BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     AB 821


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          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  








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            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  








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            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  








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            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








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          California Growers Association

          3C Medical, LP

          4 individuals



          Opposition


          None on file




          Analysis Prepared by:Carlos Anguiano / REV. & TAX. / (916)  
          319-2098