise. When BOE and FTB determine that a taxpayer concealed assets or falsified, withheld, destroyed, or mutilated any book, document, or record relating to their financial condition, they may reestablish all compromised liabilities and the taxpayer may be found guilty of a felony crime, fined up to $50,000, and imprisoned. In 2007, the Legislature expanded the program to allow BOE to accept offers in compromise for businesses currently in operation, as many taxpayers were surprised when BOE audits uncovered transactions that the taxpayer didn't know were taxable, so they never charged consumers the tax (AB 2047, Horton, Chapter 222, Statutes of 2008). This bill extends the sunset, from January 1, 2013 to January 1, 2018, on the BOE's authority to accept offers in compromise from firms currently in operation. This bill applies to the Sales and Use Tax Law, Cigarette and Tobacco Products Law, Use Fuel Tax Law, Alcoholic Beverage Tax Law, Emergency Telephone Users Surcharge Law, Fee Collection Procedures Law, Diesel Fuel Tax Law, and the Oil Spill Response Prevention and Administration Fees law. Comments CONTINUED SB 1548 Page 3 When the Senate Revenue and Taxation Committee, the predecessor to the Senate Governance and Finance Committee, approved AB 2047 in 2008, it inserted a sunset to review the authority granted by the bill to accept offers from firms still in operation. According to BOE, they have accepted a total of eight offers from firms that were not defunct when they made the offer, seven of which are still in operation. The total amount collected was $532,668, and the BOE forgave approximately $357,000 when accepting those offers. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes According to BOE, SB 1548 results in revenue increases of $286,034 per year. SUPPORT : (Verified 5/8/12) Board of Equalization (source) BOE Member George Runner California Chamber of Commerce California Growers Association California Taxpayers' Association Grass Valley/Nevada Chamber of Commerce Industry Manufacturing Council Laguna Beach Chamber of Commerce Los Angeles Area Chamber of Commerce National Federation of Independent Business Orange Chamber of Commerce ARGUMENTS IN SUPPORT : According to the author's office, "Offer in Compromise ÝOIC] programs are mechanisms that government agencies use to help taxpayers settle outstanding tax liabilities that they could not pay in full without having to declare bankruptcy. The goal of establishing an OIC program is to incentivize taxpayers to negotiate with the government agency to pay a reduced amount to settle their tax liability. This approach allows the taxpayer to keep their business open, which creates further economic development. At the same time, OIC programs increase the likelihood that tax liabilities will be collected, even if for a reduced amount. Both the CONTINUED SB 1548 Page 4 Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) operate OIC programs for both taxpayers and businesses." AGB:nl 5/9/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED