BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 833 HEARING: 6/19/13
AUTHOR: Harkey FISCAL: Yes
VERSION: 5/1/13 TAX LEVY: No
CONSULTANT: Grinnell
TAX INFORMATION: ADMINISTRATION
Requires EDD, BOE, and FTB to work together to develop a
taxpayer-focused website.
Background and Existing Law
The California Constitution establishes the Board of
Equalization (BOE) as a five-member board composed of four
members elected by each district plus the State Controller.
Currently, BOE administers sales and use taxes, excise
taxes, special taxes, and the state's fee programs.
State law requires employers who pay employees
California-sourced income to withhold expected taxes.
Businesses with one or more employees in the current or
preceding taxable year, and who pays wages in excess of
$100 per quarter must register with the Employment
Development Department (EDD). Employ-ers deposit personal
income tax withholding by mail or electronically with EDD,
along with amounts for Unemployment Insurance (UI),
Employment Training Taxes, and State Disability Insurance
(SDI). Each quarter, the taxpayer files a form to
reconcile these deposits with actual taxes due.
The Franchise Tax Board (FTB) is a three-person board
comprised of the State Controller, Director of the
Department of Finance, and Chair of the BOE. FTB
administers the Personal Income Tax and Corporation Tax
Law, and collects debts on behalf of state and local
agencies. FTB may issue forms necessary to administer the
taxes. Employees and others receiving payments reconcile
amounts previously withheld with actual tax due when filing
their annual tax returns with FTB.
Proposed Law
AB 833 - 5/1/13 -- PageB
Assembly Bill 833 requires EDD, FTB, and BOE to collaborate
and focus their cur-rent and future information technology
efforts to conduct a feasibility study on developing a
single web-based portal that virtually consolidates the
agencies to enable online, self-service access through a
single logon for taxpayers to:
Electronically file returns
Submit forms or other information
Remit amounts due
Determine account balances and tax due dates
Identify appeal status
Claim a refund
Request relief from interest or penalty
Any other information the agencies deem helpful to the
taxpayer to assist in compliance with the state's tax laws.
The bill additionally requires agencies to consolidate
forms, applications, and other documents to reduce or
eliminate the number of multiple submissions on the same
information by taxpayers upon a joint determination that a
need exists to provide cost-effective services to taxpayers
and an appropriation by the Legislature.
The measure also makes legislative findings and
declarations to support its purposes.
State Revenue Impact
FTB and BOE state that AB 833 does not impact state
revenues.
Comments
1. Purpose of the bill . According to the author, "this
bill would authorize a study of an enhanced "one-stop shop"
portal at www.taxes.ca.gov to allow taxpayers an easy and
up-to-date integrated access to their accounts with all
three tax agencies. Once implemented this website would
allow taxpayers to file tax returns, claim refunds, and
request relief of interest and penalties with one login.
Taxpayers will no longer need to navigate through three
separate tax agencies to access forms and information. This
will save taxpayers time and increase voluntary
compliance."
AB 833 - 5/1/13 -- PageC
2. Cost versus convenience . AB 833 differs from previous
consolidation efforts that eliminated or consolidated tax
agencies; instead, the measure aims at making tax filing
more convenient for the taxpayer by combining specified
functions on a single website. However, AB 833 would
require the three agencies to incur significant expense to
provide improvements to the existing website, and may
necessitate discarding existing systems and forms in place
of new ones. The
Senate Appropriations Committee estimated these costs at
approximately $10 million when it analyzed a very similar
bill, SB 1326 (Harman), last year. The key question posed
by the measure is whether the increased convenience to the
taxpayer is worth the expected implementation costs.
Additionally, while the state should always seek to provide
better customer service, especially to comply with its tax
laws, what are the exact benefits of taxpayer convenience
that will outweigh the measure's anticipated fiscal costs,
which will result in less funding for something else?
3. Blowing Up Boxes . While not proposed by this measure,
the Governor and the Legislature have considered several
tax agency consolidation proposals in recent years,
summarized by the table below. The Legislative Analyst's
Office (LAO) and department analyses have consistently
argued that tax agency and function consolidation will
definitely incur significant immediate costs to implement,
with only possible long-term savings. Whether long-term
savings will offset those immediate costs is largely
unknown. The LAO summarized the findings of its report
released January 10, 2005, as follows:
Consolidation of the tax agencies' payment and
documentation processing activities could in the
medium to long term generate some annual cost savings
and interest earnings through elimination of
duplicative functions and increased efficiencies. The
state, however, would have to incur significant net
costs in the short term to achieve these savings. In
addition, such benefits are likely to be less than
benefits from increasing electronic processing. We
therefore recommend that low priority be given to
consolidation of payment and document processing
functions in favor of steps to increase electronic
processing.
