BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 1559


                                                                    Page  1





          Date of Hearing:  April 4, 2016


                     ASSEMBLY COMMITTEE ON REVENUE AND TAXATION


                           Sebastian Ridley-Thomas, Chair





          AB 1559  
          (Dodd) - As Introduced January 4, 2016


          2/3 vote.  Urgency.  Fiscal committee.  


          SUBJECT:  State Board of Equalization:  returns and payment:   
          extension:  disaster


          SUMMARY:  Authorizes the State Board of Equalization (BOE), in  
          the case of a disaster, to extend the time for making any report  
          or return or paying any tax for a period of up to three months.   
          Specifically, this bill:  


          1)Provides that the extension may be granted at any time  
            provided a request therefor is filed with the BOE within or  
            before the period for which the extension may be granted.


          2)Requires any person granted a disaster extension to pay, in  
            addition to the tax or fee amount, interest at the modified  
            adjusted rate per month, or fraction thereof, from the date on  
            which the payment would have been due without the extension to  
            the date of actual payment.  








                                                                    AB 1559


                                                                    Page  2







          3)Takes immediate effect as an urgency measure.  


          EXISTING LAW:  


          1)Authorizes the BOE for good cause to extend the time, not to  
            exceed one month, for a taxpayer to submit any return or pay  
            any amount required to be paid, as specified.  The extension  
            may be granted at any time provided a request therefor is  
            filed with the BOE within or prior to the period for which the  
            extension may be granted.  


          2)Requires any person granted extension relief to pay, in  
            addition to the underlying tax or fee amount, interest at the  
            modified adjusted rate per month, or fraction thereof, from  
            the date on which the payment would have been due without the  
            extension until the date of actual payment.  


          3)Provides similar authority under the following  
            BOE-administered laws:


             a)   The Sales and Use Tax (SUT) Law;


             b)   The Motor Vehicle Fuel Tax Law;


             c)   The Use Fuel Tax Law;


             d)   The Cigarette and Tobacco Products Tax Law;










                                                                    AB 1559


                                                                    Page  3





             e)   The Alcoholic Beverage Tax Law;


             f)   The Timber Yield Tax Law;


             g)   The Energy Resources Surcharge Law;


             h)   The Emergency Telephone Users Surcharge Act;


             i)   The Hazardous Substances Tax Law;


             j)   The Integrated Waste Management Fee Law;


             aa)  The Oil Spill Response, Prevention, and Administration  
               Fees Law;


             bb)  The Underground Storage Tank Maintenance Fee Law;


             cc)  The Fee Collection Procedures Law; and, 


             dd)  The Diesel Fuel Tax Law.


          4)Authorizes, in the case of a disaster, specified interest  
            relief for late payments and returns under the SUT Law.   
            Specifically, if the BOE finds that a person's failure to make  
            a timely return or payment was due to a disaster, and occurred  
            notwithstanding the exercise of ordinary care and the absence  
            of willful neglect, the person may be relieved of interest.   
            Any person seeking such relief must file with the BOE a  
            statement under penalty of perjury setting forth the facts  








                                                                    AB 1559


                                                                    Page  4





            upon which the claim for relief is based.  (Revenue and  
            Taxation Code (R&TC) Section 6593.)  


          5)Authorizes specified penalty relief for late payments and  
            returns under the SUT Law.  Specifically, if the BOE finds  
            that a person's failure to make a timely return or payment is  
            due to reasonable cause and circumstances beyond the person's  
            control, and occurred notwithstanding the exercise of ordinary  
            care and the absence of willful neglect, the person shall be  
            relieved of penalties.  Any person seeking such relief must  
            file with the BOE a statement under penalty of perjury setting  
            forth the facts upon which the claim for relief is based.   
            (R&TC Section 6592.) 


          6)Authorizes the Governor to proclaim a state of emergency under  
            specified circumstances.  (Government Code Section 8625).   
            Specifically, the Governor is empowered to proclaim a state of  
            emergency upon the existence of conditions of disaster or of  
            extreme peril to the safety of persons and property within the  
            state, as specified.  (Government Code Section 8558(b).)


          FISCAL EFFECT:  Unknown.  According to the BOE's staff analysis,  
          this bill could result in "a minor revenue loss" related to  
          foregone penalties for late returns and payments beyond the  
          existing one-month extension period.  


