BILL ANALYSIS Ó
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 582 HEARING: 4/10/13
AUTHOR: Knight FISCAL: Yes
VERSION: 2/22/13 TAX LEVY: No
CONSULTANT: Grinnell
TAX ADMINISTRATION
Requires EDD, BOE, and FTB to work together to develop a
taxpayer-focused website.
Background and Existing Law
The California Constitution establishes the Board of
Equalization (BOE) as a five-member board composed of four
members elected by each district plus the State Controller.
Currently, BOE administers sales and use taxes, excise
taxes, special taxes, and the state's fee programs.
State law requires employers who pay employees
California-sourced income to withhold expected taxes.
Businesses with one or more employees in the current or
preceding taxable year, and who pays wages in excess of
$100 per quarter must register with the Employment
Development Department (EDD). Employers deposit personal
income tax withholding by mail or electronically with EDD,
along with amounts for Unemployment Insurance (UI),
Employment Training Taxes, and State Disability Insurance
(SDI). Federal schedules determine when employers make
Personal Income Tax and SDI payments, while UI and ETT
payments are made quarterly. Each quarter, the taxpayer
files a form to reconcile these deposits with actual taxes
due.
The Franchise Tax Board (FTB) is a three-person board
comprised of the State Controller, Director of the
Department of Finance, and Chair of the BOE. FTB
administers the Personal Income Tax and Corporation Tax
Law, and collects debts on behalf of state and local
agencies. FTB may issue forms necessary to administer the
taxes. Employees and others receiving payments reconcile
amounts previously withheld with actual tax due when filing
their annual tax returns with FTB.
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Proposed Law
Senate Bill 582 requires EDD, FTB, and BOE to collaborate
and focus their cur-rent and future information technology
efforts on developing a single web-based portal that
virtually consolidates the agencies to enable online,
self-service access through a single logon for taxpayers
to:
Electronically file returns
Submit forms or other information
Remit amounts due
Determine account balances and tax due dates
Identify appeal status
Claim a refund
Request relief from interest or penalty
Any other information the agencies deem helpful to
the taxpayer to assist in compliance with the state's
tax laws.
The bill additionally requires agencies to consolidate
forms, applications, and other documents to reduce or
eliminate the number of multiple submissions on the same
information buy taxpayers wherever operationally feasible.
The measure also makes legislative findings and
declarations to support its purposes.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "The tax
paying process in California is daunting, intimidating, and
confusing due to the course of action a taxpayer must
undergo in order to comply with California's tax policies.
Focusing on the customer should and will remain a core
element of California's tax administration. To obtain
assistance and comply with California's current tax laws,
policies, and procedures, many taxpayers interact with each
agency separately. Taxpayers should not have to navigate
SB 582 (Knight) - 2/22/13 -- PageC
through complex government structures, understanding
bureaucratic relationships in order to interact with the
government agencies, particularly in a sensitive area like
taxes. This measure seeks to consolidate the online
presence of BOE, FTB and EDD, creating a one-stop shop for
taxpayers to go for all of their tax services. The goal is
to provide a seamless process for taxpayers' online
interactions in California. SB 582 authorizes a pilot
program under the Revenue and Taxation Code that enables
taxpayers to satisfy their payment and reporting
obligations, obtain real time information pertinent to
their individual accounts, and receive assistance to
achieve optimum compliance with California's complex tax
system. Agencies will also consolidate forms,
applications, and other documents to reduce or eliminate
multiple submissions of the same information by tax payers.
A one-stop shop through SB 582 is needed to save taxpayers
time and increase voluntary compliance. Taxpayers will no
longer need to navigate through three separate agencies to
access needed forms and government agencies can consolidate
their services in the meantime, maximizing the taxpayers
dollar."
2. Cost versus convenience . SB 582 differs from previous
consolidation efforts that eliminated or consolidated tax
agencies; instead, the measure aims at making tax filing
more convenient for the taxpayer by combining specified
functions on a single website. However, SB 582 would
require the three agencies to incur significant expense to
provide improvements to the existing website, and may
necessitate discarding existing systems and forms in place
of new ones. The Senate Appropriations Committee estimated
these costs at approximately $10 million when it analyzed
an identical bill, SB 1326 (Harman), last year. The key
question posed by the measure is whether the increased
convenience to the taxpayer is worth the expected
implementation costs. Additionally, while the state should
always seek to provide better customer service, especially
to comply with its tax laws, what are the exact benefits of
taxpayer convenience that will outweigh the measure's
anticipated fiscal costs, which will result in less funding
for something else?
