BILL ANALYSIS                                                                                                                                                                                                    




                     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          Legislature repealed the program in 1999 because the cost  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.