BILL ANALYSIS Ó
AB 279
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Date of Hearing: April 13, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 279
(Dodd) - As Introduced February 11, 2015
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Tax administration: disclosure of information:
Franchise Tax Board and cities and counties
SUMMARY: Expands the existing tax data-sharing program between
the Franchise Tax Board (FTB) and cities to include counties.
Specifically, this bill:
1)Authorizes FTB to permit tax officials of any county to enter
into a reciprocal agreement with the FTB to obtain tax
information from the FTB, as specified.
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2)Limits the information that may be furnished by the FTB to a
county to a taxpayer's name, address, Social Security or
taxpayer identification number, and principal business
activity code.
3)Specifies that a county is only authorized to receive
information related to taxpayers who operate within the
jurisdictional boundaries of the county or city and county
and report income from a trade or business to the FTB;
4)Prohibits any person other than an employee of the taxing
authority of a county from receiving or using tax information
received from the FTB.
5)Requires the tax information to be utilized by a county in a
form and manner as required by the FTB in order to safeguard
the information.
6)Provides that the tax information furnished to tax officials
of a county is subject to Revenue and Taxation Code (R&TC)
Section 19542, which makes it a misdemeanor to disclose
confidential tax information. Specifically, the information
may only be used for the county's or city and county's tax
enforcement, or as otherwise authorized by state or federal
law.
7)Provides that any information, other than the limited type of
tax information specified above, may be requested by a
county's tax officials by affidavit.
8)Requires a county that either assesses a business tax or
requires a business license to submit to FTB, upon request,
certain specified information collected by the county in the
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course of administering its business tax or business license
program. Also, requires a city to submit the same information
collected in the course of administering the city's business
license program. This information shall be furnished to FTB
at a time and in the form that the FTB prescribes.
9)Provides that no reimbursement is required by this bill
because the only costs that may be incurred by a local agency
or school district will be incurred because this bill creates
a new crime or infraction, as provided.
10)Becomes effective and operative on January 1, 2016.
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 who operate 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 principle business activity code;
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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.
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 authorization of the FTB by a tax official or agent
of the city 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
for unauthorized access or disclosure under Revenue and
Taxation Code (R&TC) Sections 19542 and 19552, and Penal
Code Section 502;
d) The notification of the FTB by the tax official or the
agent of a city within 24 hours upon discovery of any
incident of unauthorized or suspected unauthorized access
or disclosure of the tax information and provide a detailed
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report of the incident and the parties involved; and,
e) The destruction of all records received by the tax
officials of a city or its agents 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.
3)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.
4)Requires a city that assesses a business tax or licenses a
business to share with the FTB, upon request, the information
collected in the course of administration of the city's
business tax program. Limits this information 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,
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g) Ownership type.
5)Provides for the automatic repeal of the tax information
sharing program on January 1, 2019.
FISCAL EFFECT: The FTB staff estimates that this bill will
result in an annual General Fund revenue gain of $80,000 in the
fiscal year (FY) 2015-16, $500,000 in FY 2016-17, and $800,000
in FY 2017-18.
COMMENTS:
1)Author's Statement . The author has provided the following
statement in support of this bill:
"AB 279 is a modest extension to an existing program. By
granting approval for information sharing agreements between
the FTB and counties, counties will be able to more
efficiently collect back taxes."
2)Arguments in Support . According to the Humboldt County Board
of Supervisors and the California Association of County
Treasurers and Tax Collectors that, given "the inextricable
financial ties between counties and the state, it seems a
logical and efficient addition to the statute to permit county
tax collectors and their state counterpart to closely
coordinate and share information, so as to ensure timely,
efficient and accurate tax collection." The proponents
believe that the enhanced information sharing between counties
and the state "would be mutually beneficial" and will
"maximize tax collection dollars from those taxpayers and
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businesses" that owe money either to the State or a county."
3)Program Background . The current tax-sharing information
program authorizes the FTB to enter into agreements with
cities to exchange tax data. As noted in the FTB's staff
analysis of this bill, these agreements can either require a
city to reimburse the FTB's costs for providing the data or
allow for a waiver of the FTB's costs if the city agrees to
provide its 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. The program on
the reciprocal sharing of tax information between the FTB and
a city's tax official was originally enacted by the
Legislature in 2008 and subsequently extended until January 1,
2019.
