BILL ANALYSIS                                                                                                                                                                                                    Ó




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 2009                     HEARING:  6/11/14
          AUTHOR:  Weber                        FISCAL:  Yes
          VERSION:  4/10/14                     TAX LEVY:  No
          CONSULTANT:  Bouaziz                  

               STATE BOARD OF EQUALIZATION: MANAGED AUDIT PROGRAM

          
          Authorizes a managed audit program for various tax and fee  
          programs administered by the Board of Equalization. 


                           Background and Existing Law  

          State law provides for a managed audit program under the  
          Sales and Use Tax (SUT) Law.  If the State Board of  
          Equalization (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.  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.


                                   Proposed Law  

          Assembly Bill 2009 authorizes a voluntary managed audit  
          program for the Motor Vehicle Fuel Tax Law, Use Fuel Tax  
          Law, Cigarette and Tobacco Products Tax Law, Alcoholic  
          Beverage Tax Law, Energy Resources Surcharge Law, Emergency  
          Telephone Users Surcharge Act, Hazardous Substances Tax  
          Law, Integrated Waste Management Fee Law, Oil Spill  
          Response, Prevention, and Administration Fees Law,  
          Underground Storage Tank Maintenance Fee Law, Fee  
          Collection Procedures Law, and Diesel Fuel Tax Law.  

          AB 2009 provides that a taxpayer's account is eligible for  
          the managed audit program only if the taxpayer meets all of  
          the following criteria:





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                 The taxpayer's business involves few or no  
               statutory exemptions;
                 The taxpayer's business involves a single or small  
               number of clearly defined taxability issues;
                 The taxpayer agrees to participate in the managed  
               audit program; and, 
                 The taxpayer has the resources to comply with the  
               managed audit instructions provided by the BOE.  

          The BOE must identify all of the following if it selects a  
          taxpayer's account:

                 The audit period covered by the managed audit;
                 The types of transactions covered by the managed  
               audit;
                 The specific procedures that the taxpayer is to  
               follow in determining any liability; 
                 The records to be reviewed by the taxpayer;
                 The manner in which the types of transactions are  
               to be scheduled for review;
                 The time period for completion of the managed  
               audit;
                 The time period for the payment of the liability  
               and interest; 

          The bill 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  
          BOE for verification all computations and books and records  
          examined.  Upon completion verification, the BOE can only  
          charge interest on any unpaid liability at one-half the  
          rate that would otherwise be imposed for liabilities  
          covered by the audit period.  


                               State Revenue Impact
           
          The BOE estimates that this bill would result in a net  
          annual revenue gain of approximately $249,207.


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "Managed  
          audits are essentially supervised self-audits.  Under the  
          existing MAP, the BOE is authorized to determine which  





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          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.  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.   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.  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 activities.  At the same time, the BOE  
          notes that the program leads to earlier resolution of  
          taxability issues and fewer protested audits.  Eligible  
          taxpayers, in turn, can reduce some of the business  
          disruption associated with traditional audits, and gain  
          valuable knowledge regarding how to comply properly with  
          the SUT Law.  Taxpayers who successfully complete a managed  
          audit verified by the BOE receive a break on any interest  
          due.  


                                 Assembly Actions  

          Assembly Committee on Revenue and Taxation:9-0
          Assembly Appropriations Committee:      17-0
          Assembly Floor:                              78-0


                        Support and Opposition  (06/05/14)

           Support  :  California Board of Equalization; California  





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          Chamber of Commerce; California Taxpayers Association. 

           Opposition  :  None received.