BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 567 (Gipson) - Medical cannabis: regulation and taxation
amnesty
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|Version: August 2, 2016 |Policy Vote: GOV. & F. 4 - 3, |
| | B., P. & E.D. 8 - 1, |
| | GOV. & F. 5 - 1 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 8, 2016 |Consultant: Robert Ingenito |
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This meets the criteria for referral to the Suspense File.
Bill
Summary: AB 567 would require the Board of Equalization (BOE)
develop and administer a tax penalty amnesty for qualified
taxpayers.
Fiscal
Impact:
BOE would incur administrative costs in the low millions
of dollars annually, resulting from taxpayer notification,
amnesty application processing, return processing, computer
programming, and public inquiry responses.
BOE estimates that the bill would lead to increased
one-time state and local revenue in the range of $53
AB 567 (Gipson) Page 1 of
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million to $106 million, depending on the participation
rate of cannabis-related businesses.
The Department of Consumer Affairs (DCA) would incur
first-year costs of $102,000 and $94,000 thereafter
(special funds) to process applications and verify with BOE
that distributors are in compliance with the bill's
requirements.
Background: Current law imposes a sales and use tax (SUT) on the gross
receipts from the sale of, tangible personal property (TPP)
based on the sales price, unless specifically exempted by
statute. The state portion of the SUT will be 7.25 percent
effective January 1, 2017. Cities and Counties may increase
their SUT rate up to two percentage points as a transactions and
use tax for either specific or general purposes, if voter
approved.
Under current state law, every person, retailer, and wholesaler
engaged in selling TPP subject to sales tax must apply to BOE
for a seller's permit; failure to do so is a misdemeanor.
Additionally, persons who fail to pay their tax obligations are
liable for their past tax obligation including accrued interest
and penalties for up to eight previous calendar years. In
February 2007, BOE issued a Special Notice confirming its policy
of subjecting medical marijuana transactions to the SUT, as well
as its requirement that businesses engaging in such transactions
hold a seller's permit. A permit does not allow individuals to
make unlawful sales, but instead merely provides a way to remit
any sales and use taxes due.
Under current law, any person who fails to pay tax to the State
by the due date shall be assessed interest at the modified
adjusted rate per month from the date the tax became due and
payable to the State until the date of payment. There are also
a myriad of penalties that are imposed. These penalties, as
applicable to medical marijuana dispensaries, are as follows:
For late payments generally, a penalty of 10 percent of
the amount of all unpaid taxes added to any tax not paid in
whole or in part within the time required by law.
AB 567 (Gipson) Page 2 of
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Any person who fails to file a timely return is required
to pay a penalty of 10 percent of the amount of taxes,
exclusive of prepayments, with respect to the period for
which the return is required.
Any person remitting taxes by electronic funds transfer
is required to, on or before the due date of the
remittance, file a return for the preceding reporting
period in the form and manner prescribed by BOE. Any person
who fails to timely file the required return is required to
pay a penalty of 10 percent of the amount of taxes,
exclusive of prepayments, with respect to the period for
which the return is required.
A penalty of 10 percent of the amount of the tax
specified in a determination is added to deficiency
determinations if any part of the deficiency for which the
determination is imposed is due to negligence or
intentional disregard of the law.
A penalty of 25 percent of the amount of the tax
specified in a deficiency determination is added in the
case of a determination for failure to file a return, if
that failure is due to fraud or an intent to evade the law.
A penalty of 50 percent applies to the taxes imposed
upon any person who, for the purpose of evading the payment
of taxes, knowingly fails to obtain a valid permit prior to
the date in which the first tax return is due. The penalty
applies to the taxes determined to be due for the period
during which the person engaged in business in this state
as a seller without a valid permit and may be added in
addition to the 10 percent penalty for failure to file a
return. However, the 50 percent penalty does not apply if
the taxable sales or purchases over the period during which
the person was engaged in business without a valid permit
averaged $1,000 or less per month.
AB 567 (Gipson) Page 3 of
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A penalty of 10 percent of the amount of the tax
specified in the determination shall be added to any
determination not paid within the time required by law.
A penalty of 10 percent applies to the taxes imposed
upon any person who knowingly issues a resale certificate
for personal gain or to evade the payment of taxes while
not actively engaged in business as a seller. The penalty
is 10% of the amount of tax or $500, whichever is greater,
if the purchase is made for personal gain or to evade
payment of taxes.