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 and 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 and fails to do so, the FTB is authorized to assess tax
based on reported and estimated income from all available
sources. Additionally, FTB may use data obtained from cities
to ensure compliance with state income tax requirements. In
turn, cities use data obtained from the FTB to ensure
compliance with city business tax requirements.
4)What Does This Bill Do ? This bill would extend the
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application of the current tax-sharing information program,
with all of the existing requirements and limitations, to
counties by authorizing the FTB to enter into a reciprocal
agreement with a county or city or county.<1> According to
the author, counties will use this information to identify
delinquent taxpayers, unclaimed property, and businesses that
are located within the county's jurisdiction. In return, the
FTB would receive information identifying businesses that are
licensed within the counties. This information, consistent
with the existing program, would include the names and
residences of business owners, federal employer identification
numbers or Social Security numbers, and industry
classification codes. This county data arguably would help
FTB to identify self-employed individuals who are not filing
required individual and business entity income tax returns.
This bill would also require a city to share with the FTB
additional information collected in the course of the city's
administration of its business license program.
5)The Reason for the Bill . The author believes that this bill
is needed to help both counties and the FTB to collect
delinquent taxes from individuals and businesses. Apparently,
while not as common, "many counties license businesses to
operate in unincorporated territory." Similar to cities,
those counties are faced with a problem of identifying parties
responsible for paying the local business taxes. According to
the author, this bill is needed to provide counties "with a
defined methodology to collect identifying information so that
they may recover the taxes." The State would also benefit
from the expanded information sharing program by receiving
additional information regarding the businesses that are
licensed by counties, and not cities.
6)Increased Security Risk : In July 2013, the Office of the
Attorney General released the first report detailing 131 data
breaches that occurred in 2012. The breaches compromised the
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<1> Currently, San Francisco is the only designed "city and
county" in California.
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personal information of 2.5 million Californians.<2> Out of
the 131 breaches, state government held responsibility for
8%.<3>
In October 2014, the Office of the Attorney General issued its
second report on data breach. Thus, in 2013, Attorney General
Office received information on 167 data breaches, affecting
personal information of more than 18.5 million California
residents, constituting a 28% increase over the 131 breaches
reported in 2012.<4> According to the report, errors were
responsible for 53 breaches or 18% of the total. The
government sector accounted for 19% of this type of breach.
The report recommends that the California Legislature consider
amending the breach notice law to strengthen the substitute
notice procedure, clarify the roles and responsibilities of
data owners and data maintainers, and require a final breach
report to the Attorney General. The 2013 report also
recommended that government agencies and companies offer
mitigation products like credit monitoring services or a
security freeze when such incidents occur.
7)How is the Taxpayer Information Protected in the Existing
Program ? The FTB has maintained the integrity of taxpayer
information since the inception of the tax-sharing information
program. Any improper usage or disclosure of this information
carries certain civil and criminal liabilities. In 2013, the
Legislature modified the program to, among other things,
create additional safeguards to protect taxpayer information
from unauthorized disclosure. Currently, every reciprocal
agreement must include provisions ensuring that taxpayer data
is safeguarded. Thus, the city must complete and submit a
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<2> Data Breach Report 2012, Kamala D. Harris, Attorney General,
California Department of Justice, July 1, 2013.
<3> For example, the California Department of Social Services
lost a computer storage device containing information on 845,000
parents, children, and caregivers.
<4> Data Breach Report 2013, Kamala D. Harris, Attorney General,
California Department of Justice, October, 2014.
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Safeguard Questionnaire to the FTB, ensure that the data is
used only for the tax administration within the city, and
destroy the data as mandated after three years. In addition,
only city employees named in the confidentiality statement may
have access to the data and each of those employees must
complete an annual City Business Tax Disclosure training.
Expanding the number of entities and people eligible to
receive confidential taxpayer information, however, may
increase the likelihood of data breaches. Even though certain
penalties apply to local cities and agents under current law,
those penalties do little for taxpayers who must spend time
and money rectifying actual and potential identity theft. The
Committee may wish to consider whether the benefits of
expanding the program to counties outweigh the downside of a
potential increase in data breach.
8)The Operative Date . This bill will become operative and
effective on January 1, 2016. Should it become law, the FTB
will be able to start entering into reciprocal agreements with
counties on that date.
REGISTERED SUPPORT / OPPOSITION:
Support
California State Association of Counties
County Treasurers and Tax Collectors
Humboldt County Board of Supervisors
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Rural County Representatives of California
Opposition
None on file
Analysis Prepared by:Oksana Jaffe / REV. & TAX. / (916) 319-2098