          COMMENTS: 


          1)The author has provided the following statement in support of  
            this bill:


               Under limited circumstances, individuals and businesses are  
               permitted to defer state and local taxes and fees to assist  








                                                                    AB 1559


                                                                    Page  5





               them in recovering from a disaster such as a wildfire.   
               Temporary relief from paying taxes and fees helps those  
               individuals and businesses focus their limited resources  
               where they are needed most - to restore their livelihood.   
               However, the one month deferral allowed under current law  
               is not much more than tinkering on the impacted taxpayer's  
               financial margins[.]  


               AB 1559 is an urgency bill, which revises current law by  
               changing the one month deferral for paying of specified  
               fees and taxes per filing period, to three months per  
               filing period in the case of a declared disaster.  This  
               would grant disaster impacted taxpayers a more significant  
               and meaningful amount of time to restore their business  
               activities and get back on their feet.  


          2)This bill is sponsored by the BOE, which notes the following:


               The members of the BOE recognize the difficulties faced by  
               victims of disasters and the need for additional time to  
               handle their tax obligations.  Allowing the BOE to extend  
               the time for making any return or paying BOE-administered  
               taxes and fees for up to 90 days provides meaningful tax  
               relief to those taxpayers who have less presence of mind,  
               resources, and necessary documentation under the  
               circumstances.  


          3)This bill is supported by the Lake County Board of  
            Supervisors, which notes the following:


               [T]he Valley Fire affected approximately 60 businesses in  
               the Cobb Mountain, Middletown and Hidden Valley Lake  
               communities.  Harbin Hot Springs, the County's 10th largest  
               employer was destroyed; Calpine, lost five of its 14 power  








                                                                    AB 1559


                                                                    Page  6





               plants at the Geysers; and three fourths of the County's  
               ranchers had range land and outbuildings destroyed by the  
               fire.  


               As you know Lake County has not recovered from the "Great  
               Recession" and will now be faced with recovering from the  
               wildfires of 2015 as well.  Providing the temporary relief  
               from paying taxes and fees will help the affected  
               individuals and businesses focus their limited resources  
               where they are needed most - to restore their livelihood.  


          4)The BOE notes the following in its staff analysis of this  
            bill:   


              a)   Peace of mind  :  "Currently, a sales and use taxpayer  
               affected by a disaster has two avenues to seek [to] avoid  
               penalty:  one-month extension (RTC Section 6459) and  
               excusable delay relief (RTC Section 6592).  This bill  
               revises the one-month extension to three months in the case  
               of a disaster thereby providing disaster-affected taxpayers  
               an additional two months to file their return and pay the  
               tax.


               "Although a taxpayer currently may request penalty relief  
               for periods exceeding one month, they must file their  
               return and pay the tax due.  If a taxpayer does not file  
               their return or pay the tax by the due date (varies by tax  
               program), the BOE may commence delinquency-related action.   
               This may include sending late notices, beginning collection  
               action, or revoking permits during that period, adding more  
               stress to an already stressful situation.  This bill  
               provides a disaster-affected taxpayer peace of mind from  
               any BOE delinquency-related action by allowing the taxpayer  
               to file the extension within or prior to the period for  
               which the extension may be granted.  








                                                                    AB 1559


                                                                    Page  7







               "This bill also benefits the BOE administratively by  
               avoiding a potentially lengthy staff review to verify  
               'reasonable cause' and the penalty of perjury  
               verification."


              b)   Disaster victims generally require more time  :  "This  
               bill grants additional time to those who have less presence  
               of mind, resources, and necessary documentation under the  
               circumstances to timely file their return and pay the tax."  



              c)   Tax and interest still due  :  "This bill does not  
               automatically relieve a taxpayer of accrued interest, only  
               a potential 10% late filing penalty.  However, existing law  
               already provides a taxpayer relief of interest if the BOE  
               finds that a person's failure to make a timely return or  
               payment was due to a disaster, and occurred notwithstanding  
               the exercise of ordinary care and the absence of willful  
               neglect.  A person seeking interest relief must file a  
               claim with the BOE."  


