BILL ANALYSIS Ó
AB 576
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Date of Hearing: April 29, 2013
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 576 (V. Manuel Pérez) - As Introduced: February 20, 2013
Majority vote. Fiscal committee.
SUBJECT : Centralized Intelligence Partnership Act: pilot
program
SUMMARY : Establishes a multiagency partnership consisting of
the Employment Development Department (EDD), the Franchise Tax
Board (FTB), and the State Board of Equalization (BOE), to
collaborate in combating illegal underground operations, as
specified. Specifically, this bill :
1)Contains numerous legislative findings, including the
following:
a) According to the EDD's analysis of findings made by the
Internal Revenue Service, the underground economy in
California is estimated to be between $60 billion and $140
billion each year;
b) According to the BOE, an estimated $8 billion in
corporate, personal, and sales and use tax (SUT) goes
uncollected in California each year, with unreported and
underreported economic activity responsible for the vast
majority of that total;
c) The underground economy hurts all Californians.
Revenues to support government services are lost, workers
are forced to go without basic employment protections, and
legitimate businesses are confronted with unfair
competition;
d) Since the activities of many operating in the
underground economy span across multiple jurisdictions,
various joint agency enforcement efforts have been
undertaken to combat the underground economy, including the
creation of the Joint Enforcement Strike Force on the
Underground Economy (Strike Force) in 1993, and the
creation of the Economic and Employment Enforcement
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Coalition in 2005;
e) Many collaborative efforts are already under way,
pursuant to which investigators periodically meet to
discuss current investigations, collaborate to conduct
sting operations, and develop best practices policies; and,
f) The Legislature intends this act to enhance existing
efforts to combat the underground economy by
institutionalizing collaboration among state agencies
through a Centralized Intelligence Partnership
(Partnership), a pilot program that acquires relevant data
for collaborative data analysis, economic threat
assessment, strategic planning, and provides a referral
tracking and value-added referral disbursement process to
monitor the progress of the Partnership activities.
2)Establishes the Partnership in state government as a pilot
program.
3)Provides that the Partnership shall include the EDD, the FTB,
and the BOE. In addition, the following agencies are
authorized to participate in the pilot program in an advisory
capacity:
a) The California Health and Human Services Agency;
b) The Department of Consumer Affairs;
c) The Department of Industrial Relations;
d) The Department of Insurance;
e) The Department of Justice; and,
f) The Department of Motor Vehicles (collectively,
'Advisory Agencies').
4)Provides that if, in its normal course of investigation, an
Advisory Agency discovers a violation of law that would result
in increased tax revenues to the state, that Advisory Agency
shall notify the EDD, the FTB, or the BOE, as appropriate.
5)Requires the Partnership to do all of the following to combat
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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 both participating and nonparticipating agencies
with value-added investigative leads where collaboration
opportunities exist for felony-level criminal
investigations, including referring leads to agencies with
appropriate enforcement jurisdiction; and,
d) Document and provide "intake data analysis, analytic
data findings, referrals, collaborative opportunities,
outcomes, emerging evasion trends, lessons learned, as well
as additional enforcement, administrative, and legislative
opportunities."
6)Permits duly authorized representatives of Partnership
members, and Advisory Agencies, to exchange intelligence,
data, documents, information, complaints, or lead referrals to
investigate illegal underground operations.
7)Provides that information exchanged pursuant to this act shall
retain its confidential status and shall remain subject to the
confidentiality provisions contained in various specified code
sections.
8)Provides that the scope of activities undertaken by the
Partnership shall be consistent with the amount of funds
appropriated by the Legislature.
9)Authorizes the Partnership to hire "an administrator and
staff."
10)Establishes an advisory committee to the Partnership
(Advisory Committee) to provide guidance to, and advice on,
the activities and operations of the Partnership.
11)Provides that the Advisory Committee shall be comprised of
one representative from each of the Partnership entities
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(i.e., the EDD, the FTB, and the BOE). Each representative
shall be appointed by the head of the entity in the
Partnership and shall serve at the pleasure of the appointing
authority. In addition, any Advisory Agency may provide a
representative to the Advisory Committee to offer guidance and
advice to the Partnership.
12)Provides that the Advisory Committee shall determine the
appropriate agency to house the Partnership's processing
center.
13)Requires the Advisory Committee to meet as needed, but at
least quarterly, to conduct its business.
14)Provides that, on or before July 1, 2015, and annually
thereafter, the Partnership shall report on its activities and
accomplishments to the Legislature and each entity in the
Partnership.
15)Requires the Partnership to submit to the Legislature on or
before December 1, 2017, a report of the pilot program that
includes the following information:
a) The number of leads or complaints received by the
Partnership;
b) The number of cases investigated or prosecuted through
civil action or criminal prosecution; and,
c) Recommendations for modifying, eliminating, or
continuing the pilot program.
16)Sunsets the act's provisions on January 1, 2019.
EXISTING LAW :
1)Establishes the EDD. Among its many duties, the EDD
administers the collection, accounting, and auditing of
payroll taxes and maintains employment records for more than
16 million California workers.
2)Establishes the FTB as a three-person board comprised of the
State Controller, the Director of the Department of Finance,
and the Chair of the BOE. Among its many duties, the FTB is
charged with administering the state's Personal Income Tax Law
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and the Corporation Tax Law.
