Amended in Assembly September 3, 2013

Amended in Assembly August 13, 2013

Amended in Senate May 8, 2013

Senate BillNo. 211


Introduced by Senator Hernandez

February 11, 2013


An act to amend Sections 19551, 19551.1, and 19551.5 of, the Revenue and Taxation Code, relating to taxation.

LEGISLATIVE COUNSEL’S DIGEST

SB 211, as amended, Hernandez. Tax administration: disclosure of information: Franchise Tax Board and cities.

Existing law authorizes, until December 31, 2013, a city that has entered into a reciprocal agreement, as defined, with the Franchise Tax Board, to exchange tax information, as provided. Existing law limits the use of the tax data received from the Franchise Tax Boardbegin delete forend deletebegin insert toend insert business tax administration purposes and provides that any other use or disclosure of the information is punishable as a misdemeanor.

This bill would extend the authorization until January 1, 2019, and extend the repeal date of the provisions relating to the reciprocal agreements between the Franchise Tax Board and cities. This bill would add an additional limitation on the use of the tax data to require the data to be utilized in a form and manner to safeguard the tax information, as prescribed.

Because this bill would continue the operation of the reciprocal agreement exchange, and the unauthorized use of such information would be a crime, it would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P2    1

SECTION 1.  

Section 19551 of the Revenue and Taxation Code,
2as amended by Section 1 of Chapter 345 of the Statutes of 2008,
3is amended to read:

4

19551.  

(a) The Franchise Tax Board may permit the
5Commissioner of Internal Revenue of the United States, other tax
6officials of this state, the Multistate Tax Commission, the proper
7officer of any state imposing an income tax or a tax measured by
8income or the authorized representative of that officer, or the tax
9officials of Mexico, if a reciprocal agreement exists, to inspect the
10income tax returns of any taxpayer, or may furnish to the
11commission, or the officer or the authorized representative thereof
12an abstract of the return or supply thereto information concerning
13any item of income contained in any return or disclosed by the
14report of any investigation of the income or return. The information
15shall be furnished to the Multistate Tax Commission, the federal
16or state officer or his or her representative, or the officials of
17Mexico for tax purposes only. If furnished pursuant to a written
18agreement, information furnished pursuant to this section shall be
19furnished only if the request is in the form of an affidavit under
20penalty of perjury stating that the purpose for the request relates
21to an investigation of the tax specified in the request and that the
22information will be used in the ordinary performance of the
23applicant’s official duties.

24(b) Notwithstanding subdivision (a) and except as otherwise
25provided in Section 19551.1, tax officials of political subdivisions
26of this state shall request information from the Franchise Tax Board
27by affidavit only. At the time a tax official makes the request, he
28or she shall provide the affected person with a copy of the affidavit
29and, upon request, make the information obtained available to that
30person.

P3    1(c) For purposes of this section, “reciprocal agreement” means
2a formal agreement to exchange information between national
3taxing officials of Mexico and taxing authorities of the State Board
4of Equalization, the Franchise Tax Board, and the Employment
5Development Department. Furthermore, the reciprocal agreement
6shall be limited to the exchange of information that is essential for
7tax administration purposes only. Taxing authorities of the State
8of California shall be granted tax information only on California
9residents. Taxing authorities of Mexico shall be granted tax
10information only on Mexican nationals.

11(d) This section shall remain in effect only until January 1, 2019,
12and as of that date, is repealed.

13

SEC. 2.  

Section 19551 of the Revenue and Taxation Code, as
14added by Section 2 of Chapter 345 of the Statutes of 2008, is
15amended to read:

16

19551.  

(a) The Franchise Tax Board may permit the
17Commissioner of Internal Revenue of the United States, other tax
18officials of this state, the Multistate Tax Commission, the proper
19officer of any state imposing an income tax or a tax measured by
20income or the authorized representative of that officer, or the tax
21officials of Mexico, if a reciprocal agreement exists, to inspect the
22income tax returns of any taxpayer, or may furnish to the
23commission, or the officer or the authorized representative thereof
24an abstract of the return or supply thereto information concerning
25any item of income contained in any return or disclosed by the
26report of any investigation of the income or return. The information
27shall be furnished to the Multistate Tax Commission, the federal
28or state officer or his or her representative, or the officials of
29Mexico for tax purposes only. Except when furnished pursuant to
30a written agreement, information furnished pursuant to this section
31shall be furnished only if the request is in the form of an affidavit
32under penalty of perjury stating that the purpose for the request
33relates to an investigation of the tax specified in the request and
34that the information will be used in the ordinary performance of
35the applicant’s official duties.

