BILL ANALYSIS Ó
AB 2692
Page 1
Date of Hearing: May 11, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2692 (Brough) - As Amended April 26, 2016
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Urgency: No State Mandated Local Program: YesReimbursable:
No
SUMMARY:
This bill expands voluntary disclosure programs (VDP)
administered by the Board of Equalization (BOE) and the
Franchise Tax Board (FTB) to include qualified small businesses
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in California. Specifically, this bill:
1)Expands the type of retailer eligible for the BOE VDP include
retailers located in California that have gross receipts of
less than $1 million in the previous four quarters. These
retailers must be determined by the board to have not reported
or paid an amount because of reasonable cause and not because
of fraud or negligence.
2)Expands the types of taxpayers eligible for the FTB VDP as
follows:
a) Includes "qualified small business," which is defined as
any entity with a total income of less than $1 million for
the previous tax year that is located in or outside of
California, as a taxpayer that may participate in the FTB
VDP.
b) Allows "eligible trusts" to have beneficiaries located
in California instead of just nonresident beneficiaries.
c) Includes limited partnership as the definition of an
"eligible entity" that previously included corporations and
limited liability companies.
FISCAL EFFECT:
1)One-time administrative costs to BOE and FTB of approximately
$600,000 to update systems, develop procedures, and hire staff
to respond to penalty abatement requests.
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2)An unknown but significant impact on state revenues and
penalty fee collections.
COMMENTS:
1)Purpose. According to the author, this bill would give
taxpayers an opportunity to receive a temporary waiver
relating to their delinquent taxes, fees, and penalties.
Historically, California has collected over a billion dollars
in revenue as a result of multiple tax amnesty programs. This
bill is more limited in scope than amnesty programs and
instead focuses on waiving penalties for small businesses that
meet certain conditions.
2)Background on BOE's Voluntary Disclosure Program (BOE VDP).
Under the BOE VDP, the BOE encourages businesses to
voluntarily register and pay tax obligations. It provides
incentives for unregistered out-of-state companies to satisfy
their use tax obligations.
3)Background on FTB's Voluntary Disclosure Program (FTB VDP).
The VDP is a statutory program that allows qualified entities,
qualified shareholders, or beneficiaries of a trust that may
have incurred an unpaid California tax liability or an
unfulfilled filing requirement to disclose their liability
voluntarily. The FTB may waive penalties associated with the
return filings if the taxpayer meets specified requirements.
In its current form, the VDP is not available to small
retailers or small businesses located in California.
Currently, a qualified entity must meet the following
conditions:
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a) Is a corporation, limited liability company (not
classified as a corporation), or trust;
b) Never filed a return with FTB;
c) The trust has never performed its administration duties
in California;
d) The trust has had no resident beneficiaries (other than
a beneficiary whose interest in that trust is contingent);
e) Never been the subject of an inquiry by the FTB with
respect to liability for any taxes, and;
f) Voluntarily come forward, prior to any unilateral
contact with FTB, and makes both an application for a
voluntary disclosure agreement and a full and accurate
statement of its activities in California for six months
immediately preceding taxable or income years.
1)Tax amnesty programs. Tax amnesty programs allow taxpayers to
voluntarily remit unpaid or underpaid taxes without incurring
the full liability of penalties that they would otherwise have
to pay. Under ordinary collection processes, these taxpayers
not only owe the original tax, but also interest on the unpaid
amount and various penalties and fees, and may be subject to
criminal prosecution. The BOE generally charges a 10% penalty
and the FTB generally charges a 5% penalty for failure to file
a return or pay the tax by its due date, in addition to
mandated interest rates and other penalties for negligence,
fraud or other circumstances.
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Early tax amnesty programs were often implemented with other
enforcement strategies and compliance initiatives, with the
goal of improving overall tax administration. In 1984-1985,
California offered a three-month tax amnesty program to
individual taxpayers, with legislative intent expressly
stating that it would be a one-time opportunity. The amnesty
program was also coupled with enactment of enhanced
enforcement tools intended to increase the FTB's ability to
collect unreported or underreported tax.
2)Previous legislation. AB 1777 (Quirk-Silva), 2014, would have
created a tax abatement program for small businesses. The bill
was held in Assembly Appropriations.
Analysis Prepared by:Luke Reidenbach / APPR. / (916)
319-2081