BILL ANALYSIS Ó AB 576 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 576 (V. Manuel Pérez) As Amended September 6, 2013 Majority vote ----------------------------------------------------------------- |ASSEMBLY: |75-3 |(May 30, 2013) |SENATE: |38-0 |(September 12, | | | | | | |2013) | ----------------------------------------------------------------- Original Committee Reference: PUB. S. SUMMARY : Establishes a pilot program to create the "Revenue Recovery and Collaborative Enforcement Team" consisting of specified agencies to collaborate in combating criminal tax evasion associated with the underground economy. The Senate amendments: 1)Delete the provision requiring the team to report on its accomplishments and activities to the Legislature and to participating agencies by July 1, 2015, and annually thereafter. 2)Change the participation of the Employment Development Department (EDD) from an advisory capacity to a member of the enforcement team. 3)Require that the pilot program be operated using existing funding of the Department of Justice (DOJ), the Franchise Tax Board (FTB), the State Board of Equalization (BOE), and EDD; and prohibit the team from requesting additional funding until after makings its report to the Legislature. EXISTING LAW : 1)Provides that all property is taxable unless otherwise provided by the California Constitution or the laws of the United States. 2)Establishes the BOE which administers sales and use taxes, excise taxes, special taxes, and the state's fee programs. 3)Allows taxes on or measured by income to be imposed on AB 576 Page 2 persons, corporations, or other entities as prescribed by law. 4)Contains various provisions criminalizing tax evasion. AS PASSED BY THE ASSEMBLY, this bill : 1)Made legislative findings relative to uncollected taxes in California (estimated to be $9 billion annually) associated mostly with underreported or unreported taxes related to underground economic activities and its threat to the health of the state's economy, business community, and workers. 2)Recognized that while the Labor Enforcement Task Force and Joint Enforcement Strike Force work to combat the underground economy, these programs focus on labor violations and often overlook criminal tax evasion. 3)Declared legislative intent to enhance existing efforts to combat criminal tax evasion associated with the underground economic activities by collaboration among state entities through the newly-created "Revenue Recovery and Collaborative Enforcement Team" (team) by focusing on the criminal and civil prosecution of those who operate in the underground economy and flagrantly violate tax laws. 4)Established the team as a pilot program. 5)Included the FTB, DOJ, and State BOE in the team. 6)Allowed the California Health and Human Services Agency, Department of Consumer Affairs, Department of Industrial Relations, Department of Insurance, Employment and Development Department, and Department of Motor Vehicles to participate in the pilot program in an advisory capacity to the team. 7)Required the team to meet as needed, but at least quarterly. 8)Required participating agencies to do all of the following to combat criminal tax evasion associated with the underground economy: a) Develop a plan for a central intake process and organizational structure to document, review, and evaluate data and complaints. AB 576 Page 3 b) Evaluate the benefits of 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 investigative leads where collaboration opportunities exist for felony-level criminal and civil investigations. 9)Allowed duly authorized team members and representatives of the other participating agencies to exchange intelligence, data, documents, information, complaints, or lead referrals for the purpose of investigating criminal tax evasion associated with underground economic activities. 10)Prohibited any member or ex-member of the team, any agent employed by a member agency, or any person who has obtained such knowledge from any of the above agencies or persons, 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. 11)Required the team to report on or before July 1, 2015, and annually thereafter, to the Legislature and to each participating agency on its activities and accomplishments. 12)Required the team 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 team. 13)Sunset the partnership on January 1, 2019, and repeals it as of that date unless a later-enacted statute extends it. FISCAL EFFECT : According to the Senate Appropriations Committee: 1)BOE, FTB, and DOJ indicate minor and absorbable costs. 2)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. AB 576 Page 4 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. 3)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 (See Senate Appropriations Committee's staff comments). COMMENTS : 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." Please see the policy committee analysis for a full discussion of this bill. AB 576 Page 5 Analysis Prepared by : Sandy Uribe / PUB. S. / (916) 319-3744 FN: 0002669