BILL ANALYSIS                                                                                                                                                                                                    




                                                                  AB 1222
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          Date of Hearing:  April 15, 2013

                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
                                Raul Bocanegra, Chair

                 AB 1222 (Bloom) - As Introduced:  February 22, 2013
           
           Majority vote.  Fiscal committee.  
           
          SUBJECT  :  Taxpayers' Rights Advocate:  levy or notice to  
          withhold:  return of funds 

           SUMMARY  :  Increases the amount of levied funds the Taxpayers'  
          Rights Advocate (TRA) may order returned to a taxpayer<1> upon a  
          finding that the levy or notice to withhold threatens the health  
          or welfare of the taxpayer or the taxpayer's family.   
          Specifically,  this bill  :  

          1)Increases, from $1,500 to $2,300, the amount of money the TRA  
            may order returned to a taxpayer under the following tax and  
            fee programs:

             a)   The Sales and Use Tax Law;

             b)   The Use Fuel Tax Law;

             c)   The Alcoholic Beverage Tax Law;

             d)   The Energy Resources Surcharge Law;

             e)   The Emergency Telephone Users Surcharge Act;

             f)   The Hazardous Substances Tax Law;

             g)   The Integrated Waste Management Fee Law;

             h)   The Oil Spill Response, Prevention, and Administration  
               Fees Law; 

             i)   The Underground Storage Tank Maintenance Fee Law; and, 

             j)   The Diesel Fuel Tax Law.  



             --------------------------
          <1> The term "taxpayer" also includes feepayers, as applicable.   









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          2)Provides the TRA, for the first time, comparable fund return  
            authority under both the Cigarette and Tobacco Products Tax  
            Law and the Fee Collection Procedures Law.  

          3)Provides that, on or before March 1, 2014, and on or before  
            March 1 each year thereafter, the State Board of Equalization  
            (BOE) shall adjust the maximum return amount for inflation, as  
            specified.  



           EXISTING LAW  :

          1)Authorizes the BOE's TRA to order, within 90 days of receiving  
            funds through a levy or notice to withhold, the return of up  
            to $1,500, upon a finding that the levy or notice to withhold  
            threatens the health or welfare of the taxpayer or the  
            taxpayer's family.  Specifically, this authority currently  
            extends to the following tax and fee programs the BOE  
            administers:

             a)   The Sales and Use Tax Law;

             b)   The Use Fuel Tax Law;

             c)   The Alcoholic Beverage Tax Law;

             d)   The Energy Resources Surcharge Law;

             e)   The Emergency Telephone Users Surcharge Act;

             f)   The Hazardous Substances Tax Law;

             g)   The Integrated Waste Management Fee Law;

             h)   The Oil Spill Response, Prevention, and Administration  
               Fees Law; 

             i)   The Underground Storage Tank Maintenance Fee Law; and, 

             j)   The Diesel Fuel Tax Law.  

          2)Authorizes the TRA, under both the Cigarette and Tobacco  
            Products Tax Law and the Fee Collection Procedures Law, to  
            release a levy or notice to withhold upon a finding that the  









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            levy or notice to withhold threatens the health or welfare of  
            the taxpayer or the taxpayer's family.

          3)Does not authorize a hardship return of levied funds under  
            either the Cigarette and Tobacco Products Tax Law or the Fee  
            Collection Procedures Law.  

           FISCAL EFFECT  :  The BOE estimates annual revenue losses of  
          approximately $4,600.  Specifically, the BOE's staff analysis  
          notes, "Over the past ten years the TRA has averaged a return of  
          funds about once per year."  

           COMMENTS  :

          1)The author has provided the following statement in support of  
            this bill:

               This bill is sponsored by the BOE to update the amount of  
               temporary relief taxpayers may receive when a levy  
               threatens their health and welfare or the health and  
               welfare of their family.  The bill increases from $1,500 to  
               $2,300 the levy amount the BOE's TRA is authorized to  
               return to a taxpayer.  The bill also adds levy return  
               authority to the remaining BOE-administered tax and fee  
               programs that lack the authority.  The return of levied  
               funds does not reduce the tax liability, but instead  
               provides a means for taxpayers to meet their basic needs  
               once their bank accounts have been levied and the BOE has  
               seized funds.  The return amount has not been increased  
               since 1996, when the return authority first became  
               effective.  Increasing from $1,500 to $2,300, the amount  
               that the TRA may return, accounts for inflation since 1996  
               and provides a mechanism to ensure that the return amount  
               keeps pace with the cost of living.  

               At a time when many Californians are struggling to make  
               ends meet, it is essential that the BOE have tools at its  
               disposal to protect taxpayers while still ensuring their  
               taxes are paid in full.  AB 1222 is an important step  
               toward that goal.  

          2)BOE Member George Runner, who supports this bill, notes:

               As an elected member of the [BOE], I hear frequently from  
               taxpayers, including many small business owners, who are  









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               struggling to get back on their feet again as a result of  
               California's severe economic downturn.  When these  
               taxpayers fall behind on their tax payments, the state may  
               issue a levy or notice to withhold, which can sometimes  
               negatively impact their ability to provide basic  
               necessities for their family.  

               AB 1222 remedies this problem by providing the [TRA] the  
               needed discretion to restore additional funds, thus helping  
               struggling business owners provide for their families.  

