BILL ANALYSIS
AB 2556
Page 1
Date of Hearing: April 28, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2556 (Fuller) - As Amended: April 15, 2010
Policy Committee: Revenue and
Taxation Vote: 9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill grants the Board of Equalization (BOE) discretion to
relieve taxpayers of interest obligations for late payments of
use taxes in cases where (a) BOE has obtained information
regarding the liability from the United States (U.S.) Customs
Service, and (b) the taxpayer remits the sales tax payments
within 90 days of being notified by the BOE. The waiver would
apply to individuals or businesses with incomes of less than
$250,000.
FISCAL EFFECT
BOE estimates that, if it waived, on average, about one-half the
interest owed, the revenue reduction would be about $250,000
annually, of which about $160,000 would be GF.
COMMENTS :
1)Rationale . The bill is intended to provide tax relief to
individuals who purchase goods from abroad and are unaware of
their use tax liability until they are contacted by the BOE.
The author cites the experience of a constituent who claims to
have intended to pay the use tax due on goods he purchased
from a foreign merchant, but was informed by the U.S. Customs
that 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
a penalty plus interest on the late amount. The author
indicates that, while the BOE was able to waive the penalty,
it does not have statutory authority to waive the interest.
AB 2556
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2)Background . Under existing law, retailers doing business in
this state are required to collect sales taxes on sales of
tangible personal property. Individuals and businesses that
purchase goods out of state for use in California are required
to self-report the use tax. Compliance with the use tax is
low, despite efforts by the BOE to inform taxpayers of their
obligation to pay this tax. In an effort to increase public
awareness and 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. 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.
Under existing law, taxpayers failing to remit sales and use
taxes are subject to a penalty of 10% of taxes owed plus
interest (currently 7% annually) from the time the payment is
due until the date of payment. The BOE is authorized to waive
the penalty if the nonpayment was due to reasonable cause and
circumstances beyond the taxpayer's control. The BOE does not,
however, have discretion to waive interest.
3)Background - customs information . 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
2009-10, this program is expected to generate over $14
million.
4)Issue . While it may be reasonable to allow BOE to waive
penalties in cases where late payments are due to reasonable
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cause, it is more difficult to justify the waiving of
interest. This is because, while penalties are a form of
punishment meant to discourage non-payment, interest payments
are primarily intended to compensate the state for the loss of
use of the money that it was owed at an earlier date. By
waiving interest, the BOE is making a taxpayer that pays two
or three years after the tax was due better off than his/her
counterpart who paid the liability on time.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081