BILL ANALYSIS
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|Hearing Date:June 21, 2010 |Bill No:AB |
| |2332 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: AB 2332Author:Eng
As Introduced: February 19, 2010 Fiscal:Yes
SUBJECT: Contractors: licenses.
SUMMARY: Authorizes the Contractors State License Board to suspend or
deny a contractor license to a licensee who fails to resolve tax
liabilities assessed by the Board of Equalization.
Existing law:
1)Licenses and regulates more than 300,000 contractors under the
Contractors State License Law by the Contractors State License Board
(CSLB) within the Department of Consumer Affairs (DCA). The CSLB is
under the direction of the registrar of contractors (Registrar)
2)Authorizes CSLB to suspend or deny a contractor license to a licensee
who fails to resolve all outstanding final liabilities, which
include taxes, additions to tax, penalties, interest, and any fees
that may be assessed by the CSLB, the Department of Industrial
Relations (DIR), the Employment Development Department (EDD), or the
Franchise Tax Board (FTB).
3)Provides that until the debts are satisfied, the qualifying person
and any other personnel of record named on a license that has been
suspended under this section shall be prohibited from serving in any
capacity that is subject to licensure under this chapter, but may be
permitted to act as a nonsupervising employee.
4)Provides that the any other license with any of the same personnel of
record that have been assessed an outstanding liability under these
provisions shall be suspended until the debt has been satisfied or
until that person has been disassociated from that license.
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5)Specifies that the license suspension or denial shall be applicable
only if the CSLB has mailed a notice of the action at least 60 days
prior to the suspension or denial date to the licensee.
6)Authorizes the Registrar to suspend a contractor license for any
"unsatisfied final judgment that is substantially related to the
construction activities of a licensee ? or to the qualifications,
function, duties of the license."
This bill: Authorizes the CSLB to additionally suspend or deny a
contractor license to a licensee who fails to resolve all outstanding
final liabilities, which include taxes, additions to tax, penalties,
interest, and any fees that may be assessed by the BOE.
FISCAL EFFECT: The Assembly Appropriations Committee analysis, dated
April 21, 2010, indicates costs associated would be minor and
absorbable within the CSLB and BOE budgets; and further indicates that
unknown revenue increases to the extent this authority allows BOE to
collect a portion of the $68 million in outstanding tax liabilities.
COMMENTS:
1.Purpose. This bill is sponsored by the Board of Equalization (BOE,
Sponsor) in order to authorize the BOE to request the CSLB to deny
or suspend a contractors license for failure to resolve any
outstanding final tax or fee liabilities. This would give the BOE
the same tools as DIR, FTB and EDD for collecting money owed to the
state. According to the Sponsor, there is $68 million in
outstanding taxes and penalties owed by construction contractors to
the state of California. Current law does not give the BOE the
authority to request that the CSLB suspend the license of a
contractor who has outstanding tax liabilities. The Department of
Industrial Relations (DIR), the Franchise Tax Board (FTB) and the
Employment Development Department (EDD) have this authority.
2.Background. CSLB issues licenses to contractors who meet safety and
experience requirements within their field, as well as home
improvement salespersons. There are more than 316,000 licensed
contractors in the state in 43 different licensing classifications.
In addition to educating consumers about contractors and
construction law, the CSLB administers examinations to test
prospective licensees, issues licenses, investigates complaints
against licensed and unlicensed contractors, issues citations,
suspends or revokes licenses, and seeks administrative, criminal,
and civil sanctions against violators. Current law authorizes CSLB
to suspend or deny a contractor's license to a licensee who has
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unpaid tax liabilities with FTB, EDD, or DIR.
According to BOE, there are currently approximately 2,469 BOE
delinquent accounts for construction contractors representing
outstanding final tax liabilities over $68 million. Current state
law authorizes BOE to use several collection tools to collect
delinquent tax liabilities, including the issuance of orders to
withhold funds to third parties in possession of the debtor's funds
or property, wage garnishments against the debtor, and, warrants
against the debtor to seize property.
Legislation enacted in 1990, AB 2282 (Eastin) authorized the CSLB to
suspend or refuse to issue or renew a contractor's license, upon
notification, for failure to resolve outstanding final liabilities
imposed by the DIR, EDD, and FTB. According to the Sponsor, the
purpose of this legislation was to establish joint enforcement
action among the three agencies in order to enforce collection of
taxes and compliance within the law.
