Amended in Senate June 16, 2015

California Legislature—2015–16 Regular Session

Assembly Bill No. 107

Introduced by Committee on Budget (Weber (Chair), Bloom, Bonta, Campos, Chiu, Cooper, Gordon, Jones­Sawyer, McCarty, Mullin, Nazarian, O’Donnell, Rodriguez, Thurmond, Ting, and Williams)

January 9, 2015

begin delete An act relating to the Budget Act of 2015. end delete begin insert An act to amend Sections 19136 and 19167 of, and to add Section 17052 to, the Revenue and Taxation Code, relating to taxation, and making an appropriation therefor, to take effect immediately, bill related to the budget. end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 107, as amended, Committee on Budget. begin delete Budget Act of 2015. end delete begin insert Personal income taxes: earned income credit. end insert

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The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.

end insert begin insert

This bill, for taxable years beginning on or after January 1, 2015, in modified conformity with federal income tax laws, would allow an earned income credit against personal income tax, and a payment in excess of that amount, to an eligible individual that is equal to that portion of the earned income tax credit allowed by federal law as determined by the earned income tax credit adjustment factor as set forth in the annual Budget Act.

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Existing law requires any bill authorizing a new personal income tax credit to contain, among other things, specific goals, purposes, and objectives that the tax credit will achieve, detailed performance indicators, and data collection requirements, as provided.

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To measure whether the earned income credit achieves its intended purpose, this bill would require the Franchise Tax Board to annually prepare a specified written report and to provide that report to specified legislative committees.

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Existing law establishes the continuously appropriated Tax Relief and Refund Account, and provides that payments required to be made to taxpayers or other persons from the Personal Income Tax Fund are to be paid from that account.

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By authorizing new payments from that account for amounts in excess of personal income tax liabilities, this bill would make an appropriation.

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The Personal Income Tax Law imposes taxes based upon taxable income and also imposes interest and penalties with regard to those taxes under specified circumstances, including a penalty for the underpayment of estimated tax. Existing law provides no addition to tax shall be imposed to the extent that the underpayment was created or increased by any law that is chaptered during and operative for the taxable year of the underpayment.

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This bill would provide that addition to tax shall not be imposed if the applicable percentage for the earned income tax credit for the taxable year was less than the applicable percentage for that credit for the preceding taxable year and would impose a penalty, in conformity with federal law, for failure to be diligent in determining eligibility for the earned income tax credit, as specified.

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This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

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This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2015.

end delete

Vote: majority. Appropriation:  begin delete no end delete begin insert yes end insert . Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

end insert

begin insert Section 17052 is added to the end insert begin insert Revenue and
Taxation Code end insert begin insert , to read: end insert

begin insert

begin insert 17052. end insert   

(a) (1) For each taxable year beginning on or after
January 1, 2015, there shall be allowed against the “net tax,” as
defined by Section 17039, an earned income tax credit in an
amount equal to an amount determined in accordance with Section
32 of the Internal Revenue Code, relating to earned income, as
applicable for federal income tax purposes for the taxable year,
except as otherwise provided in this section.

(2) (A) The amount of the credit determined under Section 32
of the Internal Revenue Code, relating to earned income, as
modified by this section, shall be multiplied by the earned income
tax credit adjustment factor for the taxable year.

(B) Unless otherwise specified in the annual Budget Act, the
earned income tax credit adjustment factor for a taxable year
beginning on or after January 1, 2015, shall be zero percent.

(C) The earned income tax credit authorized by this section
shall only be operative for taxable years for which resources are
authorized in the annual Budget Act for the Franchise Tax Board
to oversee and audit returns associated with the credit.