3. Blowing Up Boxes . While not proposed by this measure,
the Governor and the Legislature have considered several
tax agency consolidation proposals in recent years,
summarized by the table below. The Legislative Analyst's
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Office (LAO), and department analyses have consistently
argued that tax agency and function consolidation will
definitely incur significant immediate costs to implement,
with only possible long-term savings. Whether long-term
savings will offset those immediate costs is largely
unknown. The LAO summarized the findings of its report
released January 10, 2005, as follows:
Consolidation of the tax agencies' payment and
documentation processing activities could in the
medium to long term generate some annual cost savings
and interest earnings through elimination of
duplicative functions and increased efficiencies. The
state, however, would have to incur significant net
costs in the short term to achieve these savings. In
addition, such benefits are likely to be less than
benefits from increasing electronic processing. We
therefore recommend that low priority be given to
consolidation of payment and document processing
functions in favor of steps to increase electronic
processing.
Governor Brown again proposed tax agency consolidation as
part of his 2012-13 Budget, sending the activities of the
Employment Development Department (EDD) that relate to tax
collection along with FTB into a new Department of Revenue
(CDR) within the new Government Operations Agency.
However, the Governor did not include in CDR in either his
first or second Governor's Reorganization Plans. Instead,
the Department of Finance tasked EDD and FTB to identify
opportunities for consolidating functions. Two weeks ago,
FTB reported at a hearing of Senate Budget Committee #4
that the working groups had found that function
consolidation had potential long-term efficiencies, but
significant investments would be necessary now for any
possible future efficiencies to result. Consolidation may
also pose risks to existing, successful information
technology programs.
4. We've already got one . While not as comprehensive as
the website called for in this bill, www.taxes.ca.gov
contains links to forms, publications, and other
information helpful for taxpayers seeking to comply with
California alphabet soup of tax agencies. However, as the
website is operated by the California Fed State
Partnership, consisting of BOE, EDD, FTB, and the Internal
Revenue Service, no single agency has ownership of it, or
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the resources to improve its functionality for the benefit
of taxpayers. Wouldn't it be easier to focus on improving
what's already in place rather than reinventing the wheel?
The Committee may wish to consider that instead of
endorsing SB 582's call for a new website, it should assign
one agency the authority and resources necessary to make
the existing website implement the bill's goal for more
taxpayer-focus and improved functionality.
5. Ghosts of Consolidations Past . On June 10, 2009, the
Senate Committee on Revenue and Taxation, the predecessor
to this Committee, heard the Department of Finance's
proposal for tax agency consolidation that is proposed at
that time. The Committee Chair's recommendation to the
Budget Committee stated:
BOE and FTB both need to upgrade key components of
their information technology systems, which each
agency now operates independently. Additionally, the
situation with the BOE building which houses its
workers is untenable. Any significant future
acquisitions of information technology systems or
physical infrastructure should serve both BOE and FTB,
and possibly integrate with EDD systems, which are
currently considered superior. The Committee
recommends that to the maximum extent practicable, any
acquisitions of property or information technology
should serve both agencies, and BOE should move
employees from the BOE building to the FTB campus,
especially those employees who can help enhance
economies of scale for the revenue system by being
housed together.
Additionally, the Department of Motor Vehicles'
(DMV) vehicle license and registration collection
functions should be included in consolidation efforts.
DMV should immediately join the three-agency task
force which currently includes FTB, BOE and EDD.
The four agencies, FTB, BOE, EDD and DMV, should
immediately begin working on a technology that
incorporates a single taxpayer identification number.
With a single number, there would be greater
information sharing and ultimately greater tax
compliance which will result in increased revenues.
The issue of governance is inextricably intertwined
SB 582 (Knight) - 2/22/13 -- PageF
with any consideration of consolidation. The
Administration's proposal consolidates the tax policy
elements of FTB and BOE away from its existing
governing boards to a Department of Revenue, led by a
Gubernatorial-appointed, Senate-confirmed executive
director. Shifting tax policy regulatory authority
and oversight under the Governor will inevitably bear
different tax policy results, and presents risks of
executive interference in tax cases. FTB is widely
considered one of the world's most innovative and
respected revenue-collection agencies; its record does
not merit removing its authority over tax policy and
assigning it to the Governor. The Committee
recommends deferring discussion over governance of the
tax system because of the substantive issues involved,
and that issues regarding governance do not have a
current, measurable fiscal impact.
The administration similarly recommends
consolidating audit functions immediately to realize
economies of scale and better deploy existing audit
resources, and claims savings in the 2010-11 fiscal
year. In concept, the Committee endorses this plan.
For now, the committee recommends that the agencies
create the single taxpayer identification number as
discussed above.
As to the major recommendation of the Governor,
which is a new Department of Revenue, the LAO suggests
that consolidating the agencies might accelerate the
process of coordination. I will work with the LAO and
the Department of Finance to further refine this
proposal which I support in concept.
6. Come Together .
This chart briefly describes seven options that have
been associated with consolidation in the past.
