BILL ANALYSIS
AB 2038
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
AB 2038 (Eng) - As Amended: April 7, 2010
SUBJECT : Franchise Tax Board: professional or occupational
licenses.
SUMMARY : Permits a state governmental licensing entity (SGLE)
and the Franchise Tax Board (FTB) to suspend state occupational
and professional licenses due to unpaid tax liabilities until
January 1, 2016. Specifically, this bill :
1)Authorizes a SGLE to deny, revoke, or suspend a license to a
licensee who has failed to pay outstanding tax liabilities and
that licensee's name is on a certified list, as specified.
2)Allows a licensee, whose license has been suspended due to
unpaid tax liabilities, to act only in the capacity of a
non-supervising bona fide employee.
3)Requires that a license of an entity, with whom the licensee
whose license has been suspended due to tax liabilities is
affiliated with, to be suspended until the licensee satisfies
his or her tax liabilities or disassociates himself or herself
from that entity.
4)Requires all SGLEs to collect social security numbers or
taxpayer identification numbers from all applicants for the
purposes of matching names to the certified list provided by
FTB.
5)Requires each SGLE to determine whether a licensee is on the
most recent certified list provided by FTB, and authorizes the
SGLE to deny or suspend a license to a licensee on the
certified list, only if the SGLE immediately provides a
preliminary notice to a licensee whose name is on the
certified list, of the entity's intent to deny or suspend the
license, as specified.
6)Requires the SGLE to issue a temporary, non-renewable 90-day
license to a licensee who is on the most recent certified list
provided by FTB. Requires that the temporary license
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coincides with the first 90 days of that license term, and
that a license for the full or remainder of the license term
shall be issued or renewed only when the tax liabilities, or
other conditions, as specified, have been satisfied.
7)Prohibits any applicant whose license is suspended or denied
for outstanding tax liabilities from having application fees
refunded.
8)Requires a SGLE to make a final determination to deny or
suspend a license no sooner than 30 days and no later than 90
days from the mailing of the preliminary notice.
9)Requires each SGLE to develop a preliminary notice, which
shall include FTB's address and telephone number and must
emphasize the necessity of obtaining a release from FTB as a
condition for licensure. Requires the notice to inform the
applicant of the following:
a) The SGLE shall issue a temporary 90-day license if the
applicant is otherwise eligible, and that upon expiration,
a license will be denied unless the entity receives a
release from FTB; and,
b) Any license suspended for unpaid tax liabilities will
remain suspended for the remainder of a license term,
unless the SGLE receives a release from FTB, and
application and fees, if applicable.
10)Requires each SGLE to develop a form that the applicant or
licensee shall use to request a release by FTB. Requires a
copy of this form to be mailed with each preliminary notice.
11)Requires FTB to immediately send a release to the appropriate
SGLE and the applicant or licensee, if any of the following
conditions are met:
a) The applicant or licensee has entered into an
installment payment agreement, as specified;
b) The applicant or licensee has submitted a request for
release no later than 45 days after receipt of a
preliminary notice, but FTB will be unable to complete the
release review and send notice of its findings to the
applicant or licensee and the SGLE within 45 days after
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FTB's receipt of the applicant's or licensee's request for
release; or,
c) The applicant or licensee would experience financial
hardship, as determined by FTB. Requires FTB to, if a
licensee requests in writing, provide for an administrative
hearing within 30 days of receipt, to determine if a
licensee will experience financial hardship.
12)Authorizes FTB to suspend a licensee if the SGLE has not
denied or suspended the license within 90 days of mailing a
preliminary notice.
13)Requires a SGLE that has not denied or suspended a license
within 90 days of mailing a preliminary notice, to promptly
notify FTB and the licensee to state the reason why no action
was taken. Requires FTB to then mail a preliminary notice of
suspension to the licensee indicating that their license will
be suspended by a date certain, which shall be at least 60
days after the mailing of FTB's preliminary notice, unless the
licensee pays the taxes or enters into an installment payment
agreement
14)Requires FTB to mail a release form to the applicant or
licensee and the SGLE when the applicant or licensee enters
into an installment payment agreement, and requires the SGLE
to process the release within 5 business days of receipt.
