BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 1476 |Hearing |4/20/16 |
| | |Date: | |
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|Author: |Committee on Governance and |Tax Levy: |No |
| |Finance | | |
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|Version: |4/14/16 |Fiscal: |No |
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|Consultant|Bouaziz |
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Income taxation: voluntary contributions
Establishes general provisions for voluntary contribution funds.
Background
Existing state law allows taxpayers to contribute money to
voluntary contribution funds (VCFs), by checking a box on their
state income tax returns. California law requires contributions
made through so-called "check-offs" to be made from taxpayers'
own resources and not from their tax liability, as is possible
on federal tax returns. Check-off amounts may be claimed as
charitable contributions on taxpayers' tax returns in the
subsequent year.
Each VCF is individually added to the tax return by legislation.
With a few exceptions, VCFs remain on the return until they are
repealed by a sunset date or fail to generate a minimum
contribution amount. In general, the minimum contribution
amount is $250,000, beginning in the fund's second year, and is
adjusted yearly for inflation thereafter. The following
check-offs do not have a minimum contribution requirement:
California Firefighters' Memorial Foundation Fund,
California Peace Officer Memorial Foundation Fund, and
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California Seniors Special Fund.
When a taxpayer contributes to VCFs, the Franchise Tax Board
(FTB) deposits the total of all contributions, less an
administrative fee, into the fund created as part of the VCF's
legislative authorization. For some VCFs, such as the Protect
Our Coast and Ocean Fund, taxpayers' contributions are allocated
to a state agency for use in a state administered grant program.
Other VCFs' authorizing statutes direct administrative agencies
to allocate donations to a private organization. For example,
the Office of Emergency Services passes VCF funds to the
American Red Cross. Other funds require the State Controller to
send the funds directly to private organizations without passing
through an administrative agency, such as the California Fire
Foundation. The Controller and administrative agencies may
deduct administrations fees from the amount of donations each
VCF receives.
There are currently 19 check-offs listed on the tax return form.
The tax check-off program typically collects $4-5 million in
annual contributions for all VCFs.
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Proposed Law
Senate Bill 1476 establishes the following general provisions
for all tax check-offs:
Sets a minimum contribution amount of $250,000 beginning
the second calendar year after the first appearance of the
fund on the income tax return, and eliminates the inflation
adjustment in subsequent years.
Lengthens the current standard five year sunset to seven
years.
Requires the administering agency to post online the
process for awarding money, the amount of money spent on
administration, and an itemization of how program funds
were awarded by the agency, including, but not limited to,
information regarding recipients of funds,
Provides that funds shall be continuously appropriated
to the administering agency to be spent as prescribed in
the bill that enacts the voluntary contribution.
Includes the words "voluntary tax contribution" in the
name of the fund,
SB 1476 applies to all voluntary contribution funds established
or extended after January 1, 2017.
State Revenue Impact
FTB estimates that the bill will not impact state revenue.
Comments
1. Purpose of the bill . On December 9, 2015 this Committee
held an oversight hearing titled "California's Tax Check-off
Program: Room for Improvement?" The hearing reviewed the
current status of California's tax check-off funds and found a
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framework was needed to improve our current tax check-off
system. Specifically, the Committee found that donated funds
could take years to reach the intended recipient, or worse yet
the money ends up in state coffers. The Legislature created
California's tax check-off system in 1982 with a noble
intention: to make it easier for Californians to donate to
charitable causes. To date, tax check-offs have raised over
$102 million for various charitable causes, including social
services, public health, and environmental protection. SB 1476
seeks to streamline the tax check-off process to ensure all
funds reach their intended recipient as quickly as possible, and
address administrative burdens tax check-off recipients have
faced.
2. Tax check-off program. SB 1476 results from extensive
research and an oversight hearing which identified best
practices and reforms needed to ensure that taxpayers' voluntary
contributions are being put toward charitable purposes in a
transparent and timely fashion.
The current tax check-off process starts with the Legislature
enacting legislation. Next, a taxpayer contributes to an
established tax check-off on the income tax form. The donation
is collected by FTB and distributed to the State Controller by
June 15th each year. Contributions made after June are not
distributed to the State Controller's Office until the following
year. The State Controller then distributes the funds according
to the enacting statute, which generally requires an
appropriation by the Legislature. Next, the administering agency
generally must submit a budget change proposal (BCP) to the
Department of Finance. Once the Department of Finance approves
the BCP, the appropriation is placed into a bill to be approved
by the Legislature. After the Governor signs that bill, only
then can the Controller transfer the donation to the
administering agency. This process can take years.
When a tax check-off is repealed, or fails to meet the minimum
contribution limit, the check-off fund is removed from the
income tax form. After four years of inactivity the tax
check-off fund is abolished, and unused funds revert to the
General Fund at the direction of the Department of Finance.
Before the Department of Finance abolishes a tax check-off fund,
the Department sends a letter to the Joint Legislative Budget
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Committee informing the Committee of all funds slated to be
abolished. At that time, the Joint Legislative Budget Committee
has the opportunity to object to the check-off fund's
abolishment. The letter from the Department of Finance does not
specify the type of fund being abolished; the letter only lists
names of funds. Thus, it is unclear from the face of the letter
if an abolished fund is a privately-funded taxpayer check-off
fund or a government fund.
SB 1476 will ensure timely use of tax check-off funds by
eliminating the current requirement of "appropriation by the
Legislature" of funds. Elimination of requiring an appropriation
by the Legislature for each tax check-off will result in funds
arriving to the administering agency at least a year earlier
than under the current process. The bill also protects tax
check-off funds from reverting to the General Fund by requiring
tax check-off funds to include "voluntary contribution fund" in
their names so that the Legislature, Department of Finance, and
the Joint Legislative Budget Committee are aware when a tax
check-off fund is slated for abolishment and reversion to the
General Fund. Lastly, the bill includes reporting requirements
by the administering agency. This serves as a safeguard against
eliminating the appropriation by the Legislature requirement.
Instead of the intended use of the funds only being available to
the Department of Finance in a BCP, the use of the funds will be
online available to everyone.
3. Administrative burdens . The Legislature must enact and
extend five year sunsets for all tax check-offs. Additionally,
most tax check-offs must meet the minimum contribution amount of
$250,000 beginning the second calendar year after the first
appearance of the fund on the personal income tax return, and
indexed yearly for inflation thereafter. It can be burdensome
for non-profits to go through the legislative process every five
years. Also, long standing tax check-offs have to meet high
minimum contribution amounts because of the yearly inflation
adjustment.
SB 1476 keeps the minimum contribution amount at $250,000,
beginning the second calendar year the fund is on the personal
income tax return, and establishes a seven year sunset for all
voluntary contribution funds to ease administrative burdens on
long standing tax check-offs.
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4. Not all the same . While SB 1476 does establish general
provisions for all tax check-offs, currently there are a small
number of tax check-offs that either do not have a sunset or are
not subject to a minimum contribution amount. This bill does
not seek to impose all provisions on all tax check-offs, but
instead serve as a framework of best practices for tax
check-offs. Current and future tax check-offs that have unique
circumstances may continue to craft legislation exempting them
from some of the general provisions in SB 1476.
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Support and
Opposition (4/14/16)
Support : Breast Cancer Fund; University of California.
Opposition : Unknown.
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