BILL ANALYSIS
AB 484
Page 1
Date of Hearing: April 21, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 484 (Eng) - As Amended: April 2, 2009
(As Proposed to be Amended)
SUBJECT : Franchise Tax Board: professional or occupational
licenses.
SUMMARY : Permits the Franchise Tax Board (FTB) to suspend
state occupational and professional licenses because of unpaid
tax liabilities. Specifically, this bill :
1)Requires all state licensing entities issuing professional or
occupational license, certificates, registrations, or permits,
to provide the name, and social security number, or federal
taxpayer identification number of licensees to the FTB.
2)Requires the FTB, if a licensee fails to pay taxes for which a
notice of state tax lien has been recorded, to mail a
preliminary notice of suspension to the licensee at least 60
days before the specified suspension date. This notice must
advise the licensee of the opportunity to request deferral or
cancellation of a suspension.
3)Provides that a licensee who fails to satisfy the unpaid taxes
by a specified date will automatically have his or her license
suspended, unless the licensee has paid all taxes paid or
entered into an installment payment plan.
4)Requires the FTB to provide a notice of suspension to the
applicable state governmental licensing entity and to mail a
notice of suspension to the licensee.
5)Allows a suspended licensee whose suspension results from
unpaid tax liabilities to act only in the capacity of a
non-supervising bona fide employee.
6)Provides that a licensee's suspension be canceled upon
compliance with tax obligations and requires the FTB to
provide a notice of cancellation to the state governmental
licensing entity and to mail a notice of cancellation to the
licensee within 10 days, stating that the unpaid taxes have
been paid or that an installment payment agreement has been
arranged to satisfy the unpaid taxes.
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7)Provides that if a licensee whose suspension was canceled
fails to comply with the terms of an installation payment
agreement, that his or her license shall be suspended 30 days
after the termination of such agreement. The FTB shall
provide a notice of suspension to the applicable state
governmental licensing entity and mail a notice of suspension
to the licensee.
8)Authorizes a state governmental licensing entity, as
specified, to impose a fee on a licensee with a suspended
license in an amount necessary to cover its administrative
costs.
9)Permits the FTB to defer or cancel any license suspension
based on a demonstration of substantial financial hardship by
the licensee and an agreement to an acceptable payment
arrangement.
10)Requires the affected licensee to request a financial
hardship hearing within 30 days of the preliminary suspension
notice and requires that the FTB provide for a hearing within
30 days of receipt of the request.
11)Requires that if the licensee's petition to defer a license
suspension is denied at a financial hardship hearing that the
FTB shall suspend a license 30 days after the ruling, provide
a notice of suspension to the applicable state governmental
licensing entity, and mail a notice of suspension to the
licensee.
12)Defines "financial hardship" as determined by the FTB, as a
licensee who is financially unable to pay any part of a tax
liability and does not qualify for an installation payment
agreement. In order to establish financial hardship, the
licensee shall submit any information to the FTB for the
purpose of making that determination.
13)Exempts DMV from the definition of that "state governmental
licensing entity".
14)States that implementation of this section is contingent on
the appropriation of funds in the Budget Act.
15)Prohibits the FTB from suspending any license if a licensee
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can substantiate that the taxes reflected in the notice of
state tax lien have been paid.
16)Provides that the hearing procedures outlined in the section
are not subject to the administrative adjudication provisions
of the Administrative Procedure Act.
17)Prohibits any state employee, officer, entity, or agent from
disclosing or using any information obtained from the FTB for
anything other than the purposes of this bill.
EXISTING LAW :
1)Permits the registrar of the Contractor's State License Board
to refuse to issue, reinstate, reactivate, renew, or suspend a
contractor's license due to unpaid financial liabilities,
including taxes.
2)Permits the disclosure of certain information on all licensees
from the licensing agency to the FTB.
3)Authorizes many of these boards to impose fees on its
licensees to cover its costs in administrating the respective
provisions, and in some cases, these funds are deposited into
continuously appropriated funds.
FISCAL EFFECT : Unknown
COMMENTS :
Previous Committee Action . This bill was heard on April 14,
2009, failed, and is back for reconsideration.
The proposed amendments . Increase the preliminary suspension
notification from 60 to 150 days, remove FTB's authority to
provide suspension notices to licensed contractors, and exclude
the CSLB from the definition of state governmental licensing
entity. This allows the CSLB to be the only authority to
suspend contractor's licenses for unpaid tax liabilities. These
provisions would most likely remove opposition from the
contractors, but would not affect the remainder of opponents.
Purpose of the bill : According to the author's office, "The
intent of this measure is to motivate delinquent taxpayers to
keep their licenses and comply with their state tax obligation -
not to deny the ability of the licensee to earn income. When a
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licensee fails to pay their taxes, he or she gains an unfair
competitive advantage over other licensees and businesses that
do. The possibility of losing or the actual loss of the
privilege to hold an occupational or professional license will
serve as a strong incentive to be compliant and law-abiding."
