BILL ANALYSIS
AB 347
Page 1
ASSEMBLY THIRD READING
AB 347 (Block)
As Amended May 4, 2009
Majority vote
REVENUE & TAXATION 6-2 APPROPRIATIONS 11-4
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|Ayes:|Charles Calderon, Beall, |Ayes:|De Leon, Ammiano, Charles |
| |Coto, Ma, Portantino, | |Calderon, Davis, Fuentes, |
| |Fong | |Hall, John A. Perez, |
| | | |Price, Skinner, Solorio, |
| | | |Torlakson |
| | | | |
|-----+--------------------------+-----+---------------------------|
|Nays:|DeVore, Nielsen |Nays:|Nielsen, Duvall, Harkey, |
| | | |Audra Strickland |
| | | | |
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SUMMARY : Authorizes the Board of Equalization (BOE), under
limited circumstances, to impose a specified penalty for a
person's failure or refusal to provide relevant and reasonable
information requested during an examination or audit.
Specifically, this bill :
1)Provides that if, during an examination or audit, a person
fails or refuses to furnish any relevant and reasonable
information requested in writing by BOE, then BOE may add a
penalty of 25% of the amount of any deficiency of tax
determined by BOE concerning that portion of the determination
for which the information was required.
2)Provides that BOE's written request for information shall
specify a date for production that is at least 30 days from
the date of the request.
3)Provides an exception to the penalty in cases where the
failure to furnish information is due to reasonable cause and
not willful neglect.
4)Adds electronic data to the list of records BOE is authorized
to examine.
EXISTING LAW :
AB 347
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1)Permits BOE, or any person it authorizes in writing, to
examine the books, papers, records, and equipment of any
person selling tangible personal property or any person liable
for the use tax. In addition, BOE, or any person it
authorizes in writing, may investigate the character of a
business to verify the accuracy of any return or to determine
tax amounts owed.
2)Provides that if any taxpayer fails or refuses to furnish any
information requested in writing by the Franchise Tax Board
(FTB) then, unless the failure is due to reasonable cause and
not willful neglect, the FTB may add a penalty of 25% of the
amount of tax determined.
FISCAL EFFECT : Unknown
COMMENTS : The author states, "This bill is intended to assist
in accelerating the sales and use tax revenue stream generated
through the Board of Equalization's audit program by encouraging
taxpayers to provide their information, documents, and books and
records in a timely manner. According to the Board, the trend
or practice of not providing books and records is prevalent
statewide. Some Board audits have been unresolved for up to
seven years; some with hundreds of unnecessary audit hours spent
in attempting to secure the requested books and records." The
author goes on to state, "The 25% penalty is intended to combat
this ongoing problem by creating a financial disincentive for
taxpayers who intentionally withhold books and records in the
course of an audit. The Board anticipates that the threat of
the penalty will encourage taxpayers to comply with the Board's
request for information and expedite the audit process."
Finally, the author notes, "By reducing the audit time spent on
any given audit, the Board will be better able to complete its
audits, allocate its audit resources to generate additional
revenue, and reduce expenses."
BOE, which is sponsoring this bill, notes:
1)"Under existing law, Revenue and Taxation Code Section 7054
authorizes the Board to examine the books, papers, records,
and equipment of any person selling tangible personal property
and any person liable for the use tax. However, existing law
does not provide for a penalty or other monetary disincentive
AB 347
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that would apply to taxpayers who fail or refuse to provide
the books and records necessary to conduct an examination or
an audit engagement (the Government Code authorizes the Board
to issue subpoenas to obtain records, however, enforcement of
the subpoena can be a lengthy process and requires the
involvement of the Attorney General's office and the Superior
Court to compel compliance).
2)"This bill is sponsored by the Board in order to assist in
accelerating the sales and use tax revenue stream generated
through the Board's audit program by encouraging taxpayers to
provide their information, documents, and books and records in
a timely manner. In recent years, the Board has noticed a
definite trend by taxpayers and/or their representatives to
resort to delaying tactics and other strategies in providing
requested information, documentation and books and records
requested for an examination or audit engagement. This
strategy not only delays the entire audit process, it also
impacts the Board's audit program and reduces revenue in any
given year to the State's General Fund."
3)Opponents state, "Although a 25 percent penalty is available
to income tax auditors, it is inappropriate in the sales and
use tax context without significant modification. The key
difference between the [FTB] and [BOE] with respect to audits
is the [BOE's] use of electronic records and computer audit
specialists. [FTB] has only one computer audit specialist for
the agency. [BOE] staff is proposing to add 17 new computer
audit specialists. Many disputes have arisen as to which
level of data dumping and access to taxpayers' electronic
records is reasonable. Some computer audit specialists have
requested unfettered access to taxpayer records, even when the
taxpayer's own tax department has restricted access based on
security protocol. Similar disputes are not present at the
[FTB], as it does not use electronic records in its income tax
audits to the same extent as [BOE] uses them in sales tax
audits."
4)Committee staff notes that FTB already has the authority to
add a penalty. As noted above, current law provides that if
any taxpayer fails or refuses to provide any information that
FTB requests in writing then, unless the failure is due to
reasonable cause and not willful neglect, FTB may add a
penalty of 25%.
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Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098 FN:
0000857