BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       AB 2201|
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                                   THIRD READING 


          Bill No:  AB 2201
          Author:   Brough (R), et al. 
          Introduced:2/18/16  
          Vote:     21 

           SENATE GOVERNANCE & FIN. COMMITTEE:  7-0, 6/8/16
           AYES:  Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach,  
            Pavley

          SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  76-0, 4/28/16 (Consent) - See last page for  
            vote 

           SUBJECT:   State Board of Equalization:  administration:   
                     interest


          SOURCE:    Board of Equalization


          DIGEST:  This bill reenacts the Board of Equalizations authority  
          to calculate interest on a daily, not monthly, basis for tax and  
          fee payments made one business day late under specified  
          circumstances.


          ANALYSIS:  


          Existing law:


          1)Creates the five-member Board of Equalization (BOE), composed  
            of four members elected by district and the State Controller,  








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            to equalize rates and assessment practices among counties.


          2)Charges BOE with administering the Sales and Use Tax,  
            locally-imposed transactions and use taxes, several excise  
            taxes, and more than 30 other fee programs.  


          3)Imposes penalties generally equal to 10 percent of the tax  
            due, plus monthly, simple interest calculated beginning on the  
            due date and ending on the date it was paid, when taxpayers  
            pay taxes or fees after the due date.


          4)Requires, generally, BOE to calculate 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.


          5)Allows BOE to relieve the taxpayer of penalties 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.


          6)Restricts BOE from waiving interest only in cases where the  
            late payment was due to an error or unreasonable delay caused  
            by BOE employees.


          This bill:


          1)Allows BOE to compute interest at the modified adjusted daily  
            rate for payments made one day after the due date, but only  
            when meeting as a public body, and taking into account all  
            facts and circumstances, determine that it is inequitable to  
            compute interest on a monthly basis.  BOE must also 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.








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          2)States that its change to interest calculation does not apply  
            to payments made pursuant to deficiency determinations,  
            determinations where no return is filed, or jeopardy  
            determinations.


          3)Defines several terms, and sets forth a method to calculate  
            daily interest.  


          4)Applies its change to 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.


          Background


          Until recently, the Legislature allowed BOE to instead charge  
          interest at the modified adjusted daily rate when (SB 1028,  
          Correa, Chapter 316, Statues of 2010):


           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.








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          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.  


          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 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, Chapter 929, Statutes of 1999).  AB 1638  
          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).  This bill reenacts 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.  


          While SB 1028 contained a five-year sunset, this bill does not  
          contain one.  BOE states that it granted 122 interest relief  
          claims in the past three years, ranging from $14.59 to  








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          $17,620.85.


          FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   No


          SUPPORT:   (Verified6/28/16)


          Board of Equalization (source)
          Board of Equalization Member Fiona Ma
          California Chamber of Commerce
          California Taxpayers Association 




          OPPOSITION:   (Verified6/28/16)


          None received


          ARGUMENTS IN SUPPORT:     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."   




           ASSEMBLY FLOOR:  76-0, 4/28/16
           AYES:  Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,  
            Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,  
            Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper,  








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            Dababneh, Dahle, Dodd, Eggman, Frazier, Beth Gaines,  
            Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson,  
            Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger  
            Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey,  
            Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty,  
            Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell,  
            Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Rendon
           NO VOTE RECORDED:  Chávez, Daly, Mathis, Olsen


          Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
          6/29/16 15:46:01


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