Background . The FTB is responsible for administering two of
California's major tax programs, the Personal Income Tax and the
Corporation Tax. According to the FTB, the difference between
the total amount of taxes California taxpayers owe based on
their income and the amount that they pay is approximately $6.5
billion, and underreported business income makes up nearly 70 %
of that amount.
While the FTB has an automated tax collection system to search
records and locate delinquent assets, this system is largely
ineffective against taxpayers who operate on a cash basis
because current information on their income is unavailable. The
FTB states that there are approximately 25,000 delinquent
taxpayers with a state-issued occupational or professional
license; this figure excludes taxpayers that have filed for
bankruptcy or those who agreed to a payment installation plan
and are working to pay off their tax liability.
Currently, there is a due process procedure in place for the FTB
to notify individuals of his or her tax liability and the
opportunity for the individual to respond or dispute the amount,
depending on whether they filed a tax return. If the taxpayer
has not filed a tax return and neglected to report income, the
FTB sends a Filing Enforcement Letter to the individual
specifying his or her estimated tax liability. If the taxpayer
has filed a tax return and is audited, the FTB provides the
individual with a Notice of a Proposed Assessment and allows him
or her 60 days to protest the amount or respond.
If the taxpayer continues to resist payment, still fails to pay
his or her tax liability, the FTB may send the case to
collections and send the taxpayer up to three notices of action
or corresponding escalation: statement of taxes past due, final
notice before levy, and an order to withhold, before filing a
tax lien against an individual's property or levying and seizing
property.
Gallo v. United States District Count upheld that the suspension
of a professional or occupational license for failure to pay
taxes is a legislative act, for which due process is satisfied
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by the legislative notices and hearing procedures.
Support . According to the sponsor, "Current state law lacks an
effective method to collect from a tax debtor who is an
individual licensed to engage in a profession or occupation
operating on a cash basis. That is because cash businesses lack
a paper trail that can be used to verify income information and
to identify assets to issue an Order To Withhold. In addition,
cash basis taxpayers are not paid salaries that can be subject
to an Earnings Withholding Order for Taxes, which is the state's
most effective collection method for income tax debts. AB 484
would increase the state's effectiveness for collecting tax
debts from licensees operating on a cash basis because licensees
will be motivated to pay their tax debts to protect their
license. Enactment of this bill would increase state income tax
revenue by $14 million in the first year, $25 million in the
second year, and $13 million annually thereafter."
The sponsor emphasizes that delinquent taxpayers whose cases
proceed to the collections phase have already had the
opportunity to contest a tax liability at a hearing, but has
either lost the hearing or failed to respond to the FTB. The
sponsor notes that this bill, in addition to the due process
procedures already in place, would allow for financial hardship
hearings for delinquent taxpayers who are unable to pay their
taxes. The FTB would send a preliminary suspension notice 60
days before the intended action. The sponsor states that the
intent of the bill is not to take away an individual's
livelihood, but to encourage him or her to file and pay their
taxes.
Opposition : The California Taxpayers' Association opposes this
bill, stating, "This measure is broad and heavy-handed, applying
to professional licensees, certificates, registrations and
permits of those ranging from physicians to hair stylists to
teachers?The legislation acknowledges the impact on taxpayers'
ability to pay by providing a financial hardship hearing.
However, there is no financial hardship where the taxpayer has
the ability to pay any amount toward the tax debt. Do taxpayers
have the ability to pay even when they must sacrifice the
vehicle that takes them to work? Taxpayers would be able to pay
even more toward the tax debt if their ability to earn a living
remained intact? For the foregoing reasons, we respectfully
oppose this legislation."
The Associated General Contractors writes, "A contractor must
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maintain their license throughout all phases of a job in order
to be paid. Some projects take weeks and months and others take
years to complete. As construction jobs progress, payments to
the contractor are passed onto subcontractors performing
specific portions of the project. Under the provisions of AB
484, the qualifier for the construction company could have their
license suspended due to a FTB tax problem which could place the
entire company and existing projects in jeopardy."
Prior Legislation . AB 1925 (Eng) of 2008 would permit the FTB
to suspend state occupational and professional licenses because
of unpaid tax liabilities. This bill failed in the Senate
Revenue and Taxation Committee.
Double referred . This bill is double-referred to the Assembly
Revenue and Taxation Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Franchise Tax Board (sponsor)
Opposition
American Institute of Architects, California Council (AIACC)
Associated General Contractors of California
California Chapter of the American Fence Contractors
California Fence Contractors' Association
California Land Surveyors Association
California Landscape Contractors Association
California Taxpayers' Association
Engineering & Utility Contractors Association
Engineering Contractors' Association
Flasher/Barricade Association
Golden State Builders Exchanges
Marin Builders' Association
Southern California Contractors Association
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301