36(b) Notwithstanding subdivision (a), tax officials of political
37subdivisions of this state shall request information from the
38Franchise Tax Board by affidavit only. At the time a tax official
39makes the request, he or she shall provide the affected person with
P4    1a copy of the affidavit and, upon request, make the information
2obtained available to that person.

3(c) For purposes of this section, “reciprocal agreement” means
4a formal agreement to exchange information between national
5taxing officials of Mexico and taxing authorities of the State Board
6of Equalization, the Franchise Tax Board, and the Employment
7Development Department. Furthermore, the reciprocal agreement
8shall be limited to the exchange of information that is essential for
9tax administration purposes only. Taxing authorities of the State
10of California shall be granted tax information only on California
11residents. Taxing authorities of Mexico shall be granted tax
12information only on Mexican nationals.

13(d) This section shall become operative on January 1, 2019.

14

SEC. 3.  

Section 19551.1 of the Revenue and Taxation Code
15 is amended to read:

16

19551.1.  

(a) (1) The Franchise Tax Board may permit the tax
17officials of any city to enter into a reciprocal agreement with the
18Franchise Tax Board to obtain tax information from the Franchise
19Tax Board, as specified in subdivision (b).

20(2) For purposes of this section, “reciprocal agreement” means
21a formal agreement to exchange information for tax administration
22purposes between tax officials of a city and the Franchise Tax
23Board.

24(b) The information furnished to tax officials of a city under
25this section shall be limited as follows:

26(1) The tax officials of a city are authorized to receive
27information only with respect to taxpayers with an address as
28reflected on the Franchise Tax Board’s records within the
29jurisdictional boundaries of the city who report income from a
30trade or business to the Franchise Tax Board.

31(2) The tax information that may be provided by the Franchise
32Tax Board to a city is limited to a taxpayer’s name, address, social
33security or taxpayer identification number, and business activity
34code.

35(3) Tax information provided to the taxing authority of a city
36may not be furnished to, or used by, any person other than an
37employeebegin delete or agentend delete of that taxing authority and shall be utilized in
38a form and manner to safeguard the tax information as required
39by the Franchise Tax Board, including, but not limited to:

P5    1(A) The completion of a data exchange security questionnaire
2provided by the Franchise Tax Board prior to approval of a data
3exchange by the Franchise Tax Board.

4(B) The tax officialbegin delete or agentend delete of a city shall allow for an onsite
5safeguard review conducted by the Franchise Tax Board.

6(C) The completion of disclosure training provided by the
7Franchise Tax Board and a confidentiality statement signed by all
8employeesbegin delete or agentsend delete with access to information provided by the
9Franchise Tax Board confirming the requirement of data security
10with respect to that information and acknowledging awareness of
11penalties for unauthorized access or disclosure under Sections
1219542 and 19552begin insert of this codeend insert and Section 502 of the Penal Code.

13(D) The tax officialbegin delete or agentend delete of a city shall notify the Franchise
14Tax Board within 24 hours upon discovery of any incident of
15unauthorized or suspected unauthorized access or disclosure of
16 the tax information and provide a detailed report of the incident
17and the parties involved.

18(E) All records received by the tax officials of a city begin deleteor its agentsend delete
19 shall be destroyed in a manner to make them unusable or
20unreadable so an individual record may no longer be ascertained
21in a timeframe specified by the Franchise Tax Board.

22(4) The information provided to the tax officials of the city by
23the Franchise Tax Board under this section is subject to Section
2419542, and may not be used for any purpose other than the city’s
25tax enforcement, or as otherwise authorized by state or federal
26law.

27(5) Section 19542.1 applies to this section.

28(c) The Franchise Tax Board may not provide any information
29pursuant to this section until all of the following have occurred:

30(1) An agreement has been executed between a city and the
31Franchise Tax Board, that provides that an amount equal to all
32first year costs necessary to furnish the city information pursuant
33to this section shall be received by the Franchise Tax Board before
34the Franchise Tax Board incurs any costs associated with the
35activity permitted by this section. For purposes of this section, first
36year costs include costs associated with, but not limited to, the
37purchasing of equipment, the development of processes, and labor.

38(2) An agreement has been executed between a city and the
39Franchise Tax Board, that provides that the annual costs incurred
40by the Franchise Tax Board, as a result of the activity permitted
P6    1by this section, shall be reimbursed by the city to the Franchise
2Tax Board.