AB 833 - 5/1/13 -- PageD
Governor Brown again proposed tax agency consolidation as
part of his 2012-13 Budget, sending the activities of the
Employment Development Department (EDD) that relate to tax
collection along with FTB into a new Department of Revenue
(CDR) within the new Government Operations Agency.
However, the Governor did not include in CDR in either his
first or second Governor's Reorganization Plans. Instead,
the Department of Finance tasked EDD and FTB to identify
opportunities for consolidating functions. Last month, FTB
reported at a hearing of Senate Budget Committee #4 that
the working groups had found that function consolidation
had potential long-term efficiencies, but significant
investments would be necessary now for any possible future
efficiencies to result. Consolidation may also pose risks
to existing, successful information technology programs.
4. We've already got one . While not as comprehensive as
the website called for in this bill, www.taxes.ca.gov
contains links to forms, publications, and other
information helpful for taxpayers seeking to comply with
California alphabet soup of tax agencies. However, as the
website is operated by the California Fed State
Partnership, consisting of BOE, EDD, FTB, and the Internal
Revenue Service, no single agency has ownership of it, or
the resources to improve its functionality for the benefit
of taxpayers. Wouldn't it be easier to focus on improving
what's already in place rather than reinventing the wheel?
The Committee may wish to consider that instead of
endorsing AB 833's call for a new website, it should assign
one agency the authority and resources necessary to make
the existing website implement the bill's goal for more
taxpayer-focus and improved functionality.
5. Ghosts of Consolidations Past . On June 10, 2009, the
Senate Committee on Revenue and Taxation, the predecessor
to this Committee, heard the Department of Finance's
proposal for tax agency consolidation that is proposed at
that time. The Committee Chair's recommendation to the
Budget Committee stated:
BOE and FTB both need to upgrade key components of
their information technology systems, which each
agency now operates independently. Additionally, the
AB 833 - 5/1/13 -- PageE
situation with the BOE building which houses its
workers is untenable. Any significant future
acquisitions of information technology systems or
physical infrastructure should serve both BOE and FTB,
and possibly integrate with EDD systems, which are
currently considered superior. The Committee
recommends that to the maximum extent practicable, any
acquisitions of property or information technology
should serve both agencies, and BOE should move
employees from the BOE building to the FTB campus,
especially those employees who can help enhance
economies of scale for the revenue system by being
housed together.
Additionally, the Department of Motor Vehicles'
(DMV) vehicle license and registration collection
functions should be included in consolidation efforts.
DMV should immediately join the three-agency task
force which currently includes FTB, BOE and EDD.
The four agencies, FTB, BOE, EDD and DMV, should
immediately begin working on a technology that
incorporates a single taxpayer identification number.
With a single number, there would be greater
information sharing and ultimately greater tax
compliance which will result in increased revenues.
The issue of governance is inextricably intertwined
with any consideration of consolidation. The
Administration's proposal consolidates the tax policy
elements of FTB and BOE away from its existing
governing boards to a Department of Revenue, led by a
Gubernatorial-appointed, Senate-confirmed executive
director. Shifting tax policy regulatory authority
and oversight under the Governor will inevitably bear
different tax policy results, and presents risks of
executive interference in tax cases. FTB is widely
considered one of the world's most innovative and
respected revenue-collection agencies; its record does
not merit removing its authority over tax policy and
assigning it to the Governor. The Committee
recommends deferring discussion over governance of the
tax system because of the substantive issues involved,
and that issues regarding governance do not have a
current, measurable fiscal impact.
The administration similarly recommends
AB 833 - 5/1/13 -- PageF
consolidating audit functions immediately to realize
economies of scale and better deploy existing audit
resources, and claims savings in the 2010-11 fiscal
year. In concept, the Committee endorses this plan.
For now, the committee recommends that the agencies
create the single taxpayer identification number as
discussed above.
As to the major recommendation of the Governor,
which is a new Department of Revenue, the LAO suggests
that consolidating the agencies might accelerate the
process of coordination. I will work with the LAO and
the Department of Finance to further refine this
proposal which I support in concept.
6. Come Together .
This chart briefly describes seven options that have
been associated with consolidation in the past.
