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: AB 2009 -- 04/10/14 -- Page 2 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 AB 2009 -- 04/10/14 -- Page 3 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 AB 2009 -- 04/10/14 -- Page 4 Chamber of Commerce; California Taxpayers Association. Opposition : None received.