3(3) Pursuant to the agreement described in paragraph (1), the
4Franchise Tax Board has received an amount equal to the first year
5costs.

6(d) Any information, other than the type of tax information
7specified in subdivision (b), may be requested by the tax officials
8of a city from the Franchise Tax Board by affidavit. At the time a
9tax official makes the request, he or she shall provide the person
10whose information is the subject of the request, with a copy of the
11affidavit and, upon request, make the information obtained
12available to that person.

13(e) This section does not invalidate any other law. This section
14does not preclude any city or county from obtaining information
15about individual taxpayers, including those taxpayers not subject
16to this section, by any other means permitted by state or federal
17law.

18(f) Nothing in this section shall be construed to affect any
19obligations, rights, or remedies regarding personal information
20provided under state or federal law.

21(g) Notwithstanding subdivision (c), the Franchise Tax Board
22shall waive a city’s reimbursement of the Franchise Tax Board’s
23cost if a city enters into a reciprocal agreement as defined in
24paragraph (2) of subdivision (a). The reciprocal agreement shall
25specify that each party shall bear its own costs to furnish the data
26involved in the exchange authorized by this section and Section
2719551.5, and a city shall be precluded from obtaining
28reimbursement as specified under Section 5 of the act adding this
29subdivision.

30(h) This section shall remain in effect only until January 1, 2019,
31and as of that date, is repealed.

32

SEC. 4.  

Section 19551.5 of the Revenue and Taxation Code
33 is amended to read:

34

19551.5.  

(a) Notwithstanding any other law, each city that
35assesses a city business tax or requires a city business license shall,
36upon the request of the Franchise Tax Board, annually submit to
37the Franchise Tax Board the information that is collected in the
38course of administration of the city’s business tax program, as
39described in subdivision (b).

P7    1(b) Information, collected in the course of administration of the
2city’s business tax program, shall be limited to the following:

3(1) Name of the business, if the business is a corporation,
4partnership, or limited liability company, or the owner’s name if
5the business is a sole proprietorship.

6(2) Business mailing address.

7(3) Federal employer identification number, if applicable, or
8the business owner’s social security number.

9(4) Standard Industrial Classification (SIC) Code or North
10American Industry Classification System (NAICS) Code.

11(5) Business start date.

12(6) Business cease date.

13(7) City number.

14(8) Ownership type.

15(c) The reports required under this section shall be filed on
16magnetic media such as tapes or compact discs, through a secure
17electronic process, or in other machine-readable form, according
18to standards prescribed by regulations promulgated by the
19Franchise Tax Board.

20(d) Cities that receive a request from the Franchise Tax Board
21shall begin providing to the Franchise Tax Board the information
22required by this section as soon as economically feasible, but no
23later than December 31, 2009. The information shall be furnished
24annually at a time and in the form that the Franchise Tax Board
25may prescribe by regulation.

26(e) The city data provided to the Franchise Tax Board under
27this section is subject to Section 19542, and may not be used for
28any purpose other than state tax enforcement or as otherwise
29authorized by law.

30(f) If a city enters into a reciprocal agreement with the Franchise
31Tax Board pursuant to subdivision (a) of Section 19551.1, the city
32shall also waive reimbursement for costs incurred to provide
33information required under this section and shall be precluded
34from obtaining reimbursement as specified under Section 5 of
35Chapter 345 of the Statutes of 2008. The reciprocal agreement
36shall specify that each party shall bear its own costs to furnish the
37data involved in the exchange authorized by Section 19551.1 and
38this section, and the Franchise Tax Board shall be precluded from
39obtaining reimbursement as specified under subdivision (c) of
40Section 19551.1.

P8    1(g) A city shall not be required to provide information to the
2Franchise Tax Board pursuant to this section if the Franchise Tax
3Board fails to provide tax information to the city pursuant to a
4reciprocal agreement entered into pursuant to subdivision (a) of
5Section 19551.1 for reasons other than concerns related to
6confidentiality of tax information provided to the city.

7(h) This section shall remain in effect only until January 1, 2019,
8and as of that date, is repealed.

9

SEC. 5.  

No reimbursement is required by this act pursuant to
10Section 6 of Article XIII B of the California Constitution because
11the only costs that may be incurred by a local agency or school
12district will be incurred because this act creates a new crime or
13infraction, eliminates a crime or infraction, or changes the penalty
14for a crime or infraction, within the meaning of Section 17556 of
15the Government Code, or changes the definition of a crime within
16the meaning of Section 6 of Article XIII B of the California
17Constitution.



O

    96