BILL ANALYSIS                                                                                                                                                                                                    Ó


          |SENATE RULES COMMITTEE            |                        SB 211|
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                                    THIRD READING

          Bill No:  SB 211
          Author:   Hernandez (D)
          Amended:  9/3/13
          Vote:     21

           SENATE GOVERNANCE & FINANCE COMMITTEE  :  7-0, 5/1/13
          AYES:  Wolk, Knight, Beall, DeSaulnier, Emmerson, Hernandez, Liu

           SENATE APPROPRIATIONS COMMITTEE  :  4-2, 5/20/13
          AYES:  De León, Hill, Padilla, Steinberg
          NOES:  Walters, Gaines
          NO VOTE RECORDED:  Lara

           SENATE FLOOR  :  32-6, 5/28/13
          AYES:  Beall, Block, Calderon, Cannella, Corbett, Correa, De  
            León, DeSaulnier, Emmerson, Evans, Galgiani, Hancock,  
            Hernandez, Hill, Hueso, Jackson, Knight, Lara, Leno, Lieu,  
            Liu, Monning, Nielsen, Padilla, Pavley, Price, Roth,  
            Steinberg, Torres, Wolk, Wright, Yee
          NOES:  Anderson, Fuller, Gaines, Huff, Walters, Wyland
          NO VOTE RECORDED:  Berryhill, Vacancy

           ASSEMBLY FLOOR  :  Not available

           SUBJECT  :    Tax administration:  disclosure of information:   
          Franchise Tax Board and cities

           SOURCE :     Author

           DIGEST  :    This bill extends the sunset to January 1, 2019, on  


                                                                     SB 211

          the state-local tax sharing program; allows city officials to  
          receive confidential state tax information; and adds an  
          additional limitation on the use of the tax data to be utilized  
          in a form and manner to safeguard the tax information, as  

           Assembly Amendments  change the author of the bill; delete the  
          city "agent" as someone allowed to receive confidential  
          information; and make technical and clarifying changes.

           ANALYSIS  :    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 Franchise Tax Board (FTB) personnel convicted of unlawful  
          disclosure or inspection of tax records.  The FTB must notify a  
          taxpayer if criminal charges have been filed for willful  
          unauthorized inspection or disclosure of their tax data.

          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, Chapter 915,  
          Statutes of 2001); FTB charged the cities for its costs for  
          collecting and sending the information.  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, Chapter 345, Statutes of 2008).   
          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.

          This bill extends the sunset from December 31, 2013 to January  
          1, 2019, on the state-local tax information sharing program, and  
          allows officials of the city to receive information.

          This bill adds 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.



                                                                     SB 211

          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 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 of a city shall allow for an onsite  
               safeguard review conducted by the FTB.

             C.   The completion of disclosure training provided by the  
               FTB and a confidentiality statement signed by all employees  
               with access to information provided by the FTB confirming  
               the requirement of data security with respect to that  
               information and acknowledging awareness of penalties for  
               unauthorized access or disclosure under Sections 19542 and  
               19552 and Section 502 of the Penal Code.

             D.   The tax official 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.

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

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee, the FTB  
          indicates that this measure would result in revenue gains of  
          $1.5 million in 2014-15 and $4.9 million in 2015-16.  FTB's  
          indicates that it currently has reciprocal agreements with 102  
          cities, and that its administrative costs to administer the  
          program are about $718,000 annually.

           SUPPORT  :   (Verified  9/11/13)



                                                                     SB 211

          California Municipal Revenue and Tax Association
          Cities of Arcadia, Big Bear Lake, Commerce, El Segundo, Fresno,  
            Lakewood, Livermore, Los Angeles, Newport Beach, Oakland,  
            Orange, Santa Ana, Santa Monica, and Sunnyvale

           OPPOSITION  :    (Verified  9/11/13)

          California Taxpayers Association

           ARGUMENTS IN SUPPORT  :    Proponents state that this bill  
          "Clarifies that cities may contract with third party agents in  
          pursuing such activities.  Passage of this measure will continue  
          to allow disclosure of limited confidential tax information for  
          the specific purpose of enhancing local and state tax  
          enforcement activities.  This is an important tool that cities  
          across California use for business license discovery efforts to  
          identify businesses that are operating without a license."

           ARGUMENTS IN OPPOSITION  :    Opponents state, "Despite  
          safeguards, outsourcing tax administration functions heightens  
          the risk for security breaches, resulting in dissemination of  
          confidential information for unauthorized use.  This information  
          can be sold for profit, resulting in physical or financial risk  
          to taxpayers.  Potential security breaches are exacerbated by  
          inappropriate incentives, usually on a contingency-fee basis, to  

          AB:ej  9/11/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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