          5)Committee Staff Comments


              a)   A general overview of current law  :  Under the SUT Law,  
               taxpayers must file a SUT return on or before the last day  
               of the month following the end of the reporting period.   
               Businesses that are late in paying their tax obligations  
               must pay a 10% penalty, plus interest on the unpaid tax  
               from the tax due date to the date of payment.  One-month's  
               interest is due for each month or fraction of a month that  
               payment is late.  Similar statutory regimes govern the  
               other BOE-administered tax and fee programs (i.e, the Motor  
               Vehicle Fuel Tax Law, the Use Fuel Tax Law, the Cigarette  








                                                                    AB 1559


                                                                    Page  8





               and Tobacco Products Tax Law, the Alcoholic Beverage Tax  
               Law, the Timber Yield Tax Law, the Energy Resources  
               Surcharge Law, the Emergency Telephone Users Surcharge Act,  
               the Hazardous Substances Tax Law, the Integrated Waste  
               Management Fee Law, the Oil Spill Response, Prevention, and  
               Administration Fees Law, the Underground Storage Tank  
               Maintenance Fee Law, the Fee Collection Procedures Law, and  
               the Diesel Fuel Tax Law).


              b)   The BOE's existing one-month extension authority  :   
               Existing law allows the BOE for good cause to extend for up  
               to one month the time for making any return or paying the  
               tax due.  Such an extension may be granted at any time  
               provided the request is filed with the BOE within or prior  
               to the period for which the extension may be granted.  An  
               extension provides the taxpayer additional time to file a  
               return and pay the tax, and relieves the person of any late  
               payment penalty.  The law, however, continues to impose  
               interest from the due date until the payment date, except  
               in the case of a disaster.


              c)   The BOE's existing authority to grant interest and  
               penalty relief in specified circumstances  :  Existing law  
               authorizes, in the case of a disaster, interest relief for  
               late payments.  Specifically, if the BOE finds that a  
               person's failure to make a timely return or payment was due  
               to a disaster, and occurred notwithstanding the exercise of  
               ordinary care and the absence of willful neglect, a  
               taxpayer may be relieved of interest.  Taxpayers seeking  
               interest relief, however, must file a statement with the  
               BOE under penalty of perjury setting forth the facts upon  
               which the request is based.  


               Likewise, existing law authorizes taxpayers (including  
               those impacted by a disaster) to seek penalty relief.   
               Again, if the BOE finds that a person's failure to make a  








                                                                    AB 1559


                                                                    Page  9





               timely return or payment is due to reasonable cause and  
               circumstances beyond the person's control, and occurred  
               notwithstanding the exercise of ordinary care and the  
               absence of willful neglect, the person shall be relieved of  
               penalties.  Taxpayers seeking penalty relief must also file  
               a statement with the BOE under penalty of perjury setting  
               forth the facts upon which the request is based.  


              d)   What would this bill do  ?  This bill would authorize the  
               BOE, in the case of a disaster, to extend the time for  
               making any report or return or paying any tax for a period  
               of up to three months.  This bill was introduced in the  
               wake of the Butte and Valley Fires, which devastated  
               portions of northern California in September 2015.  



              e)   The Butte and Valley Fires  :  On September 9, 2015, the  
               Butte Fire started in Amador County and spread into  
               Calaveras County, burning thousands of acres and destroying  
               multiple structures.  As a result, Governor Brown  
               proclaimed a state of emergency on September 11, 2015 for  
               both Amador and Calaveras Counties.   


                The following day, on September 12, 2015, the Valley Fire  
               began in Lake County and spread into Napa County.  The fire  
               burned thousands of acres of land, destroyed multiple  
               structures, including homes, and necessitated the  
               evacuation of residents.  The fire also damaged critical  
               infrastructure, and forced the closure of major highways  
               and local roads.  Thus, on September 13, 2015, Governor  
               Brown proclaimed a state of emergency in both Lake and Napa  
               Counties.  


               On September 21, 2015, Governor Brown sent letters to  
               President Obama requesting Presidential major disaster  








                                                                    AB 1559


                                                                    Page  10





               declarations for the state following the Butte Fire and  
               Valley Fire.  The Governor noted that the fires had  
               scorched more than 145,000 acres, taken lives, and  
               destroyed thousands of homes and structures.  Specifically,  
               the Governor noted that the Butte Fire had burned over  
               70,760 acres, and destroyed at least 475 homes and 343  
               nonresidential properties.  The Governor also noted that  
               the Butte fire had, as of that date, taken two lives.  The  
               Valley Fire, in turn, had burned over 75,111 acres,  
               destroyed 1,238 homes, and taken three lives.


