BILL ANALYSIS
AB 2676
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
AB 2676 (Ma) - As Amended: April 6, 2010
Majority vote. Fiscal committee.
SUBJECT : State Board of Equalization: administration
SUMMARY : Implements a number of tax-related proposals sponsored
by the State Board of Equalization (BOE). Specifically, this
bill :
1)Requires every person who "regularly" incurs a use tax
liability to register with BOE on a form prescribed by BOE.
Requires the filing of annual use tax returns, together with a
remittance of the amount of tax due, by April 15 for the prior
calendar year. Specifically provides that:
a) The first returns due shall be filed on or before April
15, 2011.
b) "Regularly" means a person incurs or has incurred $1,000
or more in use tax liability each calendar year for a
period of at least three consecutive calendar years.
2)Reinstates and makes permanent the statutory provisions
allowing taxpayers to elect to report and remit qualified use
tax on an acceptable income tax return, as defined.
3)Provides that, upon suspension of a "closely held corporation"
or "closely held limited liability company" (closely held
LLC), certain individuals shall be held personally liable for
any unpaid sales or use tax (SUT) liability of that business
entity incurred during the period of suspension.
a) Provides that the following individuals shall be subject
to personal liability:
i) Any corporate officer, shareholder, or member with
"control over operations or management" during a time in
which the entity's powers, rights, and privileges are
suspended; or,
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ii) Any "responsible person" who fails to pay any taxes
due from the business entity during a time in which the
entity's powers, rights, and privileges are suspended.
b) Provides that the corporate officer, shareholder,
member, or responsible person shall be liable for the
unpaid tax, along with interest and penalties, regardless
of the basis for the business entity's suspension.
c) Provides that, if the business entity can establish that
it has taken all actions necessary to qualify for revival
within 60 days of suspension, no personal liability shall
be imposed.
d) Provides that personal liability applies only when BOE
establishes that, during the period of suspension, the
business entity did any of the following:
i) Sold tangible personal property (TPP) in the conduct
of its business and collected sales tax reimbursement
without remitting the tax when due;
ii) Collected use tax without reporting and paying the
tax; or,
iii) Consumed TPP without paying the applicable tax to
the seller or BOE.
e) Defines a "closely held corporation" as a corporation in
which ownership is concentrated in one individual, one
family, or a small number of individuals and the majority
stockholders manage the business or have delegated the
management to the corporate officers.
f) Defines a "closely held LLC" as a LLC in which ownership
is concentrated in one individual, one family, or a small
number of individuals, and the majority members manage the
business or have delegated management to the company
officers.
g) Defines "control over operations or management" to mean
the power to manage or affect day-to-day operations of the
business. It shall be rebuttably presumed that an officer
has control over operations and management.
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h) Defines a "responsible person" as any officer,
shareholder, or member who is charged with the
responsibility for the filing of returns or the payment of
tax or who has a duty to act for the business entity in
complying with any provision of the SUT Law, and who
derives a direct financial benefit from the failure to pay
the tax liability.
i) Provides that a suspended corporation or LLC shall
remain liable for the unpaid tax, interest, and penalties
incurred during the period of suspension without regard to
any personal liability imposed.
4)Adds personal liability provisions comparable to those
contained in Revenue and Taxation Code (R&TC) Section 6829, as
amended, to various special tax and fee programs that BOE
administers. Specifically, personal liability provisions
would be added to the following:
a) The Motor Vehicle Fuel Tax Law;
b) The Use Fuel Tax Law;
c) The Hazardous Substances Tax Law;
d) The Integrated Waste Management Fee Law;
e) The Oil Spill Response, Prevention, and Administration
Fees Law;
f) The Fee Collection Procedures Law; and,
g) The Diesel Fuel Tax Law.
5)Grants BOE authority to use the information contained in the
Employment Development Department's (EDD) new employee
registry for tax or fee enforcement purposes.
EXISTING LAW :
1)Imposes a sales tax on retailers for the privilege of selling
TPP, absent a specific exemption. The tax is based upon the
retailer's gross receipts from TPP sales in this state.
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2)Imposes a complementary 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.
3)Requires "qualified purchasers" with at least $100,000 in
gross receipts from business operations per calendar year to
register with BOE and file an annual use tax return.
4)Allows taxpayers to elect to report and remit qualified use
tax on an acceptable income tax return, as defined.
5)Provides that, upon the termination, dissolution, or
abandonment of the business of a corporation, partnership,
limited partnership, limited liability partnership, or LLC,
specified individuals shall be held personally liable for any
unpaid SUT if the individual willfully fails to pay any SUT
owed by the business entity, as specified.
6)Provides the Franchise Tax Board, but not BOE, with access to
information contained in the new employee registry maintained
by EDD.
FISCAL EFFECT : BOE staff estimates that retaining the use tax
line on state income tax returns will raise roughly $10 million
a year in state and local revenues. BOE staff estimates that
the use tax registration provisions of this bill will raise
roughly $165,000 annually. Revenue gains associated with the
personal liability and new employee registry provisions are
indeterminate.
COMMENTS :
1)The author states, "AB 2676 is sponsored by the Board of
Equalization and contains various provisions that will assist
the BOE in its administration of its various tax and fee
programs."
2)Committee Staff Comments:
a) Regularly Incurred Use Tax Liability : This bill
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requires a person to register with BOE if they regularly
incur use tax liability of $1,000 a year for three
consecutive years. However, this bill does not indicate
how far back BOE may look in finding three consecutive
years. An entity that has not incurred "regular" use tax
liability in the preceding five years but has done so at
some point in its existence may find the registration
objectionable. The author may want to designate a period
of time for BOE to look back when attempting to find three
consecutive years of at least $1,000 in use tax liability.
b) Registration threshold : Current law requires businesses
that have annual gross receipts of $100,000 or more to
register with BOE in order to report their use tax
liability on taxable purchases. This bill requires
businesses and individuals to register with BOE if they
incur use tax liability of at least $1,000 for three
consecutive years. The author may wish to consider whether
this is an appropriate threshold for mandatory registration
and filing. In addition, if this bill is motivated by a
desire to register certain businesses not captured by the
$100,000 gross receipts threshold, the author may wish to
limit its application to businesses and exclude individual
taxpayers.
c) Sunset date : It appears that the current law requiring
FTB to provide a line for payment of use tax on the state
income tax returns, actually sunset on December 31, 2009.
This bill attempts to retain the use tax line by
eliminating the statutory sunset provisions. However, if
the underlying statutory provisions are no longer
operative, it may be necessary to enact new statutory
sections modeled on the old.
d) Personal Liability : It is unclear to this Committee why
this bill is treating business entities under R&TC Section
6829(a) differently from closely held business entities
under proposed R&TC Section 6829(d). Specifically, this
bill would allow the imposition of personal liability
during periods of a closely held entity's suspension, while
no such provisions apply to larger corporations.
e) Technical Amendments :
i) On page 11, beginning with line 35, this bill
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provides that, "if the Secretary of State held limited
liability company that it is suspended" this filing shall
not constitute actual knowledge for purposes of
determining the statute of limitations for deficiency
determinations. This language should be amended for
clarity.
ii) BOE staff have also prepared technical amendments to
address certain issues in the personal liability
provisions of this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / Carlos Anguiano / REV. &
TAX. / (916) 319-2098