BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 1412 HEARING: 7/3/13
AUTHOR: Committee on Revenue & TaxationFISCAL: Yes
VERSION: 5/24/13 TAX LEVY: No
CONSULTANT: Miller
SALES & USE TAXES: CLAIM FOR REFUND: CUSTOMER REFUNDS
Authorizes a person to irrevocably assign to a customer the
right to receive a refund under the Sales and Use Tax
Background and Existing Law
Sales & Use Tax . State law imposes a sales tax on
retailers for the privilege of selling tangible personal
property, absent a specific exemption. The tax is based
upon the retailer's gross receipts from sales in this
state. The law provides that any amount collected or paid
in excess of what is due under the sales tax law must be
credited by the Board of Equalization (BOE) against any
other amounts due from the person from whom the excess
amount was collected or by whom it was paid, and the
balance refunded.
When a sales and use tax is imposed on a customer, but is
an amount that is either not taxable or is in excess of the
taxable amount, the amount paid must be returned to the
customer upon notification by the BOE or the customer.
Contingency fees. Federal law allows the Secretary of the
Treasury to regulate practitioners with cases before the
Internal Revenue Service (IRS). IRS Circular 230 generally
spells out requirements for these practitioners, and also
regulates the conduct of anyone providing tax advice or
preparing tax returns for compensation, including
attorneys, certified public accountants, and enrolled
agents. In 2009, IRS revised Circular 230 to bar
individuals practicing before the IRS from charging clients
contingency fees, with specified exceptions, because of the
potential to exploit the audit selection process and
compromise a practitioner's duty of independent judgment.
Federal law also applies an erroneous claim for refund
penalty equal to 20% of the amount of the claim that lacks
AB 1412 -- 5/24/13 -- Page 2
a reasonable basis for the refund. California does not
conform to this penalty. Additionally, the American
Institute of Certified Public Accountants Code of
Professional Conduct precludes accountants from charging
contingency fees for preparing an original or amended tax
return, with specified exceptions.
State law restricts commissions charged by certified public
accountants in specified circumstances (SB 1289, Calderon,
1998). However, sophisticated cottage industries of
non-accountant tax consultants have grown considerably in
recent years, offering to amend a taxpayer's previous state
income tax returns seeking refunds of previous taxes paid
by claiming tax credits not included on the taxpayer's
original return. The taxpayer compensates the consultant
as a percentage of the refund, providing a significant
incentive to file aggressive claims with questionable
justification. As many of these consultants are neither
accountants subject to state law or codes of ethics, nor
practitioners covered by Circular 230, they may charge
taxpayers contingency fees without any limitation.
Proposed Law
AB 1412 authorizes a person to irrevocably assign a
customer the right to receive a refund under the sales and
use tax law. For example, a retailer may make an
irrevocable election to assign a customer the right the
right to receive the refund if all of the following
conditions are met:
1. The amount is in excess of the actual tax owed,
pursuant to existing law.
2. The irrevocable election to assign to the customer
the amount refunded is provided by a statement signed
by the customer authorizing the named customer to
receive a refund.
3. The signed statement is submitted to the BOE in
conjunction with the person's claim for refund.
4. The amount to be refunded is $50,000 or greater.
State Revenue Impact
AB 1412 -- 5/24/13 -- Page 3
According to the BOE, the impact is indeterminable. To the
extent that additional claims involving excess sales tax
reimbursement would be filed, this could result in a state
and local revenue loss.
Comments
1. Purpose of the bill . This bill is sponsored by the BOE
to allow, under limited circumstances, a direct
reimbursement to a customer who was overcharged sales tax
reimbursement
2. Contingency fees . This bill sets up a refund mechanism
for customers who are due large refund amounts, in excess
of $50,000. Under existing law, these refunds are owed and
must be paid. The purpose of this bill is to ensure direct
and expedited refunds to these customers. Given the
ability to assign a single customer the right to collect
the tax, this bill may create a cottage industry whereby a
third-party receives the reimbursement on behalf of a
customer. Earlier this year, the Committee approved SB 434
(Hill & Wolk) which prohibited contingency fees in
connection with enterprise zone tax credits. AB 1412
allows a similar opportunity for contingency fee
agreements. The Committee may wish to consider amending
the bill to provide that along with the documentation
required by this bill, the taxpayer shall submit a
statement that he or she charged or paid any contingency
fees in connection with the services allowed by AB 1412,
and contingency fees charged or paid in connection with
those services are contrary to public policy and the
application is null and void.
Assembly Actions
Assembly Revenue & Taxation 8-0
Assembly Appropriations 18-0
Assembly Floor 78-0
Support and Opposition (6/27/13)
Support : Board of Equalization (sponsor).
AB 1412 -- 5/24/13 -- Page 4
Opposition : Unknown.