BILL ANALYSIS
AB 2375
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2375 (Knight) - As Introduced: February 19, 2010
VOTE ONLY
Majority vote. Fiscal committee.
SUBJECT : Sales and use tax: State Board of Equalization:
administration: interest
SUMMARY : Grants the State Board of Equalization (BOE), meeting
as a public body, discretion to relieve interest under specified
circumstances. Specifically, this bill :
1)Provides that if BOE finds in its discretion that a person's
failure to make a timely payment was due to "extraordinary
circumstances" and that it is inequitable to compute interest
in accordance with the Sales and Use Tax Law (SUT Law), then
BOE may relieve all or part of the interest imposed on that
payment if all of the following occur:
a) The person was granted relief from all penalties that
applied to that payment;
b) The person has made the payment on which the interest
was imposed. (In the case of interest attributable to an
unpaid liability for which the person has filed a petition
for redetermination, the person must make the underlying
payment within 30 days of being served with a final BOE
decision on that petition.);
c) The person files a request for an oral hearing before
BOE; and,
d) The person files with BOE a statement under penalty of
perjury setting forth the facts upon which the claim for
relief is based along with any other information BOE
requires.
2)Defines "extraordinary circumstances" as a highly unusual set
of facts not commonly associated with a person's failure to
AB 2375
Page 2
make a timely payment.
3)Provides that payment includes any of the following:
a) A payment of tax;
b) A prepayment of tax on which interest is imposed under
the SUT Law; or,
c) A payment of an amount of tax required to be collected
and paid to the state.
4)Provides that any relief granted may be rescinded, and all
interest reestablished, without regard to any statute of
limitations, if a person fails to comply with the requirement
to make the underlying payment.
5)Provides that no reimbursement is required under the
California Constitution because the only costs that may be
incurred by a local agency will be incurred because this act
creates a new crime or infraction.
EXISTING LAW :
1)Requires, under the SUT Law, any person who fails to pay tax
within the time required to pay a penalty of 10% of the tax,
plus interest at the modified adjusted rate per month from the
date on which the tax became due until the date of payment.
The rate of interest for late payments is currently 7%
annually.
2)Provides that if BOE finds that a person's failure to make a
timely payment was due to reasonable cause and circumstances
beyond the person's control, and occurred notwithstanding the
exercise of ordinary care and the absence of willful neglect,
then the person shall be relieved of penalties.
3)Provides that if BOE finds that a person's failure to make a
timely payment was due to a disaster, and occurred
notwithstanding the exercise of ordinary care and the absence
of willful neglect, the person may be relieved of interest.
Any person seeking to be relieved of interest must file with
BOE a statement under penalty of perjury setting forth the
facts upon which the claim for relief is based.
AB 2375
Page 3
FISCAL EFFECT : The BOE estimates indeterminable revenue losses.
COMMENTS :
3 The author has provided the following statement in support of
this bill:
It is important that we allow [BOE] members flexibility in
issues that come before them where it has been determined
that the taxpayer is not the one immediately at fault and
has an exemplary record of timely payments of sales and use
tax. It is an unfortunate event when companies unknowingly
have an employee embezzling from them, but it is even more
unfortunate when they are penalized for that act of fraud
by [BOE] for tax reasons. This measure was brought to our
attention by [former BOE Member] Bill Leonard.
2 Proponents state, "This bill would provide flexibility to
[BOE] to compute interest or waive interest providing equality
and fairness to the taxpayer. [BOE] should be given as much
flexibility as it needs to reach a fair result in cases that
come before it."
3 BOE notes the following in its staff analysis of this bill:
a) This bill was prompted by a sales and use tax case that
BOE heard at its December, 2009 public hearing. In that
case, the taxpayer's bookkeeper altered the taxpayer's
computerized accounting records and embezzled a substantial
amount of sales tax reimbursement collected from the
taxpayer's customers. Although the bookkeeper was fired
and is currently serving a prison sentence, the taxpayer
remains liable for the tax and interest. And, even though
the taxpayer had an excellent record of paying sales and
use taxes, and acted swiftly upon learning of the
embezzlement, the fact that the taxpayer was the victim of
a crime does not provide a basis for relief under existing
law.
b) There have been other extraordinary cases in the past
where charging interest on a late payment has seemed
severe. For example, there have been situations in which
taxpayers had documented medical emergencies or family
deaths that occurred the day the returns were due, and even
AB 2375
Page 4
though the returns were filed only a day or two late,
monthly interest was still imposed.
4 Committee Staff Comments
a) Extraordinary Circumstances : This bill would grant BOE
discretion to waive interest if a taxpayer's failure to
make a timely payment was due to "extraordinary
circumstances." Moreover, this bill defines "extraordinary
circumstances" as a highly unusual set of facts not
commonly associated with a person's failure to make a
timely payment. This measure was prompted by a case in
which the taxpayer's failure to pay was due to the criminal
misconduct of an employee. The author argues that, in such
circumstances, BOE should be granted the ability to waive
interest on the underlying tax. Committee staff note,
however, that this bill would grant BOE members broad
authority to waive interest in a number of situations.
b) Amendments Agreed To : The author has agreed to take
amendments capping the aggregate interest relief that may
be granted under this bill to $50,000 a year and to require
further statutory authorization for any additional amounts.
In addition, the author has agreed to more narrowly define
what constitutes an "extraordinary circumstance."
c) Related Legislation : SB 1028 (Correa), of the current
legislative session, would enable BOE members, meeting as a
public body, to compute daily, rather than monthly
interest, on a payment that is only one day late, under
specified circumstances.
REGISTERED SUPPORT / OPPOSITION :
Support
California Taxpayers' Association
Howard Jarvis Taxpayers Association
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
AB 2375
Page 5