          3)The BOE, which is sponsoring this measure, notes the following  
            in its staff analysis:

              a)   Sponsor and purpose  :  "The BOE is sponsoring this bill  
               to adjust for inflation the amount of temporary assistance  
               taxpayers may receive when a levy threatens their or their  
               family's health or welfare.  In addition, the bill provides  
               the TRA consistent levy return authority for all BOE  
               administered tax and fee programs."

              b)   The return of levied funds does not reduce the tax  
               liability  :  "The BOE is authorized to levy bank accounts to  
               collect delinquent amounts.  Occasionally a taxpayer is  
               unable to contact the TRA to stop the funds from being  
               levied until after the BOE has seized the funds.  In these  
               rare cases, levied funds are needed to cover the taxpayer's  
               basic living expenses.  Only the TRA, and not the [BOE], is  
               allowed to order funds returned when the levy threatens the  
               health or welfare of the taxpayer or the taxpayer's  
               family."

               "The BOE's TRA bases the decision to return levied funds  
               upon a taxpayer's reasonable documentation and financial  
               condition disclosure.  Typically the taxpayer completes a  
               BOE financial statement with accompanying documents to  
               substantiate income and expenses.  Since California is a  
               community property state, the BOE requests information  
               about total household income and expenses."

              c)   Basis for the suggested increase  :  "The increase from  
               $1,500 to $2,300 is based on the accumulated California  
               inflation factor from the date [R&TC] Section 7094 was  
               first effective, on January 1, 1996, to the present.  This  
               measure also provides a mechanism for future inflation  









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               adjustments."

               "The amount returned may not cover a taxpayer's monthly  
               living expenses, but a reasonable increase in the funds  
               returned will help a taxpayer provide for his or her family  
               when the need arises.  The incremental inflationary  
               adjustment ensures that the amount returned will keep pace  
               with the cost of living."  

          4)Committee Staff Comments:

              a)   General background  :  In 1988, the Legislature enacted  
               the Harris-Katz California Taxpayers' Bill of Rights  
               (Harris-Katz).  The legislation was designed to, "ensure  
               that the rights, privacy, and property of California  
               taxpayers are adequately protected during the process of  
               the assessment and collection of taxes."  [Revenue and  
               Taxation Code (R&TC) Section 7081].  Among its many  
               provisions, Harris-Katz directed the BOE to establish the  
               position of the TRA.  [R&TC Section 7083].  The TRA is  
               charged with facilitating the resolution of taxpayer  
               complaints, including complaints alleging unsatisfactory  
               treatment by BOE employees.  [Id.]      

               Harris-Katz also added R&TC Section 7094, which authorized  
               the TRA to order the release of a levy upon finding that  
               the levy threatens the health or welfare of the taxpayer or  
               the taxpayer's family.  The BOE notes that this provision  
               placed no limitation on the time for requesting a release  
               or the amount of money that could be released.      
                
               In 1995, SB 718 (Committee on Revenue and Taxation) amended  
               R&TC Section 7094 to read as it does today.  Among other  
               things, SB 718 authorized the TRA to order, within 90 days  
               of receiving funds through a levy or notice to withhold,  
               the return of up to $1,500, upon a finding that the levy or  
               notice to withhold threatens the health or welfare of the  
               taxpayer or the taxpayer's family.  It is difficult to  
               divine the Legislature's intent in providing the TRA this  
               expanded authority, given that SB 718 was run as an omnibus  
               tax bill with multiple provisions.  Nevertheless, the BOE's  
               staff analysis offers the following commentary:  

                    Although the available legislative history does not  
                    explain the rationale for the dollar threshold, the  









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                    statute itself seems to suggest that the Legislature  
                    attempted to strike a balance between the expanded  
                    power to return funds and the potential revenue  
                    impact.   

             b)   Accounting for inflation  :  This bill would increase,  
               from $1,500 to $2,300, the amount of money the TRA may  
               order returned to a taxpayer under numerous  
               BOE-administered tax and fee programs.  The BOE notes that  
               this increase is designed to account for inflation from the  
               date R&TC Section 7094 because effective to today.  This  
               bill would also provide a mechanism for future inflation  
               adjustments.  
                
                Based on the plain language of R&TC Section 7094, it would  
               appear that the current $1,500 cap on returned funds  
               applies to each levy, and is not a cap on the aggregate  
               amount that may be returned to a taxpayer each month.  For  
               example, assume the BOE receives $5,000 from a levy on May  
               1st.  Further assume that, on May 5th, the BOE receives an  
               additional $5,000 from a separate levy imposed on the same  
               taxpayer.  Under current law, it would appear that the TRA  
               could order up to $3,000 returned ($1,500 x 2 levies) to  
               the taxpayer in May alone, assuming a finding of adequate  
               hardship.  However, if the BOE were to receive $10,000 from  
               a single levy imposed on another taxpayer in the month of  
               May, the TRA would only have authority to return up to  
               $1,500, despite a finding of similar hardship.  To ensure  
               the equitable treatment of all taxpayers, this Committee  
               may wish to consider taking amendments establishing an  
               aggregate cap on returned funds per month.  

           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          State Board of Equalization (sponsor)
          State Board of Equalization Member George Runner

           Opposition 
           
          None on file 
           
          Analysis Prepared by  :  M. David Ruff / REV. & TAX. / (916)  
          319-2098 









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