BILL ANALYSIS Ó
AB 576
Page 1
Date of Hearing: April 9, 2013
Counsel: Sandy Uribe
ASSEMBLY COMMITTEE ON PUBLIC SAFETY
Tom Ammiano, Chair
AB 576 (V. Manuel Pérez) - As Introduced: February 20, 2013
SUMMARY : Establishes a pilot program to create the "Centralized
Intelligence Partnership" (partnership) consisting of specified
agencies to collaborate in combating those engaged in the
underground economy. Specifically, this bill :
1)Makes legislative findings relative to the size of the
underground economy in California (estimated to be between $60
billion and $140 billion) and its threat to the health of the
state's economy, business community, workers and the stability
and fairness of the tax base.
2)Defines "underground economy" as "the activities of
individuals, businesses, or other entities that knowingly and
intentionally use practices designed to conceal illegal or
fraudulent activities that negatively impact legitimate
businesses, workers, and consumers, as well as deprive the
state and local governments of vital resources."
3)Declares legislative intent to enhance existing efforts to
combat the underground economy by collaboration among state
entities through the newly-created partnership.
4)Establishes the partnership as a pilot program.
5)Includes the Employment Development Department (EDD),
Franchise Tax Board (FTB), and State Board of Equalization
(BOE) in the partnership.
6)Allows the California Health and Human Services Agency,
Department of Consumer Affairs, Department of Industrial
Relations, Department of Insurance, Department of Justice, and
Department of Motor Vehicles to participate in the pilot
program in an advisory capacity to the partnership.
7)Requires each of the six advisory agencies to notify the
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appropriate taxing agency if a violation is discovered in the
normal course of investigation that would result in increased
tax revenues to the state.
8)Establishes an advisory committee to the partnership comprised
of one representative from each of three the participating
entities, appointed by and serving at the pleasure of the
entity's head, to provide guidance to and advice on the
activities and operations of the partnership. Also allows
each agency participating in an advisory capacity to provide a
representative to the advisory committee.
9)Requires the advisory committee to meet as needed, but at
least quarterly.
10)Tasks the advisory committee with deciding which agency shall
house the partnership's processing center.
11)Requires the partnership to do all of the following to combat
illegal underground operations:
a) Provide a central intake process and organizational
structure to document, review, and evaluate data and
complaints.
b) Establish a processing center to receive and analyze
data, share complaints, and research leads from the input
of each impacted agency.
c) Provide participating and nonparticipating agencies with
value-added investigative leads where collaboration
opportunities exist for felony-level criminal and civil
investigations.
d) Provide that each participating and nonparticipating
agency retain jurisdictional authority over whether to
pursue partnership strategies or collaborative
investigative leads.
e) Document and provide data analysis, analytic data
findings, referrals, collaborative opportunities, outcomes,
emerging evasion trends, lessons learned, as well as
additional enforcement, administrative, and legislative
opportunities.
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12)Specifies that the scope of activities and projects to be
undertaken shall be consistent with the amount of funds
appropriated by the Legislature.
13)Allows the partnership to hire an administrative staff.
14)Allows duly authorized representatives of members of the
partnership and the agencies participating in an advisory
capacity to exchange intelligence, data, documents,
information, complaints, or lead referrals for the purpose of
investigating illegal underground operations.
15)Prohibits any member or ex-member of the partnership, or any
agent employed by a member of the partnership, or any person
who has obtained such knowledge from any of the above, from
divulging any information in a manner not allowed by law.
Information shall retain its confidential status and shall
remain subject to specifically enumerated confidentiality
statutes guiding each agency.
16)Requires the partnership to report on or before July 1, 2015,
and annually thereafter, to the Legislature and to each
participating-member entity on its activities and
accomplishments.
17)Requires the partnership to submit a report to the
Legislature on or before December 1, 2017, detailing the
number of leads or complaints it received, the number of cases
investigated or prosecuted either in civil or criminal court,
and any recommendations for modifying, eliminating, or
continuing operations of the partnership.
18)Sunsets the partnership on January 1, 2019, and repeals it as
of that date unless a later-enacted statute extends it.
EXISTING LAW :
1)Provides that all property is taxable unless otherwise
provided by the California Constitution or the laws of the
United States. (Cal. Const., Art. XIII, sec. 1.)
2)Establishes the BOE which administers sales and use taxes,
excise taxes, special taxes, and the state's fee programs.
(Cal. Const., Art. XIII, sec. 17.)
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3)Allows taxes on or measured by income to be imposed on
persons, corporations, or other entities as prescribed by law.
(Cal. Const., Art. XIII, sec. 26.)
4)Contains various provisions criminalizing tax evasion. [See
e.g. Revenue & Taxation Code Sections 7152-7153.5 (false and
fraudulent returns regarding sales and use taxes), 19701 et
seq. (income tax evasion).]