-------------------------------------------------------------
|Option |Source |Fiscal Impact |Analysis |
| | | | |
|--------------+-----------+-----------------+----------------|
|BOE & FTB |LAO, 1994 |Reduced expenses |LAO argued that |
SB 582 (Knight) - 2/22/13 -- PageG
|merge | |in the long run; |consolidation |
|functions; | |significant |enhanced |
|BOE retains | |initial startup |accountability |
|tax appeal | |costs. Little |and decreased |
|function | |Hoover estimated |taxpayer |
| | |$50 million |confusion. |
| | |savings in 1994 |Direction and |
| | | |implementation |
| | | |from the |
| | | |executive |
| | | |branch would be |
| | | |clearer. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |California |Planning, |Again, |
|Department of |Constitutio|budgeting |consolidation |
|Revenue. |nal |functions |could enhance |
|Eliminate FTB |Revision |consolidated as |accountability |
|& BOE |Commission.|above. Unknown |and create "one |
|(including | Various |impact from |stop shop" for |
|tax appeal |Bills<1> |removing tax |taxpayers. |
|functions) | |appeals function |There is lots |
|and combine | |from BOE. |of disagreement |
|with EDD | |Eliminating BOE |on the |
| | |requires a |appropriate |
| | |Constitutional |location for |
| | |amendment. |the tax appeals |
| | | |functions: BOE, |
| | | |Department of |
| | | |Revenue or Tax |
| | | |Court. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |Governor |Potentially |This option |
|California |Wilson, |reduced expenses |retains the BOE |
|Tax |1994. |in the long run |and creates a |
|Commission: |California |but large |Commission but |
|Eliminate |Performance|upfront |it is unclear |
|FTB, combine | Review, |consolidation |who serves on |
|with DMV and |2007. |costs. |the commission |
|EDD. |Various | |and whether the |
-------------------------
<1>
California Constitutional Revision Commission (1996); SB
87/SCA 5 (Kopp, 1994), SB 1727/SCA 9 (Kopp, 1995), SCA 39
(Killea, 1996), and AB 2794 (Bowen, 1996).
SB 582 (Knight) - 2/22/13 -- PageH
| |Bills<2> | |BOE or the |
| | | |Governor would |
| | | |be the umbrella |
| | | |organization. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Eliminate FTB |Various |Same as above; |This option |
|and |Bills<3> |unknown impact |combines the |
|consolidate | |from eliminating |two largest tax |
|into BOE or | |BOE |entities in the |
|eliminate BOE | | |state; one |
|and | | |retains the |
|consolidate | | |Governor as the |
|into FTB | | |executive; the |
| | | |other makes BOE |
| | | |responsible for |
| | | |all taxes in |
| | | |the state. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Tax Court |Various |Unknown |Tax Courts in |
| |Bills<4> | |other states |
| | | |apply a |
| | | |precedent-based |
| | | |objective legal |
| | | |forum for |
| | | |adjudicating |
| | | |tax cases; |
| | | |judges selected |
| | | |based on tax |
| | | |law expertise. |
| | | | |
|--------------+-----------+-----------------+----------------|
-------------------------
<2> Without EDD and DMV: AB1996/ACA 39 (Harris) and SB 1695
(Kopp, 1992) created a consolidated Department of Revenue
and a Tax Commission, see also ACA 13 (Leonard, 2001), ACA
22 (Dutra, 2003), ACA 14 (DeVore, 2005))
<3> SB 1052/SCA 22 (Alquist), AB 3338 (McClintock, 1992),
AB 15
(Klehs, 1993), AB 2000 (Dutton, 2003), SB 216 (Dutton,
2005), and SB 274 (Dutton, 2007).
<4> SB 1395 (Kopp, Ayala, et al, 1989), SB 23/SCA 25 (Kopp,
1991),
SB 87/SCA 5 (Kopp, 1993) eliminated BOE and FTB and
replaced with Department of Revenue and Tax Court, also SB
1424 (Burton, 2004) and AB 2472 (Wolk, 2004).
SB 582 (Knight) - 2/22/13 -- PageI
|Consolidate |Various |CPR estimating a |LAO projects |
|cashiering |Bills<5> |savings of |medium to long |
|functions | |approximately |term savings |
|only | |$20 million per |contingent on |
| | |year |initial costs |
| | | |to fund |
| | | |upgrades in the |
| | | |new systems. |
| | | |Partial |
| | | |consolidation |
| | | |would have to |
| | | |precede full |
| | | |consolidation |
| | | |of functions. |
| | | | |
-------------------------------------------------------------
Support and Opposition (4/4/13)
Support : BOE Member George Runner.
Opposition : None
Received.
-------------------------
<5> LAO (2005) resulting from study required by AB 986
(Horton),
California Performance Review (2007); SB 956 (Rosenthal,
1997), SB 896 (Speier, 1999) transferred DOI revenue
collection functions to BOE.