BILL ANALYSIS Ó
AB 358
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Date of Hearing: March 23, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 358
(Grove) - As Introduced February 17, 2015
Majority vote. Fiscal committee.
SUBJECT: State Board of Equalization
SUMMARY: Expands existing State Board of Equalization (BOE)
authority to accept as timely late submissions of remittances,
claims for credit or refund, documents, returns, or other
information. Specifically, this bill expands existing BOE
authority to establish a uniform policy for the acceptance of
specified remittances and documents after the due date to
include delivery through electronic transmission.
EXISTING LAW:
1)Authorizes the BOE, whenever deemed necessary to ensure
voluntary compliance with due dates prescribed by law, to
establish a uniform policy for the acceptance of a remittance,
claim for credit or refund, or other document in cases where
the cancellation mark on the envelope shows a date after the
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date specified by law. (Government Code (GC) Section
15620.5.)
2)Provides that this BOE policy shall not be construed as an
extension of the prescribed time limits for remitting
payments, filing claims for refund or credit, submitting
documents, returns, or other information. (GC Section
15620.5.)
3)Requires a person who pays a tax, fee, or surcharge liability
after the statutory due date to pay a 10% penalty on the late
payment, plus six percent interest monthly. Simple interest
accrues on any unpaid tax, from the tax due date to the last
day of the month in which payment is made.
4)Requires specified taxpayers (e.g., those with an average
monthly sales and use tax (SUT) liability of $10,000 or more)
to remit amounts due via an electronic funds transfer (EFT).
For these taxpayers, the law requires that their EFT payments
"settle into" the state's account on the next banking day
following the tax due date. The law imposes a late payment
penalty and interest, as described above, when a taxpayer
fails to initiate an EFT payment in sufficient time so that
the funds settle in the state's account in accordance with the
law. (See, e.g., Revenue and Taxation Code (R&TC) Section
6479.3.)
5)Prescribes the following three methods for taxpayers to make
an EFT payment:
a) An automated clearinghouse (ACH) debit;
b) An ACH credit; or,
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c) A Federal Reserve Wire Transfer (i.e., Fedwire). (See,
e.g., R&TC Section 6479.5.)
6)Allows the BOE, under certain circumstances, to impose a
single day's interest (rather than a month's) on a late
electronic payment where the BOE members, meeting as a public
body, find that it would be inequitable to impose interest for
the entire month given that the payment is only one day late.
These circumstances include:
a) The tax or fee payment must have been made one business
day after the due date;
b) The person must have been granted relief from all
penalties that applied to the payment; and,
c) The person must have filed a request for an oral hearing
before the BOE Members.
This authorization is currently set to expire on January 1,
2016. (See, e.g., R&TC Section 6591.6.)
FISCAL EFFECT: The BOE's fiscal estimate for this bill is
currently pending.
COMMENTS:
1)The author has provided the following statement in support of
this bill:
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AB 358 will, with respect to an electronic transmission,
extend the authorization for the BOE to allow a uniform
policy for the acceptance of payments, returns and other
information, to ensure compliance with statutory due dates.
Instead of counting taxpayers who pay through electronic
means as one day late if they do not pay by either 3 p.m.
or midnight the day before - thereby forcing them to seek
relief of the entire month's interest charge through an
appeals process - this proposal will allow the BOE to
establish a uniform policy for acceptance of such
electronic payments as timely if the payment is posted one
day after the due date.
With the increasing number of taxpayers either required or
encouraged to transmit their tax obligations to the BOE
electronically, it is in California's best interest to
extend the courtesy of a 1-day grace period that is
currently granted to paper filers. This will result in
streamlined efficiencies, be significantly less cumbersome
for those taxpayers seeking relief under existing law, and
promote goodwill between the BOE and its taxpayers.
2)This bill is sponsored by BOE Member George Runner, who notes
the following:
AB 358 seeks to create consistency in state law by
establishing a uniform policy regarding the BOE's
acceptance of electronic payments to match that of
traditional paper filers. Under current law, taxpayers who
initiate their electronic payment a few minutes late incur
a late payment penalty and an entire month's interest
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charge simply because the electronic payment was not
deposited into the state's bank account the day following
the due date. Rather than continue to penalize these
taxpayers, this bill will allow the BOE to establish a
uniform policy for acceptance of such electronic payments
as timely.
3)Committee staff comments:
a) Going way, way back : During a 47-year period ending in
1997, the BOE's administrative policy allowed a one-day
grace period when a taxpayer mailed a return or payment in
an envelope postmarked one day after the due date.
