BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 1559 |Hearing |6/15/16 |
| | |Date: | |
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|Author: |Dodd |Tax Levy: |No |
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|Version: |4/13/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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State Board of Equalization: returns and payment: extension:
disaster (Urgency)
Allows BOE to grant an extension of up to three months to file a
return or pay a tax in the case of a natural or economic
disaster.
Background
The California Constitution of 1879 created the five-member
Board of Equalization (BOE), composed of four members elected by
district and the State Controller, to equalize rates and
assessment practices among counties. In addition to its
property tax duties, BOE also administers the Sales and Use Tax,
locally-imposed transactions and use taxes, several excise
taxes, and more than 30 other fee programs.
Taxpayers must generally pay taxes or fees to BOE before the end
of the month following the close of the reporting period, which
is usually the calendar quarter. If not, state law imposes
penalties, generally 10 percent of the tax due, plus monthly,
simple interest based on the tax due from the date the tax was
due to the date it was paid. In addition to the Sales and Use
Tax, the same procedural requirements exist for many other BOE
tax and free programs, as well as the state's general purpose
statute that guides BOE administration of several fees, the Fee
Collections Procedures Law.
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All of the above listed laws authorize BOE to extend the period
to file a return or pay tax for one month for good cause,
provided that the taxpayer files a request within or before the
extension period. If granted, taxpayers are usually still
liable for the one month's interest, but don't pay a penalty,
and can file the return and remit the tax one month late.
Additionally, BOE can also relieve interest when it finds the
taxpayer's failure to file the return or pay the tax was due to
disaster, and occurred notwithstanding the exercise of ordinary
care in the absence of willful neglect, so long as the taxpayer
files a statement to that effect under penalty of perjury. BOE
Regulation 1703 defines "disaster" for these purposes as fire,
flood, storm, tidal wave, earthquake or similar public calamity,
but doesn't require the disaster to result from natural causes.
BOE can also relieve the taxpayer from penalties if it finds
that the failure is due to reasonable cause, and occurred
notwithstanding the exercise of ordinary care in the absence of
willful neglect, again so long as the taxpayer files a statement
to that effect under penalty of perjury. Seeking to assist
taxpayers affected by recent disasters, BOE wants to allow
extensions not to exceed three months for taxpayers affected by
natural and economic disasters.
Proposed Law
Assembly Bill 1559 allows BOE to grant an extension of up to
three months to file any return or pay any tax in the case of a
natural or economic disaster. Taxpayers must file a request
with BOE within or before the period for which the extension is
requested. The bill applies these changes to the Sales and Use
Tax, the Motor Vehicle Fuel Tax, Use Fuel Tax, Cigarette and
Tobacco Products Tax, Alcoholic Beverage Tax, Timber Yield Tax,
Energy Resources Surcharge, Emergency Telephone Users Surcharge,
Hazardous Substance Tax, Integrated Waste Management Fee, Oil
Spill Fees, Underground Storage Tank Fee, Diesel Fuel Tax Laws,
as well as the state's general purpose statute that guides BOE
administration of several fees, the Fee Collections Procedures
Law. The measure also contains an urgency clause.
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State Revenue Impact
BOE states that the measure could result in a minor revenue loss
related to foregone penalties for late returns and payment
beyond the existing one-month extension.
Comments
1. Purpose of the bill . According to the author, "under limited
circumstances, individuals and businesses are permitted to defer
state and local taxes and fees to assist 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. Discretion . As described below, tax relief provisions in
state law specifically for taxpayers affected by disasters are
usually contingent on the Governor declaring a disaster or a
state of emergency. One exception allows BOE under its own
discretion to extend deadlines for one month for good cause, and
additionally waive interest under certain circumstances,
including disasters. AB 1559 would extend this authority to
allow for three month extension, and apply it to "natural or
economic disasters." However, the bill doesn't define either
term, thereby granting significant discretion to BOE to grant
relief as it sees fit. For example, the bill would allow BOE to
declare areas of the state with high unemployment and poverty
rates as "economic disasters," and grant relief to all taxpayers
in the area from requirements to file returns and pay taxes,
regardless of an individual business's circumstances. As such,
BOE could grant relief under a broader set of circumstances that
the Legislature may desire. Easing compliance for taxpayers
would likely delay tax revenues to the state necessary to fund
public services. The Committee may wish to consider which
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disasters it wants AB 1559 to apply to, and whether it wants to
clearly define the term, or require the Governor to declare an
economic emergency for the measure's deadline extensions to take
effect.
