BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
SB 640 (Beall) - Sales and use taxes: claim for refund:
customer refunds
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|Version: April 21, 2015 |Policy Vote: GOV. & F. 7 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: May 4, 2015 |Consultant: Robert Ingenito |
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This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 640 would authorize a retailer to make an
irrevocable election to assign the right to file a claim for
refund of excess sales tax reimbursement in the amount of
$50,000 or greater to a single customer so that the Board of
Equalization (BOE) may directly refund the amount to the
customer.
Fiscal Impact:
BOE would incur costs in the hundreds of thousands of
dollars annually to implement the provisions of the bill
(See Staff Comments).
As noted above, under the bill, customers would be able
to file a claim for refund; consequently, the number of
claims filed could increase, resulting in loss of revenue
to the State and localities. However, the resulting
decrease in revenue represents funds initially
overcollected relative to current sales and use tax (SUT)
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law.
Background: Under current law, BOE may refund excess use tax
directly to a purchaser; however, the same is not true with
respect to sales tax. Instead, current law allows BOE to issue a
refund for excess sales tax reimbursement only to the retailer
that collected and reported the tax. Thus, when a customer
overpays sales tax to a retailer, the customer must obtain a
refund directly from the retailer. The customer cannot obtain a
refund directly from BOE.
Proposed Law: This bill would authorize BOE to refund excess
sales tax reimbursement to the customer who was overcharged upon
the retailer's irrevocable assignment of the right to file a
claim for refund and to receive the refund. BOE's direct refund
to a customer would only be allowed for refunds of $50,000 or
more to a single customer. The retailer and the customer would
both need to sign the irrevocable assignment and submit it to
the BOE with the customer's claim for refund.
In addition, the bill would (1) require that the retailer retain
records to verify the refund available for inspection by BOE,
and (2) specify that no refund will be payable until BOE
verifies by audit or other means that the amounts are properly
due for refund.
Related Legislation: In 2013, this Committee considered AB 1412
(Bocanegra and Gatto, as amended July 10th). The version of that
bill before this Committee would have (1) authorized a retailer
to make an irrevocable election to assign the right to receive a
refund payment of excess tax reimbursement in the amount of
$50,000 or more to a single customer, but (2) prohibited
contingency fees that are charged or paid in connection with the
election, assignment, or claim for refund relating to an
irrevocable election to assign the right to receive a specified
refund. That version of the bill was ascertained by BOE program
staff to have minor costs; consequently, the bill was moved
directly to the Senate Floor pursuant to Senate Rule 28.8.
Before it came to a full Senate vote, however, the bill's
authors gutted and amended it with provisions related to the
personal income tax.
In 2014, this Committee considered AB 43 (Bocanegra). This bill
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was originally identical to AB 1412 minus the language
prohibiting contingency fees. However, while the bill was in
this Committee, it was amended on August 5, 2014, to permit a
retailer to assign the right to file a claim for excess tax
reimbursement in the amount of $50,000 or more to the customer,
and not simply the right to receive refund payment. This
amendment would have increased BOE's workload and related
administrative costs considerably (as detailed below) and the
bill was placed on the Committee's suspense file and ultimately
held under submission.
Staff Comments: SB 640 is similar to both AB 1412 and AB 43. It
does not include the contingency prohibition language, but does
once more permit the customer to file the claim for refund. To
implement the current version of the bill, BOE's processes and
related workload would be as follows:
BOE audit staff would develop an assignment form, as
part of BOE's Claim for Refund Form BT-101.
The retailer would complete and sign the assignment
form, but the customer would file the claim for refund
(including the assignment form) with BOE.
A BOE auditor would request the necessary documentation
from the customer to determine that it paid sales tax. But
in order to verify that the tax was paid to BOE, and that
the items sold were non-taxable, staff would still contact
the retailer to obtain the necessary documentation (sales
journal pages, sales tax working papers, returns, and
possibly sales invoice information). The auditor would also
review the retailer's records to ensure that a credit for
the excess tax reimbursement was not provided by the
retailer to the customer on a subsequent transaction. Large
volumes of records may require a BOE auditor to conduct the
examination at the retailer's place of business. This could
result in delays to obtain documentation and/or schedule an
appointment to visit the retailer's place of business.
Audit staff would verify that neither the retailer nor
the customer have an outstanding liability to the BOE
against which to credit the excess amount prior to issuing
a refund. Staff would examine the books and records of the
retailer, to avoid issuing a refund while the retailer has
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outstanding liabilities.
BOE's analysis for SB 640 notes costs between $500,000 and
$600,000 resulting from the bill, and included (1) the creation
of a database to track refund activity and avoid duplicity, (2)
programming costs related to its main computer system, and (3)
four positions to handle the various increased workload
activity.
Subsequent to the release of the staff analysis, the Board
Members discussed taking a formal position on this bill (and
several others) at its meeting on April 29th, 2015. At that
meeting, Board Members appeared to direct agency staff not to
request additional resources from the Legislature to cover the
additional costs resulting from implementing SB 640 (though no
formal action was taken to this effect). The Board Members'
decision for doing so centered on a BOE-related bill from 15
years ago, AB 599 (Lowenthal, Chapter 600, Statutes of 2000). SB
599 impacted a different SUT program within BOE, but the BOE
staff analysis for that bill noted increased costs; the Board in
place at the time instead instructed agency staff to not request
resources to administer the new workload resulting from SB 599.
This workload turned out to be much larger than originally
envisioned, and required redirection of existing resources from
other activities.
Staff notes the Legislature adopts the Budget Act every year
based on workload assumptions and legislative priorities for
spending. The Appropriations Committee cannot assume that
additional workload (especially of the magnitude associated with
this bill) can be undertaken within existing resources without
displacing other activities the Legislature has explicitly or
implicitly recognized in adopting the annual Budget Act. In
addition, as most departments have experienced budget reductions
and staff furloughs in recent years, it has become more
difficult for state agencies to undertake additional
responsibilities within existing resources.
A court case that the Commission on State Mandates used in a
determination of a school district case cited the Department of
Finance State Administrative Manual definition of "cost."
"Costs are all additional expenses for which either supplemental
financing or the redirection of existing staff and/or resources
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(with or without the need for supplemental funding) is
required."
If the provisions of SB 640 were to be performed by BOE agency
staff without requesting a budget augmentation, it is unclear
what current workload would not be performed instead. Some of
this aforegone workload could have been revenue generating.
Thus, while it is not entirely clear to the Committee that four
new positions would be required to implement the provisions of
the bill, the requirements of SB 640 would nevertheless result
in costs in the hundreds of thousands of dollars annually.