(b) (1) In lieu of the table prescribed in Section 32(b)(1) of the
Internal Revenue Code, relating to percentages, the credit
percentage and the phaseout percentage shall be determined as
follows:

 

begin insert In the case of an eligible individual with: end insert	begin insert The credit percentage is: end insert	begin insert The phaseout percentage is: end insert
begin insert No qualifying children end insert	begin insert 7.65% end insert	begin insert 7.65% end insert
begin insert 1 qualifying child end insert	begin insert 34% end insert	begin insert 34% end insert
begin insert 2 or more qualifying children end insert	begin insert 40% end insert	begin insert 40% end insert

 

(2) (A) In lieu of the table prescribed in Section 32(b)(2)(A) of
the Internal Revenue Code, the earned income amount and the
phaseout amount shall be determined as follows:

 

begin insert In the case of an eligible individual with: end insert	begin insert The earned income amount is: end insert	begin insert The phaseout amount is: end insert
begin insert No qualifying children end insert	begin insert $3,290 end insert	begin insert $3,290 end insert
begin insert 1 qualifying child end insert	begin insert $4,940 end insert	begin insert $4,940 end insert
begin insert 2 or more qualifying children end insert	begin insert $6,935 end insert	begin insert $6,935 end insert

 

(B) Section 32(b)(2)(B) of the Internal Revenue Code, relating
to joint returns, shall not apply.

(3) Section 32(b)(3)(A) of the Internal Revenue Code, relating
to increased percentage for three or more qualifying children, is
modified by substituting “the credit percentage and phaseout
percentage is 45 percent” for “the credit percentage is 45
percent.”

(c) (1) Section 32(c)(1)(A)(ii)(I) of the Internal Revenue Code
is modified by substituting “this state” for “the United States.”

(2) Section 32(c)(2)(A) of the Internal Revenue Code is modified
as follows:

(A) Section 32(c)(2)(A)(i) of the Internal Revenue Code is
modified by deleting “plus” and inserting in lieu thereof the
following: “and only if such amounts are subject to withholding
pursuant to Division 6 (commencing with Section 13000) of the
Unemployment Insurance Code.”

(B) Section 32(c)(2)(A)(ii) of the Internal Revenue Code shall
not apply.

(3) Section 32(c)(3)(C) of the Internal Revenue Code, relating
to place of abode, is modified by substituting “this state” for “the
United States.”

(d) Section 32(i)(1) of the Internal Revenue Code is modified
by substituting “$3,400” for “$2,200.”

(e) In lieu of Section 32(j) of the Internal Revenue Code, relating
to inflation adjustments, for taxable years beginning on or after
January 1, 2016, the amounts specified in paragraph (2) of
subdivision (b) and in subdivision (d) shall be recomputed annually
in the same manner as the recomputation of income tax brackets
under subdivision (h) of Section 17041.

(f) If the amount allowable as a credit under this section exceeds
the tax liability computed under this part for the taxable year, the
excess shall be credited against other amounts due, if any, and the
balance, if any, shall be paid from the Tax Relief and Refund
Account and refunded to the taxpayer.

(g) The Franchise Tax Board may prescribe rules, guidelines,
or procedures necessary or appropriate to carry out the purposes
of this section. Chapter 3.5 (commencing with Section 11340) of
Part 1 of Division 3 of Title 2 of the Government Code shall not
apply to any rule, guideline, or procedure prescribed by the
Franchise Tax Board pursuant to this section.

(h) Notwithstanding any other law, amounts refunded pursuant
to this section shall be treated in the same manner as the federal
earned income refund for the purpose of determining eligibility to
receive benefits under Division 9 (commencing with Section 10000)
of the Welfare and Institutions Code or amounts of those benefits.

(i) (1) For the purpose of implementing the credit allowed by
this section for the 2015 taxable year, the Franchise Tax Board
shall be exempt from the following:

(A) Special Project Report requirements under State
Administrative Manual Sections 4819.36, 4945, and 4945.2.

(B) Special Project Report requirements under Statewide
Information Management Manual Section 30.

(C) Section 11.00 of the 2015 Budget Act.

(D) Sections 12101, 12101.5, 12102, and 12102.1 of the Public
Contract Code.

(2) The Franchise Tax Board shall formally incorporate the
scope, costs, and schedule changes associated with the
implementation of the credit allowed by this section in its next
anticipated Special Project Report for its Enterprise Data to
Revenue Project.

