BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 211 HEARING: 5/1/13
AUTHOR: Price FISCAL: Yes
VERSION: 2/11/13 TAX LEVY: No
CONSULTANT: Grinnell
TAX ADMINISTRATION: DISCLOSURE OF INFORMATION:
FRANCHISE TAX BOARD AND CITIES
Eliminates the sunset on the state-local tax sharing
program; allows agents to receive confidential state tax
information.
Background and Existing Law
Existing state and federal laws generally prohibit unlawful
disclosure or inspection of any income tax return
information. Existing state law (allows a committee of
either house of the Legislature to examine confidential
taxpayer information. Criminal sanctions, including
imprisonment, apply to FTB personnel convicted of unlawful
disclosure or inspection of tax records. The Franchise Tax
Board (FTB) must notify a taxpayer if criminal charges have
been filed for willful unauthorized inspection or
disclosure of their tax data.
Tax information sharing between the state and local
agencies dates back to 1984, when FTB first sponsored
legislation mandating California cities to annually report
information obtained from businesses they licensed. FTB
used the information to identify new businesses that were
obtaining local business licenses and paying business
license taxes, but may not have been filing state income
tax returns. While the program generated revenue, the
Legislature repealed the program in 1999 because the cost
of state reimbursed mandate claims from local agencies grew
too much, making the program no longer worth its cost.
In 2001, the Legislature reenacted the program, but in the
reverse: it allowed city tax officials to obtain state
income tax information subject to a written agreement
between FTB and the taxing authority of a city (AB 63,
Cedillo, 2001); FTB charged the cities for its costs for
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collecting and sending the information. The Legislature
extended the program in 2006 until 2011 (SB 1374, Cedillo).
In 2008, the Legislature extended the program until 2014,
but allowed cities to offset costs paid by providing its
business license tax information to FTB to assist Personal
Income and Corporation Tax collection (SB 1146, Cedillo).
Under the program, FTB may grant information limited to a
taxpayers' name, address, social security or taxpayer
identification number, and business activity code. Only
city employees may use the tax information provided to the
city, and may only use it for tax collection purposes.
Proposed Law
Senate Bill 211 removes the sunset on the state-local tax
information sharing program, and allows agents of the city
to receive information.
State Revenue Impact
According to FTB, SB 211 would result in revenue gains of
$1.5 million in 2014-15, and $4.9 million in 2015-16.
Comments
1. Purpose of the bill . According to the author, "SB 211
would repeal the sunset date currently in statute and
ensure the continuity of a proven cost effective tax data
sharing program and would preserve the revenue benefit to
the state and participating cities."
2. Agent zero . Municipalities often use consultants to
collect taxes on contingency, most notably Muni Services,
LLC and HdL companies. However, statute prohibits cities
from sharing information obtained from the FTB with these
agents due to privacy concerns; consultants work on
contingency and have little incentive to safeguard
information. SB 211 would expressly allow these agents to
receive this information. In 2009, the predecessor to this
Committee, the Committee on Revenue and Taxation, approved
SB 1036 (Cedillo), which would have allowed agents to
receive data, but only those that had an existing
relationship with the city, and placed several
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restrictions' on agents use of data. However, the Assembly
Committee on Revenue and Taxation rejected the bill due to
these concerns. SB 211 doesn't apply unlawful disclosure
laws to these agents, excluding them from the section that
binds city officials' use of the information. The
threshold question for the Committee posed by SB 211 is:
who are these consultants, and can they be trusted to keep
confidential private taxpayer information when working on
contingency? Second, are more protections needed to
safeguard the use of the data? The Committee may wish to
consider the rules for allowing private sector consultants
to receive this information, or whether it should be
allowed at all.
3. The sun also sets . SB 211 repeals the tax information
sharing program's sunset date of December 31, 2013. While
there is no hard and fast rule for eliminating any given
program's sunset date, the Committee may wish to review
this program again instead of granting this program
permanence. The Committee may wish to consider granting a
five-year extension instead of deleting the sunset,
especially if it chooses to allow agents access to the data
to review the tradeoff between revenue and privacy.
4. Get some . FTB states that it currently has a
reciprocal agreement with 102 cities in California, which
costs $718,000 annually. The following cities reported the
following revenue amounts due to the program:
City of Los Angeles ($13.9 million)
City of San Diego ($1.1 million)
City of Newport Beach ($360,000)
City of Oakland ($260,000)
City of Menlo Park ($172,000)
City of Concord ($154,000)
City of Sunnyvale ($131,000)
Support and Opposition (04/25/13)
Support : California Municipal Revenue and Tax Association;
California Professional Firefighters Association; City of
Big Bear Lake; City of Brea; City of Buena Park; City of
Carson; City of El Paso De Robles; City of El Segundo; City
of Fremont; City of Menifee; City of Montebello; City of
Newport Beach; City of Oakland; City of Palo Alto; City of
Pasadena; City of Red Bluff; City of Roseville; City of
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Sacramento; League of California Cities; Sacramento
Municipal Utilities District.
Opposition : California Taxpayers Association.