3. Disaster relief generally . Starting with the forest fires
in 1985, and approximately 52 times thereafter for various other
disasters, the Legislature enacted disaster tax relief
legislation. Previous disaster tax relief bills generally
enacted three distinct provisions: homeowners' exemption, fiscal
relief to disaster-affected counties, and disaster losses:
Homeowners' Exemption. The California Constitution
grants taxpayers an exemption on the first $7,000 of
taxable value for their personal place of residence;
however, state law provides that when a property is vacant,
under construction, or no longer occupied by the owner on
the lien date of January 1, the property is no longer
eligible for the exemption. Previous disaster relief bills
formerly prohibited the assessor from revoking the
exemption for property affected by each individual
disaster, but the Legislature enacted a general protection
for all taxpayers, negating the need for subsequent bills
to prohibit the revocation (SB 1494, Committee on Revenue
and Taxation, 2010).
County fiscal relief. The California Constitution
allows taxpayers to request the assessor to revalue
property to its disaster-affected value until it's
restored, reconstructed, or repaired. Disaster tax relief
bills historically enact a process for the state to
reimburse counties for property tax revenue losses
resulting from reassessments in the first fiscal year
following the disaster; however, the Legislature has not
enacted these provisions since 2010, choosing not to for
most recent disasters: tsunamis in Humboldt County in 2011,
severe storms in Santa Cruz County in 2012, fires in San
Diego County in 2014, and the Napa Earthquake that same
year. However, earlier this year, the Legislature
appropriated $105 million in funding to support fire
recovery and debris removal for Lake and Calaveras
counties, and the Governor's budget proposes funding of
$1.9 million General Fund one-time in 2016-17 to backfill
property tax, sales and use tax, and transient occupancy
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tax revenue losses that Calaveras and Lake counties, and
the special districts located in those counties, will incur
due to wildfires last year. Recently approved by Senate
Budget Subcommittee #4, the accompanying budget bill
language requires counties to submit to Department of
Finance a claim detailing the losses prior to being issued
a warrant by the State Controller. Reimbursements cannot
exceed $596,000 for Calaveras County, and $1.3 million for
Lake County.
Disaster losses. While the Legislature used to enact
disaster loss treatment under the Personal Income and
Corporation taxes for individual disasters, it will soon be
rendered moot by the state's general loss treatment.
Taxpayers can carry back 100% of general losses incurred in
2015 regardless of whether they were caused by a disaster,
meaning that a bill that solely enacts one-year disaster
loss carrybacks would provide inferior treatment.
Additionally, the Legislature recently provided an extended
amended return deadline similar to federal for any future
President or Governor declared disaster (SB 35, Wolk,
2015).
4. Related legislation . On May 11th, the Committee unanimously
approved SB 1304 (Huff), which responded to the Porter Ranch gas
leak by expanding eligibility for disaster reassessment to apply
to governor-declared disasters, not just emergencies, and
allowing assessors to consider environmental contamination when
revaluing the property. The Senate subsequently approved the
measure, which is currently awaiting referral in the Assembly.
5. Urgency . Regular statutes take effect on January 1
following their enactment; bills passed in 2016 take effect on
January 1, 2017. The California Constitution allows bills with
urgency clauses to take effect immediately if they're needed for
the public peace, health, and safety. AB 1559 contains an
urgency clause declaring that it is necessary for BOE to meet
urgent administrative need. However, this administrative need
is unclear, as both the Butte and Valley fires occurred last
year, so even if the measures was enacted today, its provisions
wouldn't apply to the victims of the fires. The Committee may
wish to consider deleting AB 1559's urgency clause.
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Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 19-0
Assembly Floor 79-0
Support and
Opposition (6/9/16)
Support : State Board of Equalization, BOE Member Fiona Ma, BOE
Member George Runner, 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, Midtown Area Merchants Association,
Sonoma County Board of Supervisors, Yolo County Board of
Supervisors.
Opposition : None received.
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