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
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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
AB 821
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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