-------------------------------------------------------------
|Option |Source |Fiscal Impact |Analysis |
| | | | |
|--------------+-----------+-----------------+----------------|
|BOE & FTB |LAO, 1994 |Reduced expenses |LAO argued that |
|merge | |in the long run; |consolidation |
|functions; | |significant |enhanced |
|BOE retains | |initial startup |accountability |
|tax appeal | |costs. Little |and decreased |
|function | |Hoover estimated |taxpayer |
| | |$50 million |confusion. |
| | |savings in 1994 |Direction and |
| | | |implementation |
| | | |from the |
| | | |executive |
| | | |branch would be |
| | | |clearer. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |California |Planning, |Again, |
|Department of |Constitutio|budgeting |consolidation |
|Revenue. |nal |functions |could enhance |
|Eliminate FTB |Revision |consolidated as |accountability |
|& BOE |Commission.|above. Unknown |and create "one |
AB 833 - 5/1/13 -- PageG
|(including | Various |impact from |stop shop" for |
|tax appeal |Bills<1> |removing tax |taxpayers. |
|functions) | |appeals function |There is lots |
|and combine | |from BOE. |of disagreement |
|with EDD | |Eliminating BOE |on the |
| | |requires a |appropriate |
| | |Constitutional |location for |
| | |amendment. |the tax appeals |
| | | |functions: BOE, |
| | | |Department of |
| | | |Revenue or Tax |
| | | |Court. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |Governor |Potentially |This option |
|California |Wilson, |reduced expenses |retains the BOE |
|Tax |1994. |in the long run |and creates a |
|Commission: |California |but large |Commission but |
|Eliminate |Performance|upfront |it is unclear |
|FTB, combine | Review, |consolidation |who serves on |
|with DMV and |2007. |costs. |the commission |
|EDD. |Various | |and whether the |
| |Bills<2> | |BOE or the |
| | | |Governor would |
| | | |be the umbrella |
| | | |organization. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Eliminate FTB |Various |Same as above; |This option |
|and |Bills<3> |unknown impact |combines the |
|consolidate | |from eliminating |two largest tax |
|into BOE or | |BOE |entities in the |
|eliminate BOE | | |state; one |
|and | | |retains the |
|consolidate | | |Governor as the |
-------------------------
<1>
California Constitutional Revision Commission (1996); SB
87/SCA 5 (Kopp, 1994), SB 1727/SCA 9 (Kopp, 1995), SCA 39
(Killea, 1996), and AB 2794 (Bowen, 1996).
<2> Without EDD and DMV: AB1996/ACA 39 (Harris) and SB 1695
(Kopp, 1992) created a consolidated Department of Revenue
and a Tax Commission, see also ACA 13 (Leonard, 2001), ACA
22 (Dutra, 2003), ACA 14 (DeVore, 2005))
<3> SB 1052/SCA 22 (Alquist), AB 3338 (McClintock, 1992),
AB 15
(Klehs, 1993), AB 2000 (Dutton, 2003), SB 216 (Dutton,
2005), and SB 274 (Dutton, 2007).
AB 833 - 5/1/13 -- PageH
|into FTB | | |executive; the |
| | | |other makes BOE |
| | | |responsible for |
| | | |all taxes in |
| | | |the state. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Tax Court |Various |Unknown |Tax Courts in |
| |Bills<4> | |other states |
| | | |apply a |
| | | |precedent-based |
| | | |objective legal |
| | | |forum for |
| | | |adjudicating |
| | | |tax cases; |
| | | |judges selected |
| | | |based on tax |
| | | |law expertise. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Consolidate |Various |CPR estimating a |LAO projects |
|cashiering |Bills<5> |savings of |medium to long |
|functions | |approximately |term savings |
|only | |$20 million per |contingent on |
| | |year |initial costs |
| | | |to fund |
| | | |upgrades in the |
| | | |new systems. |
| | | |Partial |
| | | |consolidation |
| | | |would have to |
| | | |precede full |
| | | |consolidation |
| | | |of functions. |
| | | | |
-------------------------------------------------------------
-------------------------
<4> SB 1395 (Kopp, Ayala, et al, 1989), SB 23/SCA 25 (Kopp,
1991),
SB 87/SCA 5 (Kopp, 1993) eliminated BOE and FTB and
replaced with Department of Revenue and Tax Court, also SB
1424 (Burton, 2004) and AB 2472 (Wolk, 2004).
<5> LAO (2005) resulting from study required by AB 986
(Horton),
California Performance Review (2007); SB 956 (Rosenthal,
1997), SB 896 (Speier, 1999) transferred DOI revenue
collection functions to BOE.
AB 833 - 5/1/13 -- PageI
7. Have we met before ? AB 833 is identical to SB 584
(Knight), which the Committee approved at its May 1, 2013
hearing. SB 584 is currently being held at the Assembly
Desk.
Assembly Actions
Assembly Revenue and Taxation 8-0
Assembly Appropriations 17-0
Assembly Floor 74-0
Support and Opposition (06/13/13)
Support : BOE Member George Runner
Opposition :
Unknown