BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 526| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- VETO Bill No: SB 526 Author: Fuller (R) and Runner (R) Amended: 1/13/16 Vote: 21 SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 4/29/15 AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Pavley NO VOTE RECORDED: Moorlach SENATE APPROPRIATIONS COMMITTEE: 7-0, 5/28/15 AYES: Lara, Bates, Beall, Hill, Leyva, Mendoza, Nielsen SENATE FLOOR: 39-0, 6/2/15 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Runner, Stone, Vidak, Wieckowski, Wolk NO VOTE RECORDED: Jackson SENATE FLOOR: 36-0, 8/18/16 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hernandez, Hertzberg, Hill, Huff, Jackson, Lara, Leno, Leyva, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Vidak, Wieckowski, Wolk NO VOTE RECORDED: Hueso, Liu, Stone ASSEMBLY FLOOR: 78-0, 8/11/16 (Consent) - See last page for vote SUBJECT: Personal income taxes: joint returns: court orders: relief from liability SB 526 Page 2 SOURCE: Board of Equalization Member George Runner DIGEST: This bill allows a court as part of a proceeding for the dissolution of a marriage to revise the person responsible for tax on income earned by his or her spouse or under their exclusive management and control under specified circumstances. ANALYSIS: Existing law: 1)Requires spouses and registered domestic partners filing as "married filing jointly" to be individually responsible for the return's accuracy and the tax liability, regardless of the amount of income each spouse generates, often called "joint and several" liability. 2)Empowers courts to revise liabilities in a proceeding for the dissolution of the marriage under specified circumstances, so long as the court order: a) Separately states the income tax liabilities for the taxable years for which revision of tax liability is granted. b) Does not revise a tax liability that has been fully paid prior to the effective date of the order; however, any unpaid amount may be revised. c) Becomes effective when Franchise Tax Board (FTB) is served with or acknowledges receipt of the order. SB 526 Page 3 3)Provides that court orders revising liabilities are only effective if the gross income reportable on the return exceeds $150,000, or the amount of liability exceeds $7,500, unless a tax revision certificate is obtained from FTB and filed with the court. 4)Does not allow a court to relieve a spouse of tax liability on income that he or she earns or has exclusive management and control over. This bill: 1)Allows a court to revise the individual responsible for all or part of the liability as part of a proceeding for dissolution of the marriage so long as the overall liability is not reduced. 2)Increases the threshold for the order to be effective from $150,000 in gross income to $200,000, or $7,500 in liability to $10,000, and indexes both amounts for changes in inflation as measured by the California Consumer Price Index. 3)Provides that any court order revising the individual responsible for tax liability on income earned by or subject to the exclusive management and control of that spouse shall not be effective if: a) The individuals filing the joint return transfer assets or liabilities between themselves for the principal purpose of avoidance of the payment of tax or as part of a fraudulent scheme by those individuals, or b) The liability is uncollectible, and within three years of the date the court order is effective, the spouse obligated to pay that liability under the court order files SB 526 Page 4 for bankruptcy and discharges the liability in bankruptcy, or becomes a nonresident. 4)Applies to court orders served or acknowledged on or after the bill's effective date. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Assembly Appropriations Committee, 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. SUPPORT: (Verified8/12/16) Board of Equalization Member George Runner (source) Board of Equalization Member Fiona Ma OPPOSITION: (Verified8/12/16) None received ARGUMENTS IN SUPPORT: According to the author, "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 SB 526 Page 5 liability to both spouses despite an agreement in the divorce proceedings to allocate payment of the tax liability differently." GOVERNOR'S VETO MESSAGE: I am returning Senate Bill 526 without my signature. This bill allows a court, in a proceeding for the dissolution of marriage, to assign complete income tax liability to one party. I am concerned this bill goes too far by changing the long-standing policy of joint and several liability, which holds that two married persons are responsible for the full tax in a given year and that each spouse is responsible for the tax liability on whatever income he or she individually earns. Under existing law, an unknowing spouse can already be granted relief from tax liability if the other spouse failed to report income, reported income improperly, or claimed improper deductions or credit. I think that is sufficient. ASSEMBLY FLOOR: 78-0, 8/11/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Roger Hernández, Low SB 526 Page 6 Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119 10/21/16 15:06:42 **** END ****