BILL ANALYSIS Ó
AB 2009
Page 1
Date of Hearing: April 7, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2009 (Weber) - As Amended: March 27, 2014
Majority vote. Fiscal committee.
SUBJECT : State Board of Equalization: administration: managed
audit program
SUMMARY : Authorizes a managed audit program, akin to the
program currently authorized under the Sales and Use Tax (SUT)
Law, for various tax and fee programs administered by the State
Board of Equalization (BOE). Specifically, this bill :
1)Provides that the BOE shall determine which taxpayer accounts
are eligible for the managed audit program in a manner
consistent with the efficient use of its auditing resources
and the maximum effectiveness of the program.
2)Specifies that a taxpayer is not required to participate in
the managed audit program.
3)Provides that a taxpayer's account is eligible for the managed
audit program only if the taxpayer meets all of the following
criteria:
a) The taxpayer's business involves few or no statutory
exemptions;
b) The taxpayer's business involves a single or small
number of clearly defined taxability issues;
c) The taxpayer agrees to participate in the managed audit
program; and,
d) The taxpayer has the resources to comply with the
managed audit instructions provided by the BOE.
4)Provides that, if the BOE selects a taxpayer's account for a
managed audit, the BOE shall identify all of the following:
AB 2009
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a) The audit period covered by the managed audit;
b) The types of transactions covered by the managed audit;
c) The specific procedures that the taxpayer is to follow
in determining any liability;
d) The records to be reviewed by the taxpayer;
e) The manner in which the types of transactions are to be
scheduled for review;
f) The time period for completion of the managed audit;
g) The time period for the payment of the liability and
interest; and,
h) Any other criteria that the BOE may require for
completion of the managed audit.
5)Requires a participating taxpayer to examine its books and
records to determine if it has any unreported tax liability
for the audit period, and to make available to the BOE for
verification all computations and books and records examined.
6)Provides that, upon completion of the managed audit and
verification by the BOE, interest on any unpaid liability
shall be computed at one-half the rate that would otherwise be
imposed for liabilities covered by the audit period.
7)Authorizes a managed audit program for the:
a) Motor Vehicle Fuel Tax Law;
b) Use Fuel Tax Law;
c) Cigarette and Tobacco Products Tax Law;
d) Alcoholic Beverage Tax Law;
e) Energy Resources Surcharge Law;
f) Emergency Telephone Users Surcharge Act;
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g) Hazardous Substances Tax Law;
h) Integrated Waste Management Fee Law;
i) Oil Spill Response, Prevention, and Administration Fees
Law;
j) Underground Storage Tank Maintenance Fee Law;
aa) Fee Collection Procedures Law; and,
bb) Diesel Fuel Tax Law.
EXISTING LAW :
1)Provides for a managed audit program under the SUT Law. If
the BOE determines that a taxpayer's account is eligible for
the program and the taxpayer agrees to participate, the
taxpayer examines its own books, records, and equipment to
determine if it has any unreported tax liability for the audit
period, in compliance with the managed audit instructions
provided by the BOE.
2)Provides that, upon completion of the managed audit and
verification by the BOE, interest on any unpaid liability is
computed at one-half the rate that would otherwise by imposed
for liabilities covered by the audit period.
FISCAL EFFECT : The BOE estimates that this bill would result in
a net annual revenue gain of approximately $249,207.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Managed audits are essentially supervised self-audits.
Under the existing MAP, the BOE is authorized to determine
which taxpayer accounts are eligible to participate in a
MAP and to enter into MAP Participation Agreements with
eligible taxpayers. The auditor provides written and oral
instructions to enable eligible taxpayers to perform audit
verification and prepare working paper schedules necessary
to complete certain portions of the audit.
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These audits are advantageous for both tax payers and the
BOE by limiting disruption to a taxpayer's business
activities while also allowing the BOE to reallocate audit
resources to conduct more audits. BOE staff has also found
that taxpayers who participate in the MAP develop a better
understanding of the laws that affect them and are able to
report tax liability more accurately. By extending the
authority of MAP to special tax and fee programs, this bill
will allow greater access to an already successful program.