In 1993, by Executive Order, the Joint Enforcement Strike Force (JESF)
was established to combat the underground economy. The JESF is
comprised of several agencies including the CSLB, DIR, EDD, FTB, and
BOE. Reports indicate that the underground economy imposes burdens
on businesses that comply with the law and properly pay their tax
obligations. The BOE argues that while these agencies have
authority to enforce liens and warrants to collect outstanding
liabilities, these collection tools are ineffective on taxpayers who
primarily operate on a cash basis because current information on
their assets or income is unavailable.
3.Existing Authority to Suspend a License for an Unsatisfied Final
Judgment. Business and Professions Code 7071.17, as described in
Existing law, Item 6, above, authorizes the Registrar to suspend a
contractor's license for any "unsatisfied final judgment that is
substantially related to the construction activities of a licensee ?
or to the qualifications, function, duties of the license." Prior
to introducing this bill, BOE discussed with CSLB staff the
possibility of using this authority to address contractors who owe
taxes to the BOE. However, .BOE staff and CSLB believe that the
BOE's perfected lien procedure does not appear to be comparable to a
final judgment since the taxpayer may challenge the assessment upon
which the lien is based by filing a claim for refund after the tax
has been paid. Therefore, the CSLB would require the BOE to submit
an abstract of judgment relating to the contractor as a condition
for the registrar to initiate the proceeding to suspend the license
under Section 7071.17.
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While both CSLB and BOE staff believed that the BOE Section 7071.17
could work to request the CSLB to suspend a contractor license, the
procedure used pursuant to Section 7071.17 would be extremely
cumbersome for both agencies and would require that BOE obtain an
abstract of judgment and file that judgment with CSLB.
Ultimately, both BOE and CSLB agreed that amending Section 7145.5 to
also include the Board of Equalization (as is proposed in this bill
) is a more expeditious alternative.
4. Prior Legislation. AB 2282 (Eastin, Chapter 1386, Statutes of
1990) authorized CSLB to suspend or deny a contractor's license for
failure to resolve tax liabilities imposed by DIR, EDD, or FTB.
5.Arguments in Support. In sponsoring the bill, the Board of
Equalization (BOE) indicates that similar to EDD and FTB, the BOE
finds that some delinquent contractors do not respond to its usual
enforcement actions. Authorizing the BOE to request for denial or
suspension of a license will serve as a strong incentive for a
delinquent taxpayer to pay the tax due or enter into an installment
payment program. "While the BOE would request suspension as a last
resort measure, we believe it will increase our ability to collect
on delinquent taxes."
The Contractors State License Board (CSLB) supports the bill stating
that the Business and Professions Code authorizes the CSLB to
suspend the license of a licensee who has not paid specified taxes
or penalties (final liabilities). This section of law clearly
provides efficiencies relative to such final liabilities since,
subsequent to the exhaustion of appeal rights, the regulatory
agencies listed in the law can effectuate a license suspension to
encourage payment by a recalcitrant license. During the month of
February 2010, the CSLB sent suspension letters to 103 licensed
entities for unsatisfied liabilities owed to EDD, DIR, and FTB.
CSLB states that the combined liabilities underlying the license
suspensions for that single month are more than $2.5 million.
California Tax Reform Association (CTRA) supports efforts to crack down
and collect taxes from California's underground economy which is
estimated to cost the state more than
$4 billion in annual revenues. CTRA contends the bill is a common
sense measure that would provide the BOE with an enforcement tool
that it should have had a long time ago.
6.Arguments in Opposition. The Department of Consumer Affairs (DCA)
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opposes the bill stating that California loses millions of dollars
annually as a result of uncollected tax liabilities that apply to
licensed contractors; however, the DCA believes that causing
licensees of the CSLB to face suspension of their license for
failure to file tax liabilities due to the BOE would lead to those
individuals practicing without a license, which would promote an
underground economy as well as harm consumers. This bill would deny
these license holders the ability to earn a living and make it more
difficult to repay their debts to the BOE as they would no longer be
allowed to practice, according to DCA. Furthermore, DCA argues, no
other Californian is currently denied the ability to practice his or
her profession for failure to pay taxes due to the BOE and it would
be unfair to apply this to contractors alone.
SUPPORT AND OPPOSITION:
Support:
Board of Equalization (Sponsor)
Contractors State License Board (CSLB)
California Tax Reform Association
Opposition:
Department of Consumer Affairs
Consultant:G. V. Ayers