For prepayments, taxpayers with taxable sales in excess
of $17,000 per month are required to make two prepayments
of the tax during each quarter) the following penalties
apply:
o Taxpayers who fail to make a prepayment before
the last day of the monthly period following the
quarterly period in which the prepayment became due
and who files a timely return and payment for that
quarterly period is required to pay a penalty of 6
percent of the amount of prepayment, as specified, for
each of the periods during that quarterly period for
which a required prepayment was not made.
o Taxpayers who fail to make a timely
prepayment, but who makes the prepayment before the
last day of the monthly period following the quarterly
period in which the prepayment became due, is required
to pay a penalty of 6 percent of the amount of the
prepayment.
o If any part of a deficiency in prepayment is
due to negligence or intentional disregard of the SUT
Law or authorized regulations, a penalty of 10 percent
of the deficiency is required to be paid.
AB 567 (Gipson) Page 4 of
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Proposed Law:
This bill would require BOE to administer a tax penalty amnesty
program for medical cannabis-related businesses for a six-month
period beginning July 1, 2017 through December 31, 2017.
Specifically, the bill would do all of the following:
Apply to tax liabilities due and payable for tax
reporting periods beginning before January 1, 2015.
o Apply to any qualified taxpayer who during the
amnesty period files an application for tax penalty
amnesty and, within 60 days after the conclusion of
the amnesty period, does both of the following: (1)
files completed tax returns reporting the non-reported
or underreported tax liabilities for all tax reporting
periods for which amnesty is being applied, and (2)
pays in full the taxes and interest due for each
period for which amnesty is requested, or applies for
an installment agreement.
Allow qualified taxpayers to request to enter into an
installment payment agreement, which includes interest on
the outstanding amount due, in lieu of full payment.
Failure by the qualified taxpayer to fully comply with the
terms of the agreement renders the waiver of penalties null
and void, unless BOE determines that the failure was due to
reasonable cause, and the total amount of tax, interest,
and all penalties become due and payable immediately.
Require BOE to waive all penalties imposed under SUT
Law, for the tax reporting periods for which tax penalty
amnesty is requested, that are owed as a result of the
non-reporting or underreporting of tax liabilities.
Prohibit any criminal action brought against the
AB 567 (Gipson) Page 5 of
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qualified taxpayer based on the non-reporting or
underreporting of tax liabilities for the tax reporting for
which tax penalty amnesty is requested.
Does not apply to the nonpayment of any taxes for which
a notice of determination has previously been issued.
Does not apply to SUT Law violations, to which, as of
the first day of the amnesty period, the qualified taxpayer
is on notice of a criminal investigation or a court
proceeding has already been initiated.
Provide that no refund or credit shall be granted of any
penalty paid prior to the time the qualified taxpayer makes
a request for tax penalty amnesty.
Require BOE to refuse to issue a permit to any person or
revoke a seller's permit issued for any person that is both
of the following:
o Eligible to participate in the tax penalty
amnesty program, but does not participate in the
amnesty program.
o Engaged in retail sales of medical cannabis in
this state that would have been eligible to
participate in the tax penalty amnesty program as a
medical cannabis-related business.
Require the DCA to revoke or refuse to issue, reinstate,
or renew a qualified taxpayer's state license who is
eligible to participate in the tax penalty amnesty program,
but does not, and that does any of the following: (1) fails
to register with BOE, (2) has a seller's permit revoked, or
(3) reports a gross understatement of tax.
AB 567 (Gipson) Page 6 of
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Staff
Comments: This measure would provide medical cannabis-related
businesses an incentive to obtain a seller's permit by waiving
all penalties imposed under SUT Law and prohibiting any criminal
action against the qualified taxpayer provided tax amnesty
provisions are followed.
In developing its revenue estimate, BOE staff identified 1,623
dispensaries selling medical marijuana in the State. Staff
assumes annual sales of $613,000 per dispensary. As noted
previously, BOE estimates that the bill would lead to increased
one-time state and local revenue in the range of $53 million to
$106 million, depending on the participation rate of
cannabis-related businesses. Nearly half of the amount would be
General Fund revenues.
DCA has yet to finalize its estimate of the bill's fiscal
impact, but indicates that it would incur unknown expenses to
interface with BOE to suspense, refuse to issue, reinstate or
renew licenses, as specified.
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