BILL ANALYSIS
AB 2556
Page 1
Date of Hearing: April 12, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2556 (Fuller) - As Amended: April 5, 2010
Majority vote. Fiscal committee.
SUBJECT : Sales and use tax: State Board of Equalization:
administration: interest
SUMMARY : Grants the State Board of Equalization (BOE)
discretion to relieve interest imposed under the Sales and Use
Tax (SUT) Law where use tax is paid within 90 days of the
taxpayer being notified of a nonpayment, as specified.
Specifically, this bill :
1)Grants BOE discretion to relieve all or part of the interest
imposed in cases where use tax is remitted to BOE within 90
days of BOE notifying the taxpayer of a nonpayment, where the
notification resulted from BOE obtaining information regarding
the liability from the United States (U.S.) Customs Service.
2)Provides that any person seeking this relief must file 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.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
tangible personal property (TPP), absent a specific exemption.
The tax is based upon the gross receipts from sales of TPP in
this state.
2)Imposes a mirror use tax on the storage, use, or other
consumption of TPP purchased out of state and brought into
California. The use tax is imposed on the purchaser, and
unless the purchaser pays the use tax to an out-of-state
retailer registered to collect California's use tax, the
purchaser remains liable for the tax. The use tax is set at
the same rate as the state's sales tax and must be remitted to
BOE.
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3)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.
4)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.
5)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.
FISCAL EFFECT : BOE's fiscal estimate for this bill is currently
pending.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Under current law if a California resident fails to pay use
tax to [BOE] they are required to pay interest and a
penalty. [BOE] is allowed flexibility in determining
whether or not to waive penalties, but does not have much
flexibility to waive the interest.
In the case of one of my constituents, he fully intended to
pay the use tax due on goods he purchased from a foreign
merchant. However, he contends that U.S. Customs told him
he would be sent a bill by the state. Three years after
purchasing the merchandise he received notification from
[BOE] that the use tax was still owed, and was told he
needed to pay interest on the late amount as well as a
penalty.
While [BOE] was able to work with my constituent on waiving
AB 2556
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the penalty, [BOE] does not have authority in statute to
waive the interest. [BOE] should have the discretion to
waive interest in situations such as the one my constituent
found himself in. AB 2556 does not require the interest to
be waived, but does provide [BOE] with the power to do so.
2)BOE notes, in its staff analysis of this bill, that use tax
liability comes as a surprise to many Californians.
Specifically, BOE notes that, in an effort to close
California's use tax gap - estimated to be over $1 billion
annually - BOE has instituted various programs that encourage
compliance with the use tax law. For example, during 2009, AB
18 X4 was enacted to require every business with at least
$100,000 in gross receipts from business operations to
register with BOE and file an annual use tax return. BOE is
currently in the process of registering over 180,000
businesses, and is requiring those businesses to report their
purchases for years 2007, 2008, and 2009. Penalty and
interest charges have already accrued on the 2007 and 2008
purchases, and current law has no provision for relieving
interest. Moreover, BOE notes that many of these businesses
have been surprised to learn of their use tax liabilities.
Thus, BOE questions whether these businesses should be
included within the scope of this bill's interest forgiveness
provisions.
3)Committee Staff Comments:
a) What Kind of Information Does BOE Receive From the U.S.
Customs Service? : BOE reports that, from July 1, 1990
through June 30, 2007, the U.S. Customs Service gave BOE
access to customs declarations filed at various ports of
entry throughout California for goods purchased abroad and
personally hand-carried by passengers into the state.
After June 30, 2007, however, the U.S. Customs Service
restricted access to these duty declarations, only allowing
BOE access in cases where BOE can first identify the name
of the traveler and the date of travel. However, for goods
shipped into California, BOE has been able to acquire
information since July 2005 from the U.S. Customs Service.
BOE matches the U.S. Customs Service's electronic records
of California imports against its own registration records,
and determines whether the California businesses and
individuals identified have complied with their use tax
reporting obligations. BOE reports that, in fiscal year
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2009-10, this program is expected to generate over $14
million.
b) Voluntary Compliance with the State's Use Tax Remains
Low : In an effort to increase public awareness of the use
tax and to encourage voluntary compliance in reporting the
use tax, California's income tax returns have, for the past
several years, contained a separate line for use tax
reporting. Nevertheless, BOE reports that few consumers
report their use tax obligations in this manner. Last
year, less than 0.03% of state income tax returns filed
reported use tax.
c) Related Legislation : AB 2375 (Knight), of the current
legislative session, would grant BOE discretion to waive
interest if a person's failure to make a timely payment was
due to extraordinary circumstances. AB 2375 is scheduled
to be heard by this Committee along with this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098