BILL ANALYSIS Ó SB 526 Page 1 Date of Hearing: August 3, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair SB 526 (Fuller) - As Amended January 13, 2016 ----------------------------------------------------------------- |Policy |Revenue and Taxation |Vote:|8 - 0 | |Committee: | | | | | | | | | | | | | | ----------------------------------------------------------------- Urgency: No State Mandated Local Program: NoReimbursable: No SUMMARY: This bill modifies the Administration Franchise and Income Tax Law (AFITL) to allow a court, in a proceeding for the dissolution of marriage, to modify the amount an individual is responsible for on a tax liability. Specifically, this bill: 1)Authorizes a court to relieve a spouse of joint and several liability for the tax on income earned by, or subject to the exclusive management and control of, the spouse, in certain SB 526 Page 2 conditions. 2)Increases the amount of gross income and the amount of tax liability to which a court order can apply without a tax revision clearance certificate from the Franchise Tax Board (FTB). Specifically, the amount of gross income is increased from $150,000 to $200,000, and the amount of tax relief is increased from $7,000 to $10,000. These two thresholds will be adjusted for inflation starting on January 1, 2018. FISCAL EFFECT: The fiscal effects of this bill are unknown and impossible to calculate. While this bill does not change the amount of tax liability owed to the state, it could reduce collections by concentrating tax liability among one spouse rather than proportionally. For every $1 million granted in tax relief, an estimated $60,000 in GF revenue would be lost. COMMENTS: 1)Background. Under both federal and state law, spouses who file a joint tax return are individually responsible for the return's accuracy and for the full tax liability for that tax year. This concept, referred to as "joint and several liability," can inequitably impact one spouse in particular circumstances. Because spouses can occasionally misrepresent tax information on a joint return without the knowledge of the other spouse, federal law allows an innocent spouse to qualify for relief under specified circumstances, to which California generally conforms. SB 526 Page 3 2)Purpose. According to supporters, SB 526 will help state tax agencies honor a divorce agreement that assigns tax liability as part of the process of dividing assets and liabilities. Supporters point out that the Board of Equalization (BOE) regularly hears income tax case appeals where a spouse has requested that the BOE enforce the terms of a divorce decree and assign a tax liability to the spouse who has agreed to pay it. In these cases, the FTB assigned a tax liability to both spouses despite an agreement in the divorce proceedings to allocate payment of the tax liability differently. Analysis Prepared by:Luke Reidenbach / APPR. / (916) 319-2081