BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 576| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 576 Author: V. Manuel Pérez (D) Amended: 9/3/13 in Senate Vote: 21 SENATE LABOR & INDUSTRIAL RELATIONS COMMITTEE : 4-0, 6/26/13 AYES: Monning, Wyland, Leno, Yee NO VOTE RECORDED: Padilla SENATE GOVERNANCE & FINANCE COMMITTEE : 7-0, 7/3/13 AYES: Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu SENATE APPROPRIATIONS COMMITTEE : 7-0, 8/30/13 AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg ASSEMBLY FLOOR : 75-3, 05/30/13 - See last page for vote SUBJECT : Revenue Recovery and Collaborative Enforcement Team Act: pilot program SOURCE : State Board of Equalization DIGEST : This bill establishes a pilot program to create the Revenue Recovery and Collaborative Enforcement Team (Team) consisting of specified agencies to collaborate in combating criminal tax evasion associated with the underground economy. ANALYSIS : Existing Federal law provides that any person who willfully fails to collect or truthfully account for and pay over taxes shall, in addition to other penalties provided by CONTINUED AB 576 Page 2 law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than five years, or both, together with the costs of prosecution. Existing Federal law also provides that any person who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. Existing law requires the Director of the Employment Development Department (EDD) to serve as Chairperson of the Joint Enforcement Strike Force on the Underground Economy (JESF). JESF shall include, but not be limited to, representatives of the: EDD, the Department of Consumer Affairs (DCA), the Department of Industrial Relations (DIR), the Department of Insurance (CDI), and the Office of Criminal Justice Planning. Other agencies that are not part of the administration, such as the Franchise Tax Board (FTB), the State Board of Equalization (BOE), and the Department of Justice (DOJ), are encouraged to participate in JESF. Existing law provides that it is a violation of the law for any employer or employing unit to willfully fail or refuse to make any contributions which are due under the Unemployment Insurance or Disability Insurance programs. Existing law provides that any person or employer who, with or without intent to evade, fails to withhold or fails to pay over any personal income tax withheld, is guilty of a misdemeanor and, upon conviction, shall be fined an amount not to exceed $1,000, or imprisoned for not more than one year, or both the fine and imprisonment, at the discretion of the court. Existing law provides that any person required to collect, account for, and pay over any personal income tax or amount required to be withheld who willfully fails to collect or truthfully account for and pay over the tax or amount shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined an amount not more than $20,000, or imprisoned 16 months to three years, CONTINUED AB 576 Page 3 or both the fine and imprisonment, at the discretion of the court. This bill creates the Team pilot project as a collaborative effort to combat criminal tax evasion. Specifically, this bill: 1. Creates the Team, made up of the FTB, DOJ, BOE, and EDD. 2. Permits the California Health and Human Services Agency, DCA, CDI, and Department of Motor Vehicles to participate as advisory agencies. 3. Allows advisory agencies to notify the Team of criminal violations that, through enforcement, would lead to increased revenues for California. 4. Requires the Team to meet at least quarterly. This bill also requires the Team to: 1. Develop a plan for a central intake process and organizational structure to document, review, and evaluate data and complaints. 2. Evaluate the benefits of a processing center to receive and analyze data, share complaints, and research leads from the input of each impacted agency. 3. Provide participating and nonparticipating agencies with investigative leads where collaboration opportunities exist for felony-level criminal investigations, including, but not limited to, referring leads to agencies with appropriate enforcement jurisdiction. 4. Submit to the Legislature on or before December 1, 2017, a report of the pilot program that includes, but is not limited to, the following information: A. The number of leads or complaints received by the Team. B. The number of cases investigated or prosecuted through civil action or criminal prosecution as a result of team collaboration. CONTINUED AB 576 Page 4 C. Recommendations for modifying, eliminating, or continuing the operation of any or all of the provisions of this part. This bill also sunsets the provisions on January 1, 2019, unless a later enacted statute, that is enacted before January 1, 2019, deletes or extends that date. This bill requires the Team to operate the pilot program using existing funding of the DOJ, the FTB, the BOE, and the EDD and shall not request additional funding for the pilot program until after making its report to the Legislature, as specified. This bill also makes findings and declarations on the problems of tax evasion and the underground economy and its impacts on California's economy. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: BOE, FTB, and DOJ indicate minor and absorbable costs. Unknown future revenue gains, potentially in the low millions of dollars annually (General Fund), related to the pilot project's enforcement actions and increased tax collections. A portion of the revenue gains could be offset by revenue losses to the extent partnership activities supplant existing revenue-generating enforcement efforts among the participating entities. Significant cost pressures to hire additional administrative, investigative, and enforcement staff among the participating state entities upon full implementation of the Partnership (General Fund). These costs would likely be mitigated and perhaps completely offset by future revenue gains resulting from increased enforcement activities. SUPPORT : (Verified 9/3/13) State Board of Equalization (source) Association for Los Angeles Deputy Sheriffs California Association of Professional Employees CONTINUED AB 576 Page 5 California Building Industry Association 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 Manufactures and Technology Association California Municipal Revenue & Tax Association California Professional Association of Specialty Contractors California State Council of Laborers Cities of Bellflower and Lakewood Engineering Contractors Association Flasher Barricade Association Los Angeles Area Chamber of Commerce Los Angeles Police Protective League Marin Builders Association Riverside Sheriffs' Association ARGUMENTS IN SUPPORT : Proponents note that 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. Proponents further note that such bad actors either underpay or completely neglect to pay required taxes, licenses, insurance, or wages. Proponents argue that, by unlawfully reducing their expenses, these businesses undercut legitimate businesses that in good faith comply with required laws, and that many compliant businesses are unfortunately forced to shut down due to this unfair competitive advantage, further impeding California's economic recovery. Proponents believe that this bill will help coordinate governmental efforts in the fight against the underground economy. ASSEMBLY FLOOR : 75-3, 5/30/13 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom, Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor, Medina, Mitchell, Morrell, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting, Wagner, Weber, Wieckowski, Wilk, Williams, Yamada, John CONTINUED AB 576 Page 6 A. Pérez NOES: Donnelly, Melendez, Waldron NO VOTE RECORDED: Holden, Vacancy PQ:k 9/3/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED