BILL ANALYSIS Ó
AB 1559
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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.
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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;
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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
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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
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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
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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.
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"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
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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
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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
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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
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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:
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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)
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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
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