According to the BOE, this policy recognized the "potential
complications inherent in the U.S. Postal Service" and gave
the taxpayer the benefit of the doubt that the item in
question was timely mailed. Upon further review, however,
the BOE's legal staff determined that there was no legal
basis for providing this one-day grace period. The BOE
therefore eliminated the grace policy and, as a
consequence, staff workload increased significantly.
According to the BOE, the elimination of its one-day grace
period caused late billings to increase dramatically, and
led to hundreds of declarations requesting penalty and
interest relief. In 1999, therefore, the BOE successfully
sponsored legislation allowing it to reestablish its prior
practice. Thus, existing law now authorizes the BOE to
establish a uniform policy for the acceptance of a payment
or document in cases where the cancellation mark on the
envelope "shows a date after the date specified in law."
Pursuant to this statutory authority, the BOE has adopted a
policy allowing it to accept payments or documents mailed
or delivered in an envelope postmarked one day after the
due date as timely. Neither the statutory authority, nor
the BOE's policy, applies to payments or documents
electronically submitted to the BOE.
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b) But I was so close : In 2010, the BOE sponsored
additional legislation addressing the perceived inequity of
imposing an entire month's interest charge on an electronic
payment that was only one day date. (SB 1028 (Correa),
Chapter 316, Statutes of 2010.) This law authorizes the
BOE to make a finding, taking into account all facts and
circumstances, that it would be inequitable to impose
monthly interest. SB 1028 specifically provided the
following statement of legislative intent:
It is the intent of the Legislature that California's
penalty and interest provisions foster and maintain the
current high level of compliance, provide appropriate
costs and sanctions for noncompliance, and provide a
reasonable and administrable degree of latitude for
individual taxpayer circumstances and errors. It is the
intent of the Legislature in enacting this act, that the
State Board of Equalization strictly and narrowly apply
its provisions on a case-by-case basis and only in
special circumstances.
Under this provision, the BOE members approved 72 requests
in 2013 and 71 requests in 2014. Apparently, every request
related to a one-day grace period was approved by the BOE.
It should further be noted that this authorization is set
to expire statutorily as of January 1, 2016.
c) What does this bill do ? This bill would essentially
allow the BOE to extend its one-day grace period policy to
the electronic submission of both payments and documents
(e.g., refund claims, returns, etc.). The BOE notes that
for many taxpayers this would eliminate the need to seek
relief through the BOE hearing process.
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d) The vagaries of electronic transmission deadlines : As
noted above, existing law prescribes three methods for a
taxpayer to make an EFT payment. Specifically, the
taxpayer can pay through an ACH debit, an ACH credit, or
through a Federal Reserve Wire Transfer. According to the
BOE, the standards for making a timely payment differ
depending on the EFT method used. For example, ACH debit
payments (the most commonly used EFT payment method) made
later than 3:00 p.m. Pacific Standard Time, or that have
the next banking day as the debit date, are considered late
and delinquency charges apply. Moreover, each financial
institution handles ACH payments differently. Thus, to be
timely, taxpayers must initiate payment in accordance with
a financial institution's processes to ensure the deposit
into the state's account occurs on the next banking day
following the due date.
Other than EFT payments, most electronically transmitted
payments that taxpayers initiate by midnight on the tax due
date are regarded as timely, even though the funds may be
deposited into the state's account more than one day after
the due date. The payment initiation date determines the
payment's timeliness.
e) Creating the wrong incentives ? Mandatory EFT payers
include some of the largest and most sophisticated
retailers in the state (e.g., retailers with a monthly SUT
liability of $10,000 or more). Committee staff questions
whether institutionalizing a one-day "grace period" for
these electronic payers could inadvertently incentivize
some sophisticated retailers to intentionally delay their
payments by one day to take advantage of any interest
accruing on their accounts.
In addition, this bill seems primarily concerned with EFT
payers using the ACH debit method of payment. Such
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taxpayers may inadvertently run afoul of the 3:00 p.m.
deadline for timely payments. The proposed solution to
this perceived problem, however, encompasses a broad range
of electronic payments and submissions. For example, this
bill would allow the BOE to establish a one-day grace
period for non-EFT electronic payments whose timeliness is
solely dependent on the time of payment initiation and,
thus, wholly within the taxpayer's control. In addition,
this one-day grace period would be extended to returns and
refund claims submitted electronically. Thus, a policy
initially intended to give taxpayers the benefit of the
doubt in light of the vagaries of the U.S. Postal Service
would be transformed into a de facto one-day extension for
all filings, even those solely under the control of the
taxpayer. This could, in turn, create confusion to the
extent other tax administration agencies do not follow this
practice.
REGISTERED SUPPORT / OPPOSITION:
Support
BOE Member George Runner
Opposition
None on file
AB 358
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Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)
319-2098