              f)   Looking forward  :  The author notes that this bill is  
               part of a broader effort to support Lake County and the  
               victims of the Valley Fire.  It should be noted however  
               that, given its prospective application, this bill is  
               likely to afford relief to victims of future disasters in  
               the state.  Specifically, the Valley Fire occurred in  
               September 2015, or the third quarter of 2015 for SUT  
               purposes.  Thus, SUT returns for that period were due on  
               October 31, 2015 (or November 30, 2015, assuming a  
               one-month extension was sought).  Applying this bill's  
               proposed three-month extension to victims of the Valley  
               Fire would only bring the filing and payment deadline to  
               January 31, 2016.  Thus, while this bill is unlikely to  
               provide relief to victims of the Valley and Butte Fires, it  
               may provide meaningful relief to victims of future  
               disasters.  


              g)   What is a disaster  ?  In its current form, this bill does  
               not define the term "disaster".  The BOE notes in its staff  
               analysis that it considers a disaster to include a fire,  
               flood, storm, tidal wave, earthquake or similar public  
               calamity, whether or not resulting from natural causes.   
               Thus, the BOE notes that a disaster includes, but does not  
               require, a Governor declared state of emergency.  Most  
               disaster relief provisions, however, including those found  
               in the tax code, are tied to gubernatorially declared  








                                                                    AB 1559


                                                                    Page  11





               disasters.  In this manner, there is clarity surrounding  
               when such relief is made available and relief is reserved  
               for truly catastrophic regional occurrences.  Thus, the  
               author may wish to consider amending this bill to clarify  
               that the term "disaster" refers to a gubernatorially  
               declared state of emergency issued pursuant to Government  
               Code Section 8625.  


              h)   Open questions  :  Even if this bill is limited to  
               gubernatorially declared states of emergency, there could  
               be a degree of confusion surrounding its potential  
               application.  For example, would relief be limited to  
               individuals and businesses located in a county declared to  
               be in a state of emergency?  Moreover, would a taxpayer  
               have to be "directly" impacted by the disaster to receive  
               relief?  Obviously, there are both direct and indirect  
               impacts following a disaster.  Direct impacts may include  
               property damage, equipment and inventory loss, and staff  
               evacuations and displacement.  As the author's office  
               notes, "[i]ndirect business impacts typically result from  
               limited access to a business due to road closures, utility  
               outages, limited transportation of goods necessary for the  
               businesses to continue functioning, and reduced  
               distribution chains."  Moreover, more general market  
               impacts may result from a loss of customers both during and  
               following a disaster.  In its letter of support, the  
               Middletown Area Merchants Association notes that all of its  
               members are realizing economic business losses "as a result  
               of the changed demographics" of the community.  Would such  
               indirect impacts of a disaster qualify for relief under  
               this bill's provisions?  The Committee may wish to consider  
               amendments providing a greater degree of specificity  
               concerning the circumstances in which relief may be grated.  
                


              i)   Suggested technical amendments  :  Committee staff  
               recommends adoption of the following technical amendments:   








                                                                    AB 1559


                                                                    Page  12








               i)     On page 5, in line 1, insert "the" before "board";


               ii)    On page 6, in line 5, strike "tax" and insert  
                 "surcharge"; 


               iii)   On page 7, in line 20, strike "tax" and insert  
                 "fee";   


               iv)    On page 8, in line 1, strike "tax" and insert "fee";  



               v)     On page 8, in line 22, strike "tax" and insert  
                 "fee"; 


               vi)    On page 9, in line 3, strike "tax" and insert "fee";  
                 and, 


               vii)   On page 9, in line 8, insert "person" after "any".  


          REGISTERED SUPPORT / OPPOSITION:




          Support


          State Board of Equalization (Sponsor)









                                                                    AB 1559


                                                                    Page  13






          California Asian Pacific Chamber of Commerce


          California Society of Enrolled Agents


          Castro Valley / Eden Area Chamber of Commerce


          City of Lakeport


          Lake County Board of Supervisors


          Middletown Area Merchants Association


          State Board of Equalization Member Fiona Ma


          Yolo County




          Opposition


          None on file




          Analysis Prepared by:M. David Ruff / REV. & TAX. / (916)  
          319-2098










                                                                    AB 1559


                                                                    Page  14