BILL ANALYSIS Ó AB 1411 Page 1 ASSEMBLY THIRD READING AB 1411 (Revenue and Taxation Committee) As Amended May 23, 2013 Majority vote REVENUE & TAXATION 6-2APPROPRIATIONS 12-5 ----------------------------------------------------------------- |Ayes:|Bocanegra, Gordon, |Ayes:|Gatto, Bocanegra, | | |Mullin, Pan, | |Bradford, | | |V. Manuel Pérez, Ting | |Ian Calderon, Campos, | | | | |Eggman, Gomez, Hall, | | | | |Ammiano, Pan, Quirk, | | | | |Weber | | | | | | |-----+--------------------------+-----+--------------------------| |Nays:|Dahle, Nestande |Nays:|Harkey, Bigelow, | | | | |Donnelly, Linder, Wagner | | | | | | ----------------------------------------------------------------- SUMMARY : Authorizes the Franchise Tax Board (FTB) to use the taxpayers' updated address information obtained through the Financial Institution Record Match (FIRM) program for purposes other than tax collection. Specifically, this bill: 1)Removes the prohibition on using FIRM tax debtor address information for tax administration purposes. 2)Applies to both individual and corporate taxpayers. 3)Makes conforming, technical changes to provisions relating to the FIRM program. EXISTING LAW : 1)Provides that use of the taxpayer's last known address is sufficient to satisfy the reasonable notice element of due process. 2)Defines "last known address" as the address that appears on the last return filed with the FTB unless the taxpayer has provided the FTB clear and concise written or electronic notification of a different address or the FTB has an address it has reason to believe is the most current address for the taxpayer. AB 1411 Page 2 3)Requires financial institutions doing business in this state to participate in a quarterly data exchange process with the FTB to match the FTB's, State Board of Equalization's (BOE), and Employment Development Department's (EDD) lists of delinquent debtors with the financial institution's account holder records. (Revenue and Taxation Code (R&TC) Section 19266(b)(1) and (b)(2)). 4)Specifies that any use of the information received from FIRM for purposes other than tax collection is prohibited and is a misdemeanor. (R&TC Section 19266(b)). FISCAL EFFECT : The FTB staff estimates that this bill will result in an annual revenue gain of $150,000 in fiscal year (FY) 2012-13, $200,000 in FY 2013-14, and $150,000 in FY 2014-15. COMMENTS : 1)The Purpose of this Bill . The FTB is sponsoring this measure, which allows the FTB to use tax debtor address information obtained through the FIRM system for purposes other than tax collection. The FTB states that the use of the information obtained from FIRM would improve fair and efficient tax administration by allowing the use of the most current address available to contact taxpayers. 2)The FIRM Program: Background . Under existing law, the FTB is required, in coordination with financial institutions doing business in this state, to operate the FIRM system, which provides a means to match delinquent tax debtor records with customer records provided by financial institutions. (SB 86 (Senate Budget and Fiscal Review Committee) Chapter 4, Statutes of 2011). The FIRM system permits the FTB to identify previously unknown non-interest-bearing deposit accounts held by delinquent income tax debtors and collect outstanding income tax debts. This data match program is similar to one used by the existing Financial Institution Data Match program mandated by federal law for the collection of delinquent child support payments. Financial institutions doing business in California are required to conduct records matches on delinquent taxpayers and are compensated for their costs of compliance with these requirements. AB 1411 Page 3 In 2012, the Legislature authorized the expansion of the FIRM program to the EDD and BOE. The FTB is required to operate and administer FIRM for those two agencies, utilizing automated data exchanges to identify accounts of delinquent tax debtors held at financial institutions doing business in California. 3)Is There a Problem ? Through the use of automated data exchanges, the FIRM system allows the FTB to match its list of delinquent tax debtors against the names of financial institution accountholders. This information exchange is used solely for tax collection, and existing law prohibits the use of FIRM-obtained information for any other purpose. This prohibition occasionally prevents the FTB from using updated address information obtained through the FIRM system for other purposes. This can result in taxpayers not receiving notices, refunds, or other important correspondence from the FTB. This bill would remedy this problem by simply removing the prohibition on the FTB using address information obtained through the FIRM system for purposes other than tax collection. 4)The Operative Date . While this bill would be effective January 1, 2014, it would apply to information obtained through FIRM not only after, but also before, that date. 5)Related Legislation . SB 1015 (Senate Budget and Fiscal Review Committee), Chapter 37, Statutes of 2012, requires the EDD and the BOE to participate in the FTB's FIRM program. SB 86 (Senate Budget And Fiscal Review Committee), Chapter 14, Statutes of 2011, requires the FTB, in coordination with financial institutions doing business in this state, to establish FIRM using automated data exchanges to the maximum extent feasible. Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098 FN: 0000682