BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 211
                                                                  Page  1


          SENATE THIRD READING
          SB 211 (Ed Hernández)
          As Amended  September 3, 2013
          Majority vote 

           SENATE VOTE  :32-6  
           
           REVENUE & TAXATION  6-1         APPROPRIATIONS      12-4        
           
           ----------------------------------------------------------------- 
          |Ayes:|Bocanegra, Gordon,        |Ayes:|Gatto, Bocanegra,         |
          |     |Mullin, Pan,              |     |Bradford,                 |
          |     |V. Manuel Pérez, Ting     |     |Ian Calderon, Campos,     |
          |     |                          |     |Eggman, Gomez, Hall,      |
          |     |                          |     |Holden, Pan, Quirk, Weber |
          |     |                          |     |                          |
          |-----+--------------------------+-----+--------------------------|
          |Nays:|Dahle                     |Nays:|Harkey, Bigelow,          |
          |     |                          |     |Donnelly, Wagner          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Extends the sunset on the state-local tax information  
          sharing program and codifies existing safeguard practices.   
          Specifically,  this bill  :  

          1)Extends the sunset date on the reciprocal sharing of tax  
            information between the Franchise Tax Board (FTB) and a city's  
            tax officials until January 1, 2019.

          2)Requires that tax information provided to a city shall be  
            utilized in a form and manner to safeguard the tax information  
            as required by the FTB, including, but not limited to:

             a)   The completion of a data exchange security questionnaire  
               provided by the FTB prior to approval of a data exchange by  
               the FTB;

             b)   The tax official or agent of the city shall allow the  
               FTB to conduct an onsite safeguard review;

             c)   The completion of disclosure training provided by the  
               FTB and a confidentiality statement signed by all employees  
               or agents with access to information provided by the FTB  
               confirming the requirement of data security with respect to  
               that information and acknowledging awareness of penalties  








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               for unauthorized access or disclosure under Revenue and  
               Taxation Code (R&TC) Sections 19542 and 19552, and Penal  
               Code Section 502;

             d)   The tax official or the agent of a city shall notify the  
               FTB within 24 hours upon discovery of any incident of  
               unauthorized or suspected unauthorized access or disclosure  
               of the tax information and provide a detailed report of the  
               incident and the parties involved; and,

             e)   All records received by the tax officials of a city or  
               its agents shall be destroyed in a manner to make them  
               unusable or unreadable so an individual record may no  
               longer be ascertained in a timeframe specified by the FTB.

           


          EXISTING LAW  :

          1)Authorizes FTB to permit tax officials of a city to enter into  
            a reciprocal tax sharing information agreement with FTB, as  
            specified.  The information that may be furnished to a city's  
            tax officials is subject to the following limitations:

             a)   The city is only authorized to receive information  
               related to taxpayers operating within the city and who  
               report income from a trade or business to the FTB;

             b)   The information is limited to a taxpayer's name,  
               address, social security or taxpayer identification number,  
               and business activity code;

             c)   Tax information provided to a city's taxing authority  
               may not be furnished to, or used by, any person other than  
               an employee of that taxing authority; and,  

             d)   The information provided to a city's tax officials is  
               subject to R&TC Section 19542, which makes it a misdemeanor  
               to disclose confidential tax information.  Specifically,  
               the information may only be used for the city's tax  
               enforcement, or as otherwise authorized by state or federal  
               law.  









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          2)Provides that any information, other than the limited type of  
            tax information specified above, may be requested by a city's  
            tax officials by affidavit.  

          3)Provides that the information available from cities to the FTB  
            is limited to the following:

             a)   The name of business if it is a corporation,  
               partnership, or limited liability company, or the owner's  
               name if it is a sole proprietorship;

             b)   Business mailing address;

             c)   Federal employer identification number, if applicable,  
               or the business owner's social security number;

             d)   Standard Industry Classification Code or North American  
               Industry Classification System Code;

             e)   Business start date;

             f)   City number; and,

             g)   Ownership type.
             
          4)Provides for the automatic repeal of the tax information  
            sharing program on January 1, 2014.
           
          FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, this measure would result in revenue gains of  
          approximately $1.5 million in 2014-15, and $4.5 million in  
          2015-16.  FTB states it currently has reciprocal agreements with  
          102 cities and its costs to administer the program are about  
          $700,000 annually. 

           COMMENTS  :   

          1)The author states, "SB 211 would extend the sunset date  
            currently in statute until January 1, 2019 to 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)Program background  : As noted in the FTB's staff analysis of  








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            this bill, "FTB compiles information from many sources  
            including employers, financial institutions, and federal and  
            state entities for purposes of ensuring compliance with the  
            state's income tax laws. When the FTB receives information  
            indicating that a tax return should be filed for a taxable  
            year, but has no record of a return, the FTB may contact the  
            taxpayer to request that the taxpayer file a return or explain  
            why no return is required. When a taxpayer is required to file  
            a return, but fails to do so, the FTB is authorized to assess  
            tax based on reported and estimated income from all available  
            sources."  Additionally, "FTB uses data obtained from cities  
            to ensure compliance with state income tax requirements;  
            cities use data obtained from the FTB to ensure compliance  
            with city business tax requirements."

            The program authorizes the FTB to enter into agreements with  
            cities to exchange tax data.  These agreements can either  
            require the cities to reimburse the FTB's costs for providing  
            the data, or allow for a waiver of the FTB's costs if the  
            cities agree to provide their tax data at no cost to FTB.   
            Cities providing tax data to the FTB without also receiving  
            tax data from the FTB are required to be reimbursed by the FTB  
            at a maximum rate of $1 per usable record.  The FTB can only  
            provide tax information that contains an address within the  
            city's jurisdiction.  The information is limited, unless  
            agreed to otherwise, to the taxpayer's name, taxpayer's  
            address, taxpayer's social security number or taxpayer  
            identification number, and the principal business activity.  

            This bill would extend the sunset date on the reciprocal  
            sharing of tax information between the FTB and a city's tax  
            official until January 1, 2019.

           3)Safeguard standards  :  The codification of existing safeguard  
            practices will help ensure that tax information data remains  
            free of data breaches.  However, because these standards are  
            already being utilized, codifying the standards in law may not  
            actually provide any additional security.  

           4)Related legislation  :

            SB 1036 (Cedillo), introduced in the 2009-10 legislative  
            session, would have allowed local cities to share taxpayer  
            information with third party agents.  SB 1036 failed to pass  








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            out of the Assembly Revenue and Taxation Committee.

            SB 1146 (Cedillo), Chapter 345, Statutes of 2008, extended the  
            authority of the FTB to disclose limited confidential tax  
            information to city tax officials, and allowed a city that  
            administers a business tax to provide specific data to the FTB  
            upon request and authorized cities to exchange data with the  
            FTB in lieu of obtaining mandated cost reimbursement. 

            SB 1374 (Cedillo), Chapter 513, Statutes of 2006, extended the  
            FTB's authority to disclose limited confidential tax  
            information to city tax officials until 2011.

            AB 63 (Cedillo), Chapter 915, Statutes of 2001, authorized the  
            FTB to disclose limited confidential tax information to city  
            tax officials in order to enhance the enforcement of an  
            existing city business tax law.


           Analysis Prepared by  :    Carlos Anguiano / REV. & TAX. / (916)  
          319-2098 


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