(j) (1) In accordance with Section 41 of the Revenue and
Taxation Code, the purpose of the California Earned Income Tax
Credit is to reduce poverty among California’s poorest working
families and individuals. To measure whether the credit achieves
its intended purpose, the Franchise Tax Board shall annually
prepare a written report on the following:

(A) The number of tax returns claiming the credit.

(B) The number of individuals represented on tax returns
claiming the credit.

(C) The average credit amount on tax returns claiming the
credit.

(D) The distribution of credits by number of dependents and
income ranges. The income ranges shall encompass the phase-in
and phaseout ranges of the credit.

(E) Using data from tax returns claiming the credit, including
an estimate of the federal tax credit determined under Section 32
of the Internal Revenue Code, an estimate of the number of families
who are lifted out of deep poverty by the credit and an estimate of
the number of families who are lifted out of deep poverty by the
combination of the credit and the federal tax credit. For the
purposes of this subdivision, a family is in “deep poverty” if the
income of the family is less than 50 percent of the federal poverty
threshold.

(2) The Franchise Tax Board shall provide the written report
to the Senate Committee on Budget and Fiscal Review, the
Assembly Committee on Budget, the Senate and Assembly
Committees on Appropriations, the Senate Committee on
Governance and Finance, the Assembly Committee on Revenue
and Taxation, and the Senate and Assembly Committees on Human
Services.

(k) The tax credit allowed by this section shall be known as the
California Earned Income Tax Credit.

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begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 19136 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19136.  

(a) Section 6654 of the Internal Revenue Code, relating
to failure by an individual to pay estimated income tax, shall apply,
except as otherwise provided.

(b) Section 6654(a)(1) of the Internal Revenue Code is modified
to refer to the rate determined under Section 19521 in lieu of
Section 6621 of the Internal Revenue Code.

(c) (1) Section 6654(e)(1) of the Internal Revenue Code, relating
to exceptions where the tax is a small amount, does not apply.

(2) No addition to the tax shall be imposed under this section
if the tax imposed under Section 17041 or 17048 and the tax
imposed under Section 17062 for the preceding taxable year, minus
the sum of any credits against the tax provided by Part 10
(commencing with Section 17001) or this part, or the tax computed
under Section 17041 or 17048 upon the estimated income for the
taxable year, minus the sum of any credits against the tax provided
by Part 10 (commencing with Section 17001) or this part, is less
than five hundred dollars ($500), except in the case of a separate
return filed by a married person the amount shall be less than two
hundred fifty dollars ($250).

(d) Section 6654(f) of the Internal Revenue Code does not apply
and for purposes of this section the term “tax” means the tax
imposed under Section 17041 or 17048 and the tax imposed under
Section 17062 less any credits against the tax provided by Part 10
(commencing with Section 17001) or this part, other than the credit
provided by subdivision (a) of Section 19002.

(e) (1) The credit for tax withheld on wages, as specified in
Section 6654(g) of the Internal Revenue Code, is the credit allowed
under subdivision (a) of Section 19002.

(2) (A) Section 6654(g)(1) of the Internal Revenue Code is
modified by substituting the phrase “the applicable percentage”
for the phrase “an equal part.”

(B) For purposes of this paragraph, “applicable percentage”
means the percentage amount prescribed under Section
6654(d)(1)(A) of the Internal Revenue Code, as modified by
subdivision (a) of Section 19136.1.

(f) This section applies to a nonresident individual.

(g) (1) No addition to tax shall be imposed under this section
to the extent that the underpayment was created or increased by
begin delete any law that is chaptered during and operative for the taxable year
of the underpayment. end delete begin insert either of the following: end insert

begin insert

(A) Any law that is chaptered during and operative for the
taxable year of the underpayment.

end insert begin insert

(B) If, for a taxable year prior to its repeal, the adjustment factor
for the credit authorized by Section 17052 for the taxable year
was less than the adjustment factor for that credit for the preceding
taxable year.

end insert

(2)  begin insert (A) end insert begin insert   end insert Notwithstanding Section 18415, begin delete this section end delete
begin insert subparagraph (A) of paragraph (1) end insert applies to penalties imposed
under this section on begin delete and end delete begin insert or end insert after January 1, 2005.

begin insert

(B) Notwithstanding Section 18415, subparagraph (B) of
paragraph (1) applies to penalties imposed under this section on
or after January 1, 2016.

end insert

(h) The amendments made to this section by Section 5 of
Chapter 305 of the Statutes of 2008 apply to taxable years
beginning on or after January 1, 2009.