15)Allows FTB to develop an automated process for notifying the
SGLE on a licensee's non-compliance with an installment
payment agreement or repetitive non-payment of tax
liabilities. Upon receipt of the notice, the SGLE shall send
a preliminary notice to the licensee stating that the license
will be suspended on a specific date (which shall be no longer
than 30 days from the date the form is mailed), unless a new
release is issued by FTB.
16)Authorizes a SGLE, as specified, to impose a fee on a
licensee with a suspended license in an amount necessary to
cover its administrative costs.
17)Requires a SGLE to respond to inquiries about an applicant or
licensee's denial or suspension of a license, or issuance of a
license, to respond only that it was enforced pursuant to this
bill. The disclosure of information obtained from FTB other
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than for these purposes is punishable as a misdemeanor.
18)Authorizes FTB and SGLEs to adopt necessary regulations to
implement this bill.
19)Requires FTB to send a notice of license suspension to the
SGLE and the licensee if the licensee does not pay his or her
tax liabilities by the date listed in the preliminary notice.
20)Requires FTB to cancel the license suspension 10 business
days after the licensee has paid their taxes or entered into
an installment payment agreement.
21)Requires FTB, if a licensee who has entered into an
installment payment agreement and is non-compliant, to suspend
the license 40 days after the date of termination of the
installment payment agreement and notify the applicable SGLE
and the licensee.
22)Requires FTB to suspend a license if a suspension deferral is
no longer operative and the licensee has unpaid tax
liabilities, and requires FTB to provide a notice of license
suspension to the SGLE and the licensee.
23)Defines "certified list" to mean a list provided by FTB in
which FTB verifies that the names contained on the list are
persons that have failed to pay taxes, including any
penalties, interest, and applicable fees, as specified, and
for whom a notice of state tax lien has been recorded.
24)Defines "license" to include a certificate, registration, or
any other authorization to engage in a profession or
occupation issued by a SGLE.
25)Defines "licensee" to mean an individual authorized by a
license, certificate, registration, or other authorization to
engage in a profession or occupation issued by a SGLE.
26)Defines SGLE to mean the entities under the Department of
Consumer Services, the office of the Attorney General, the
Department of Insurance, the State Bar of California, the
Department of Real Estate, and any other state agency, board,
or commission that issues a license, certificate, or
registration authorizing an individual to engage in a
profession or occupation. Exempts the Department of Motor
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Vehicles from the definition of SGLE.
27)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.
28)States the validity of this bill's provisions are severable.
29)Makes legislative findings and declarations.
30)Makes technical changes.
EXISTING LAW :
1)Permits the registrar of the Contractors State License Bureau
(CSLB) 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 a SGLE to FTB.
3)Authorizes many SGLEs to impose fees on their licensees to
cover administrative costs.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office,
"California loses approximately $1.4 billion annually as a
result of uncollected tax liabilities that apply to professional
and occupational licensees. AB 2038 helps increase compliance
among tax scofflaws that are licensed by the Department of
Consumer Affairs (DCA) by simply authorizing the FTB to notify
occupational and professional licensing agencies regarding a
licensee's failure to pay tax liabilities, for license
suspension purposes. These tax cheats are habitual debtors with
large delinquent amounts who have received numerous notices of
its delinquent account and still fail to provide any form of
payment.
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"Generally, FTB is successful in collecting these debts by
intrusive and expensive methods (seizure of assets) or legal
actions (Notice of Tax Lien, nominee assessments) when the
individual has real property. However, FTB has found it very
difficult to utilize these effective tools to collect delinquent
liabilities from individuals who operate on a cash basis.
"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?. Increased compliance in this area of tax law will
result in higher revenues for the state, which will prevent the
unnecessary elimination or reduction of core state education,
health and public safety programs during the current year fiscal
crisis, without proposing new tax burdens on business and
working families."