2)This bill is sponsored by the BOE, which notes the following:
Managed audits are self-audits conducted under close
supervision by the BOE. The BOE determines which taxpayers
are eligible to participate in a managed audit and enters
into MAP Participation Agreements with taxpayers who
volunteer to participate.
Participating taxpayers would receive a 50% interest
reduction on any unpaid liability discovered during the
audit. In turn, BOE saves the staff resources that would
otherwise have been spent performing the verification
activities not performed by the taxpayer. The BOE audit
hours saved would be directed to more complex,
revenue-generating audits. Other benefits include: the
ability to provide early resolution of taxability issues,
fewer protested audits, improved cooperation between the
BOE and taxpayers, improved taxpayer education and
compliance, and decreased disruption of a taxpayer's
regular business activities.
3)Proponents of this bill note the following:
Currently, there is a voluntary, managed audit program for
taxpayers with regard to the application of the sales and
use tax law, which allows taxpayers under the guidance of a
BOE auditor, to conduct a self-audit of their books and
records to determine if they have complied with their tax
obligations. The benefit of this program is that it allows
the taxpayer to learn and understand any errors it has
made, so as not to repeat those errors in the future.
Additionally, given the taxpayer's willingness to
voluntarily conduct an audit, it saves the agency time and
money. If any tax liability is deemed owed after the audit
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is complete, the taxpayer must pay the taxes owed, but is
provided with [a] 50% reduced interest rate.
AB 2009 seeks to expand this successful program to other
areas of tax law administered by the BOE, such as the motor
vehicle fuel tax, cigarette and tobacco products tax, and
alcoholic beverages tax. This will allow other taxpayers
impacted by various areas of tax law to correct any past
errors without the fear of significant interest imposed in
addition to any unpaid taxes. Expanding self-audits to
these other areas will also help such taxpayers avoid
repeating the same errors in the future.
4)The BOE notes the following in its staff analysis of this
bill:
A number of taxpayers are required to hold both a seller's
permit and one or more special tax and fee permits. For
example, a winery's retail sales are subject to sales tax,
and its import of wines is subject to the alcoholic
beverage tax. Tire retailers make sales that are subject
to sales tax and the California tire fee. Although
taxpayers participating in a sales tax managed audit may
also wish to participate in a special taxes managed audit,
they cannot do so due to lack of statutory authority.
Special tax and fee account holders have transactions that
are equally appropriate for a managed audit review. The
tax issues related to their business operations are
straightforward, and many have the resources necessary to
perform the audit work.
5)Committee Staff Comments:
a) What is the managed audit program ? The SUT Law's
managed audit program allows eligible taxpayers to conduct
a self-audit under the BOE's supervision. A taxpayer is
only eligible for the managed audit program if the
taxpayer's business involves few or no statutory
exemptions, and a single or small number of clearly defined
taxability issues. In addition, the taxpayer must have
sufficient resources to comply with the BOE's managed audit
instructions. From the BOE's perspective, the benefits of
the managed audit program include the ability to redirect
staff resources to more complex, revenue-generating
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activities. At the same time, the BOE notes that the
program facilitates the early resolution of taxability
issues and results in fewer protested audits. Eligible
taxpayers, in turn, are able to reduce some of the business
disruption associated with traditional audits, and gain
valuable knowledge regarding how to comply properly with
the SUT Law. Finally, taxpayers who successfully complete
a managed audit verified by the BOE receive a break on any
interest due. Specifically, interest is computed at
one-half the rate that would otherwise be imposed for
liabilities covered by the audit period.
b) Suggested technical amendments :
i) On page 18, in line 11, strike "fee payer" and
insert "feepayer";
ii) On page 20, in line 31, strike "involves" and insert
"involve";
iii) On page 21, in line 30, strike "fee payer" and
insert "feepayer"; and,
iv) On page 22, in line 23, strike "this part" and
insert "this part".
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (Sponsor)
California Chamber of Commerce
California Taxpayers Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098