3)Establishes the BOE, which consists of five voting members:
the State Controller and four members elected for four-year
terms at gubernatorial elections. Among its many duties, the
BOE administers the SUT Law, sets property values for
state-assessees, monitors the property tax assessment
practices of county assessors, and serves as the
administrative appellate body for final actions of the FTB.
4)Requires various state entities, including the BOE, the FTB,
and the Department of Justice, to enforce laws relating to the
taxation and legal operation of businesses throughout the
state under their respective jurisdictions.
FISCAL EFFECT : Unknown. However, the BOE's analysis estimates
that this bill will increase SUT revenues by approximately
$550,000 in fiscal year (FY) 2013-14, and by $1.1 million in FY
2014-15. The FTB, in turn, estimates that "revenue gains could
reach approximately $1 million per year in direct revenues and
an additional $11 million per year in revenues from deterrence
once the Partnership is fully implemented."
COMMENTS :
1)The author has provided the following statement in support of
this bill:
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
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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 [the] 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.
2)Proponents state:
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.
3)The BOE notes the following in its staff analysis of this
bill:
a) Sponsor and purpose : "BOE Chairman Horton is sponsoring
the creation of the CIP as a collaborative, strategic, and
focused effort to combat the underground economy through
comprehensive data and resources analysis. He envisions a
synergy among the various enforcement agencies that
addresses issues which impact California industries. This
collaborative effort is intended to significantly increase
the efficiency and effectiveness in recapturing revenue
lost to illegally operating businesses, thereby resulting
in a more robust, legitimate economy."
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b) Underground economic activities span across multiple
jurisdictions : "Many collaborative efforts are already
underway in which investigators periodically meet to
discuss current investigations, team up to conduct sting
operations, and collaborate on best practices. However,
despite these significant efforts, California continues to
lose revenue due to the underground economy."
4)Committee Staff Comments:
a) The Joint Enforcement Strike Force on the Underground
Economy : On October 26, 1993, the Governor signed
Executive Order W-66-93, which established the Strike
Force. The Governor subsequently signed legislation
placing the Executive Order's provisions into law effective
January 1, 1995. (Unemployment Insurance Code Section
329).
The Strike Force, which is chaired by the EDD's Director,
is responsible for both developing and sharing information
necessary to combat the underground economy. The Strike
Force also works to improve the coordination of enforcement
activities, and to develop methods to target the
enforcement resources of participating agencies. The
Strike Force is empowered to form "joint enforcement teams"
when appropriate to utilize the investigative and
enforcement capabilities of the Strike Force's members. In
addition to the EDD, the Strike Force's formal membership
is comprised of the Department of Consumer Affairs, the
Department of Industrial Relations, the Department of
Insurance, and the Office of Criminal Justice Planning.
The FTB, the BOE, and the Department of Justice are each
encouraged, under existing law, to participate in the
Strike Force's activities. The Strike Force is required to
report to the Governor and the Legislature annually
regarding its 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. 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
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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 State Attorney General.
c) What would this bill do? : This bill would establish a
multiagency partnership consisting of the EDD, the FTB, and
the BOE to collaborate in combating illegal underground
operations. Specifically, this bill would establish the
Partnership as a pilot program to, among other things,
create a processing center to receive and analyze data,
share complaints, and research leads from the input of each
impacted agency.
d) The right approach? : California's underground economy
is a well-documented problem that places legitimate
businesses at a competitive disadvantage. Moreover,
prosecuting bad actors in the underground economy is
notoriously challenging. Often, violators fail to obtain
appropriate business licenses or report taxes, and pay
their employees in cash, leaving little or no paper trail.
Nevertheless, it appears that this bill's proposal is largely
duplicative of existing state efforts to curb activity in
the underground economy. As noted above, existing law
already provides for the Strike Force, and encourages both
the BOE and the FTB to take part in its activities. The
Strike Force is presently authorized to facilitate the
sharing of information among participating agencies, and to
reduce enforcement costs wherever possible by eliminating
duplicative audits and investigations. In addition, the
Strike Force is empowered to establish procedures for
soliciting leads from the public through an advertised
telephone hotline.
If improvements in agency collaboration and enforcement are
needed, the Committee may wish to consider whether it would
make more sense to reform the existing Strike Force
program, instead of creating an entirely new program,
involving many of the same state agencies. Indeed, this
may be an appropriate subject for interim study. At
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present, this Committee is essentially being asked to
authorize the creation of a new bureaucracy, with
staff-hiring authority, to engage in many of the same
practices the Strike Force is already authorized to carry
out.
e) Who makes the call? : As noted above, this bill
authorizes the Advisory Committee to determine the
"appropriate agency" to house the Partnership's processing
center. The Committee may wish to consider whether it
would be more appropriate for the Legislature to make this
determination.
f) Double-referral : This bill was heard in the Assembly
Committee on Public Safety on April 9, 2013, and passed out
on a vote of 5 to 2.
g) Related legislation : This bill is nearly identical to
SB 1185 (Price) of the 2011-12 legislative session. SB
1185 was held by the Assembly Committee on Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
California Chamber of Commerce
California Chapter of the 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
Engineering Contractors Association
Flasher Barricade Association
Marin Builders Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
AB 576
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