Background . FTB is responsible for administering two of
California's major tax programs, the Personal Income Tax and the
Corporation Tax. According to 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 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. 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 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, 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, FTB provides the individual with a
Notice of a Proposed Assessment and allows him or her 60 days to
protest the amount or respond.
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If the taxpayer continues to fail to pay his or her tax
liabilities, 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 Court 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
by the legislative notices and hearing procedures.
Some SGLEs have expressed concern that that the implementation
of the provisions in this bill will take more than a few months
to get online.
Support . According to the sponsor, FTB, "Current 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 for collection purposes. In addition, cash
basis [licenses do not have] salaries that can be subject to
garnishment, which is the state's most effective collection
method for income tax debts.
"AB 2038 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 licenses. Enactment of this bill would increase state
income tax revenue by $18.5 million annually each year."
According to the Service Employees International Union (SEIU)
Local 1000, "The annual income tax gap for California is
estimated to be $6.5 billion and is based in part upon estimates
of the federal gap. The Internal Revenue Service estimates
underreporting of business income by personal income by personal
income taxpayers makes up nearly 70% of the total tax gap. [The
IRS estimates] that the majority of this underreported income is
from business sectors that do business largely in cash."
Oppose . According to the California Taxpayers' Association,
"This measure is broad and heavy-handed, applying to
professional licensees, certificates, registrations and permits
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of those ranging from physicians to hair stylists to teachers.
Professional licenses provide taxpayers with the income
necessary to pay their tax debts. Suspending the taxpayers'
ability to earn a living to force payment of tax delinquencies
is counterintuitive. Taxpayers would be able to pay even more
toward the tax debt if their ability to earn a living remained
intact."
Previous Legislation . ABX8 8 (Budget) of 2010 would permit the
state to suspend state occupational and professional licenses
due to unpaid income tax liabilities. This bill was held in the
Assembly Rules Committee.
SBX8 8 (Budget and Fiscal Review) of 2010 would permit the state
to suspend state occupational and professional licenses due to
unpaid income tax liabilities. This bill was held on the
Assembly Floor.
ABX3 19 (Evans) of 2009 would permit the state to suspend state
occupational and professional licenses because of unpaid income
tax liabilities, and allow taxpayers to avoid suspension by
entering into an installment agreement with FTB. This bill was
held in the Assembly Rules Committee.
SBX3 17 (Ducheny) of 2009 would permit the state to suspend
state occupational and professional licenses because of unpaid
income tax liabilities, and allow taxpayers to avoid suspension
by entering into an installment agreement with FTB. This bill
was vetoed.
AB 484 (Eng) of 2009 would permit FTB to suspend state
occupational and professional licenses because of unpaid tax
liabilities. This bill was held in the Assembly Business and
Professions Committee.
AB 1925 (Eng) of 2008 would permit FTB to suspend state
occupational and professional licenses because of unpaid tax
liabilities. This bill was held in the Senate Revenue and
Taxation Committee.
Double-Referred . This bill is double-referred to Assembly
Revenue & Taxation Committee.
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Committee Amendments . The author's office has agreed to take
clarifying amendments to cite the correct code section relating
to licensed contractors with unpaid tax liabilities, and delete
bill language inadvertently removing CSLB from the provisions of
this bill.
On page 3, line 6, strike out "7145" and insert "7145.5".
On page 10, strike out lines 25-26.
On page 10, line 27, strike out "(x)" and insert "(w)".
REGISTERED SUPPORT / OPPOSITION :
Support
Franchise Tax Board (FTB) (sponsor)
American Federation of State, County and Municipal Employees
(AFSCME)
Asian & Pacific Islanders California Action Network
Asian American Drug Abuse Program
Asian Americans for Civil Rights and Equality (AACRE)
Asian Resources, Inc.
California Communities United Institute
California Immigrant Policy Center (CIPC)
California Tax Reform Association
Los Angeles County Board of Supervisors
Service Employees International Union (SEIU) Local 1000
Opposition
California Taxpayers' Association
Analysis Prepared by : Joanna Gin / B.,P. & C.P / (916)
319-3301