(i) The amendments made to this section by begin delete the act adding this
subdivision end delete begin insert Section 3 of Chapter 15 of the fourth Extraordinary
Session of the Statutes of 2009 end insert apply to amounts withheld on wages
beginning on or after January 1, 2009.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 19167 of the end insert begin insert Revenue and Taxation Code end insert begin insert is
amended to read: end insert

19167.  

A penalty shall be imposed under this section for any
of the following:

(a) In accordance with Section 6695(a) of the Internal Revenue
Code, for failure to furnish a copy of the return to the taxpayer, as
required by Section 18625.

(b) In accordance with Section 6695(c) of the Internal Revenue
Code, for failure to furnish an identifying number, as required by
Section 18624.

(c) In accordance with Section 6695(d) of the Internal Revenue
Code, for failure to retain a copy or list, as required by Section
18625 or for failure to retain an electronic filing declaration, as
required by Section 18621.5.

(d) Failure to register as a tax preparer with the California Tax
Education Council, as required by Section 22253 of the Business
and Professions Code, unless it is shown that the failure was due
to reasonable cause and not due to willful neglect.

(1) The amount of the penalty under this subdivision for the
first failure to register is two thousand five hundred dollars
($2,500). This penalty shall be waived if proof of registration is
provided to the Franchise Tax Board within 90 days from the date
notice of the penalty is mailed to the tax preparer.

(2) The amount of the penalty under this subdivision for a failure
to register, other than the first failure to register, is five thousand
dollars ($5,000).

(e) The Franchise Tax Board shall not impose the penalties
authorized by subdivision (d) until either one of the following has
occurred:

(1) Commencing January 1, 2006, and continuing each year
thereafter, there is an appropriation in the Franchise Tax Board’s
annual budget to fund the costs associated with the penalty
authorized by subdivision (d).

(2) (A) An agreement has been executed between the California
Tax Education Council and the Franchise Tax Board that provides
that an amount equal to all first year costs associated with the
penalty authorized by subdivision (d) shall be received by the
Franchise Tax Board. For purposes of this subparagraph, first year
costs include, but are not limited to, costs associated with the
development of processes or systems changes, if necessary, and
labor.

(B) An agreement has been executed between the California
Tax Education Council and the Franchise Tax Board that provides
that the annual costs incurred by the Franchise Tax Board
associated with the penalty authorized by subdivision (d) shall be
reimbursed by the California Tax Education Council to the
Franchise Tax Board.

(C) Pursuant to the agreement described in subparagraph (A),
the Franchise Tax Board has received an amount equal to the first
year costs described in that subparagraph.

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(f) In accordance with Section 6695(g) of the Internal Revenue
Code, for failure to be diligent in determining eligibility for earned
income credit for returns required to be filed on or after the
effective date of the act adding this subdivision.

end insert

begin insert

begin insert SEC. 4. end insert   

In future years, it is the intent of the Legislature to
enact legislation that would expand the California Earned Income
Tax Credit allowed by Section 17052 of the Revenue and Taxation
Code, as state budget conditions permit, to benefit a broader
section of working poor Californians.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert begin insert

This act is a bill providing for appropriations related
to the Budget Bill within the meaning of subdivision (e) of Section
12 of Article IV of the California Constitution, has been identified
as related to the budget in the Budget Bill, and shall take effect
immediately.

end insert

begin delete

SECTION 1.  

It is the intent of the Legislature to enact statutory
changes relating to the Budget Act of 2015.

end delete