BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AB 2201 |Hearing |6/8/16 |
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|Author: |Brough |Tax Levy: |No |
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|Version: |2/18/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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State Board of Equalization: administration: interest
Reenacts the Board of Equalization's authority to calculate
interest on a daily, not monthly, basis for tax and fee payments
made one business day late under specified circumstances.
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.
When individuals who must pay taxes or fees to BOE do so after
the date they are due, state law imposes penalties, generally 10
percent of the tax, and plus monthly, simple interest from the
date the tax was due to the date it was paid. BOE determines
the interest rate on underpayments by adding three percent to
the rate charged by the Internal Revenue Service, which it
reevaluates every January and July the rates are evaluated,
currently six percent, or one-half of one percent monthly. Any
interest rate change takes effect six months later and remains
in effect for at least six months.
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Historically, BOE generally calculates interest on a per-month
basis, so one month's interest is charged for each month or
fraction of a month that a payment is late. For example, if a
payment is three days late, a full month's interest is due, or
two month's interest is due for a payment one month and three
days late. Interest accumulates from the day after the date on
which the amount of tax first became due in most cases. While
BOE can grant penalty relief when they find that the person's
failure to make a payment in a timely manner was due to
reasonable cause and circumstances beyond the person's control,
and occurred notwithstanding ordinary care and the absence of
willful neglect, they can only waive interest due to an error or
unreasonable delay caused by one of its employees.
In 2010, the Legislature allowed BOE to instead charge interest
at the modified adjusted daily rate when (SB 1028, Correa):
BOE, meeting as a public body, taking into account all
facts and circumstances, determines that it is inequitable
to compute interest on a monthly basis,
The payment or prepayment was one business day late,
BOE granted relief from all penalties that applied to
that payment, and
The person files a request for an oral hearing before
BOE.
SB 1028 applied to the Sales and Use Tax, Motor Vehicle Fuel
Tax, Use Fuel Tax, the Gross Premiums Tax, Cigarette and Tobacco
Products Tax, Alcoholic Beverages Tax, Energy Resources
Surcharge, Emergency Telephone Users Surcharge, Hazardous
Substances Tax, Prepaid Mobile Telephony Services Surcharge,
Integrated Waste Management Fee, Oil Spill Fee, Underground
Storage Tank Fee, Diesel Fuel Tax, as well as the statute used
to collect many other fees, the Fee Procedures Collections Law.
However, SB 1028 sunset on January 1, 2016, so today, BOE must
charge a full month's interest for payments and prepayments made
one day after the due date. BOE wants to reenact this
authority.
Proposed Law
AB 2201 (Brough) 2/18/16 Page 3
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Assembly Bill 2201 reenacts the BOE's authority to compute
interest at the modified adjusted daily rate for payments made
one day after the due date under the Sales and Use Tax, Motor
Vehicle Fuel Tax, Use Fuel Tax, the Gross Premiums Tax,
Cigarette Tax, Alcoholic Beverages Tax, Energy Resources
Surcharge, Emergency Telephone Users Surcharge, Prepaid Mobile
Telephony Services Surcharge, Integrated Waste Management Fee,
Underground Storage Tank Fee, Fee Procedures Collections Law,
and Diesel Fuel Tax. To do so, BOE must meet as a public body,
and taking into account all facts and circumstances, determine
that it is inequitable to compute interest on a monthly basis.
Additionally, BOE must have granted relief from all penalties
that applied to that payment, and the person must have filed a
request for an oral hearing before BOE for the measure's
provisions to apply. The bill does not apply to payments made
pursuant to deficiency determinations, determination where no
return is filed, or a jeopardy determination. AB 2201 also
defines several terms, and sets forth a method to calculate
daily interest.
State Revenue Impact
BOE estimates state and local revenue losses of $78,000
annually.
Comments
1. Purpose of the bill . According to the author, "AB 2201
reinstates expired provisions to allow Members of the State
Board of Equalization to have flexibility to address the
inequity of applying an entire month's interest to an electronic
tax payment that is paid one day late, due to reasonable
circumstances. It is unfair to charge a month's worth of
interest on tax liabilities that are just one day late often
because they posted after the financial system stops processing
them on the due date. This bill allows the BOE to continue a
practice that provides reasonable relief for taxpayers."
2. Grace and forgiveness . For many years, BOE administrative
policy allowed a one-day grace period when a payment was
postmarked one day late. However, during a policy review, BOE
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counsel opined that no legal authority supported the grace
period, so BOE ended it, until the Legislature enacted AB 1638
(Assembly Committee on Revenue and Taxation, 1999). That bill
allows BOE to establish a uniform policy to accept payments as
timely when the payment or document's envelope or delivery
document's stamped cancellation mark shows a date after the
statutory due date, which uniform BOE policy implements to allow
acceptance of payments postmarked one day after the due date.
However, because this authority applied only to payments made by
mail or commercial delivery service, late electronic payments
are not eligible for the one day grace period, which can create
hardships due to mandatory electronic payment requirements
imposed by state law on taxpayers with average monthly sale and
use tax liability of $10,000 or more (or special tax liability
of $20,000 or more). AB 2201 would reenact SB 1028's extension
of the grace period to electronic payments made to BOE, similar
to practices used by the Franchise Tax Board and Employment
Development Department.
3. No sunset . While SB 1028 contained a five-year sunset, AB
2201 does not contain one. BOE states that it granted 122
interest relief claims in the past three years, ranging from
$14.59 to $17,620.85. The Committee may wish to consider
whether AB 2201 should contain a similar sunset, or whether this
authority is sufficiently successful to merit its exclusion.
Assembly Actions
Assembly Revenue and Taxation 9-0
Assembly Appropriations 16-0
Assembly Floor 76-0
Support and
Opposition (6/2/16)
Support : BOE Member Fiona Ma, State Board of Equalization,
California Chamber of Commerce, California Taxpayers
Association.
Opposition : None received.
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