BILL ANALYSIS Ó AB 821 Page 1 Date of Hearing: January 11, 2016 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Philip Ting, Chair AB 821 (Gipson) - As Amended January 4, 2016 Majority vote. Fiscal committee. SUBJECT: Sales and use taxes: administration: payments SUMMARY: Authorizes that the Board of Equalization (BOE) to allow a person to remit tax liability due in a method other than an electronic funds transfer (EFT) if the BOE deems it necessary to facilitate the collection of amounts due. EXISTING LAW: 1)Provides that any person whose estimated tax liability averages $10,000 or more per month shall remit the amounts due AB 821 Page 2 by an EFT. (Revenue and Taxation Code (R&TC) 6479.3.) 2)Provides that any person required to remit taxes who remits those taxes by means other than appropriate EFT shall pay a penalty of 10% of the amount of taxes. (R&TC Section 6479.3.) 3)Allows the BOE to relieve a person of the 10% penalty if that person's failure to utilize an EFT is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. (R&TC Section 6479.4.) FISCAL EFFECT: Unknown COMMENTS: 1)Author's Statement . The author has provided the following statement in support of this bill: Currently, due to the fact that marijuana is still federally classified as a Schedule 1 substance, the medical marijuana industry has been rendered "unbankable." This leads to companies having to hold large amounts of cash and requires that tax payments be made in cash as well. This bill seeks to support the state's collection of tax payments by removing the penalty associated with cash tax payments above $10,000 a month in cases where an industry has lack of access to banking services. 2)Arguments in Support . According to proponents of this bill, "[c]urrent law states taxpayers whose estimated liabilities average $10,000 or more per month are required to remit their AB 821 Page 3 tax amounts due by EFT and must pay penalties of 10 percent (or six percent for prepayments) if they fail to do so. These penalties can be voluntarily waived for good reason, but the waiver must be requested and obtained with every payment. This creates an unfair burden on those who, for a variety of reasons, must pay with cash - for example, operators of catering trucks" 3)Background . Individuals who run a marijuana dispensary in compliance with California law are currently shut off from the banking system. Marijuana is classified as a Class I drug and the cultivation, sale, and possession can constitute a felony. Therefore, the majority of banks and credit unions have decided not to accept marijuana dispensaries as customers for fear of federal sanctions. As such, less than 1% of all banks and credit unions nationwide provide banking services to cannabis businesses. 4)What is the Problem ? Existing law requires that a person remit tax liability due by an EFT if the estimated tax liability averages $10,000 or more per month. A 10% penalty of the tax amount due is added if other means are utilized. Because many banks and credit unions refuse to accept medical dispensaries as customers for fear of federal sanctions, dispensaries that are remitting their tax liability have to pay a 10% penalty in order to comply with the law. Existing law also allows the BOE to waive the 10% penalty for medical marijuana dispensaries if it can be shown that the failure to utilize an EFT is due to reasonable cause and circumstances beyond the person's control, and occurred notwithstanding the exercise of ordinary care and in the absence of willful neglect. However, the waiver must be requested and obtained every time amounts due are remitted in a manner other than EFT, which creates an unfair administrative burden for cash-only industries. It appears, therefore, that the problem is not the imposition of a penalty but the burden of having to request the waiver. It is unclear, however, how this bill AB 821 Page 4 will eliminate the administrative burden currently experienced by cash industries. Since this bill does not exempt the medical marijuana industry, it appears that dispensaries would still be subject to the 10% tax penalty and a request for a waiver under the provisions of this bill would still have to be submitted to the BOE. 5)Overly Broad Solution . Under the broad language of this bill, the BOE may eliminate the 10% penalty provision for any reason that the BOE deems to be necessary to facilitate the collection of amounts due, which may include businesses beyond medical marijuana dispensaries. The broad language may also make it difficult for taxpayers to challenge an unfavorable ruling by the BOE since this bill provides no clear standard by which to judge a decision. Therefore, the Committee may wish to amend the bill to ensure that the EFT requirement is not mandated on medical marijuana dispensaries. Additionally, the Committee may wish to add a five year sunset in case the federal government makes changes in the future that would allow medical marijuana dispensaries to utilize the banking system. REGISTERED SUPPORT / OPPOSITION: Support Americans for Safe Access Board of Equalization Member, District 3 Board of Equalization Member, District 2 Board of Equalization Member, District 1 AB 821 Page 5 California Growers Association 3C Medical, LP 4 individuals Opposition None on file Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916) 319-2098