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement : According to the author, "At a time when
California has been reducing and in some cases eliminating
funding for vital public services, it is estimated the state
loses up to $8 billion a year in tax revenue due to the
effects of the state's prolific underground economy, currently
valued at between $60 and $140 billion. While the impact of
the underground economy on the state is extensive, the state
lacks a coordinated effort among its various agencies to
tackle the underground economy
"AB 576 will address the problem by establishing a California
Intelligence Partnership between nine state agencies to enable
the sharing of information and investigate leads.
"A collaborative, strategic, targeted and focused effort to
combat the underground economy would create a synergy among
the various enforcement agencies, increasing the state's
effectiveness in recapturing revenue lost to businesses
operating illegally in the State of California.
"As such, AB 576 will create a Centralized Intelligence
Partnership (CIP) between nine member agencies including the
Board of Equalization, the Franchise Tax Board, the Employment
Development Department and California Department of Justice.
Each duly authorized representative of the partnership would
be allowed to exchange intelligence, data, documents,
information, complaints, or lead referrals for the purpose of
investigating illegal, underground operations. Information
obtained by the CIP would retain its confidential status and
would be subject to all the existing confidentiality statutes
guiding each agency."
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2)Existing Efforts : There are currently existing efforts to
combat the underground economy.
a) Joint Enforcement Strike Force on the Underground
Economy . In 1993, Governor Wilson signed Executive Order
W-66-93, establishing the Joint Enforcement Strike Force
(JESF) on the Underground Economy. The executive order was
subsequently codified in 1995. (See Unemployment Insurance
Code Section 329.) The JESF, chaired by the EDD director,
is responsible for developing and sharing information
necessary to combat the underground economy. The JESF also
works to improve the coordination of enforcement
activities, and to develop methods to target the
enforcement resources of participating agencies. The JESF
is empowered to form joint-enforcement teams when
appropriate to utilize the investigative and enforcement
capabilities of its members. (See EDD Web site
) In addition to the EDD, the formal membership of the
JESF is comprised of the Department of Consumer Affairs,
the Department of Industrial Relations and the Department
of Insurance. The FTB, the BOE and the Department of
Justice are each encouraged, under existing law, to
participate in JESF activities.
b) The Labor Enforcement Task Force . The Department of
Industrial Relations also works to combat the underground
economy in California through its Labor Enforcement Task
Force (LETF). In this joint effort between state agencies
and affected communities, information and resources are
shared to ensure workers receive proper payment of wages
and are provided a safe working environment. In addition,
the Labor Enforcement Task Force works to ensure that
California receives all employment taxes, fees, and
penalties due from employers. The Labor Enforcement Task
Force is comprised of the Labor and Workforce Development
Agency, the Department of Industrial Relations, the EDD,
the Contractor's State Licensing Board, the California
Department of Insurance, the BOE, the Bureau of Automotive
Repair and the Department of Justice. (DIR Web site
)
It is unclear whether the partnership created by this bill
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supplants the JESF and LETF since most of the same
participants are involved.
3)Argument in Support : The California Chamber of Commerce
writes, "Businesses that operate in the underground economy
gain an unfair advantage over law-abiding employers by
conducting their operations outside the parameters of the law.
Such bad actors either underpay or completely neglect to pay
required taxes, licenses, insurance, or wages. By unlawfully
reducing their expenses, these businesses undercut legitimate
businesses that in good faith comply with required laws. Many
compliant businesses are unfortunately forced to shut down due
to this unfair competitive advantage, further impeding
California's economic recovery.
"Estimates of the size of the underground economy vary, ranging
from $60 billion to $140 billion per year in California. The
Franchise Tax Board and the Board of Equalization estimate
that an average of $10 billion owed in corporate, personal,
and sales and use taxes goes uncollected in California each
year, with unreported and underreported economic activity
responsible for the vast majority of that total.
"The underground economy is a costly burden on the state's
economy, harming legitimate businesses and taking important
state resources that could be put to better use. The
organizations listed below support legislation like AB 576
that improves coordination among state agencies to enforce
existing labor, Cal/OSHA, workers' compensation and tax laws,
as well as agency initiatives to identify and eliminate
barriers to enforcing existing rules."
4)Prior Legislation :
a) SB 1185 (Price), of the 2011-12 Legislative Session,
created the "Centralized Intelligence Partnership" as a
clearinghouse for multiple agencies to collaborate to
prosecute violators engaged in illegal activity as part of
the underground economy. SB 1185 was held on the Assembly
Appropriations Committee's Suspense File.
b) Senate Bill 1490 (Johnston), Chapter 1117, Statutes of
1994, codified the JESF on the Underground Economy under
the Employment Development Department.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce
California Chapter of American Fence Contractors Association
California Construction and Industrial Materials Association
California Farm Bureau Federation
California Fence Contractors Association
California Framing Contractors Association
California Manufacturers and Technology Association
California Statewide Law Enforcement Association
Engineering Contractors Association
Flasher Barricade Association
League of California Cities
Marin Builders Association
Opposition
None
Analysis Prepared by : Sandy Uribe / PUB. S. / (916) 319-3744