BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
AB 2676 -a: Ma
Amended: April 27, 2010
Hearing: June 23, 1010 Fiscal: Yes
SUMMARY: Makes Permanent the Use-Tax Reporting Line
Currently Found on State Personal Income Tax
Returns and Makes Several Other Changes Relating
to Tax Laws Administered by the Board of
Equalization (BOE).
EXISTING LAW requires the Franchise Tax Board (FTB) to
include a separate line on its personal income tax returns
for the 2003 through 2009 tax years, which enables
consumers and businesses to declare and pay use tax
liabilities owed to BOE.
EXISTING LAW, except for the Sales and Use Tax (SUT)
Law, does not allow under the laws related to the other tax
and fee programs administered by the BOE for the imposition
of personal liability against corporate officers,
shareholders, or other responsible persons of terminated or
suspended corporations or other business entities for the
entities' failure to pay its tax or fee obligations to the
BOE.
EXISTING LAW requires all employers to report
information on newly hired or rehired employees who work in
this state to the Employment Development Department (EDD)
within 20 days following the date the employee is hired.
This EDD report is generally referenced as the "new
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employee registry." BOE is not authorized to use the new
employee registry under existing law.
THIS BILL implements a number of tax-related proposals
sponsored by the BOE. Specifically, this bill:
1)Makes permanent the separate line on the state personal
income tax return for reporting use tax obligations.
2)Provides that officers, partners, managers, or other
responsible persons are liable for unpaid sales and use
tax liabilities of closely held corporations or limited
liability companies (LLCs) that have been suspended.
Extends similar provisions to other taxes and fees
administered by the BOE.
3)Allows the BOE to use the new employee registry
information maintained by the EDD for tax enforcement
purposes.
FISCAL EFFECT:
According to the BOE, the provisions of the bill
related to personal liability of responsible
persons and access to the EDD's new employee registry would
assist the BOE in enhancing its ability to collect
delinquent tax and fee obligations. For the personal
liability provisions, BOE estimates that it would increase
collections of delinquent accounts receivables of
approximately $800,000 annually, primarily in the Special
Taxes and Fees programs. And, with the EDD data, an
additional $500,000 annually could be collected primarily
under the SUT program.
The state and local SUT tax revenue increase associated
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with the provisions related to elimination of the sunset
date of the use tax line on the state income tax returns is
estimated to be at least $10 million annually.
COMMENTS:
A. Purpose of Bill
The bill is sponsored by the BOE and is intended to
improve compliance, administration, and collections of the
taxes it administers.
B. Use Tax Line Sunset Date
Legislation passed in 2003 -- SB 1009 (Alpert),
Chapter 718/2003--requires FTB to include a separate line
on its personal income tax returns for the 2003 through
2009 tax years, which enables consumers and businesses to
declare and pay use tax liabilities owed to BOE.
Apparently, this law sunset on December 31, 2009. AB 2676
reinstates the provisions that provide for the separate us
-tax reporting line on the FTB income tax returns.
BOE claims that the use tax line on the state
income tax returns provides a simple means to both educate
taxpayers and tax preparers as well as enable purchasers to
report their use tax obligations. Use tax reported has
increased each year since SB 1009 was enacted. In 2004,
use tax of $2.8 million was reported, in 2005, $4.6
million, in 2006 and 2007, approximately $5.5 million was
collected, in 2008, $9 million was reported, and in 2009,
$10 million was reported.
C. Personal Liability for Certain Business Taxes Owed
Currently, corporate officers, partners, managers,
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and other responsible persons are shielded from personal
liability when a closely held corporation or LLC is found
to owe use taxes or has failed to remit sales taxes that it
has collected from its customers. However, in cases where a
corporation is suspended, BOE, by regulation, seeks
reimbursement from the company's responsible persons. The
BOE regulation does not extend to responsible persons of
closely held LLCs. It also does not apply in cases
involving motor vehicle fuel or other special taxes owed to
the BOE.
AB 2676 places in statute the current BOE SUT
regulation pertaining to responsible persons of
corporations and extends its application to closely held
LLCs, and to liabilities for other special taxes
administered by the BOE. In doing so, this bill will
authorize the BOE to hold members of closely held LLCs
personally responsible when that LLC is suspended and has
failed to pay taxes as well as persons misappropriating tax
and fee amounts under the BOE's special tax and fee
programs. The BOE contends these changes will provide for
greater uniformity and fairness among the laws it
administers.
The bill also provides that the personal liability
will cease if the corporation or LLC has taken actions
necessary to revive the corporate or LLC status within 60
days of the suspension. BOE states that these changes would
encourage a responsible officer or shareholder of a closely
held corporation, or responsible member of a closely held
LLC, to take the necessary steps to resolve the issues that
caused the suspension. The availability of such relief
would promote greater overall compliance with the law by
encouraging responsible persons to be vigilant in curing
violations that resulted in the suspension of the entity's
powers, rights and privileges
D. EDD New Employee Registry
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Existing law requires employers to report
information on newly hired or rehired employees who work in
this state to the EDD within 20 days following the date the
employee is hired. This EDD report is generally referenced
as the "new employee registry." Current law specifies that
the employee registry information may only be used for
programs administered by the EDD, FTB, public assistance
programs, workers' compensation programs, and enforcement
of child support obligations. AB 2676 extends the
authorization to the BOE for tax collection and enforcement
purposes.
The BOE states that this provision would assist the
agency in locating missing taxpayers and possibly
garnishing the wages of taxpayers that are delinquent in
their payment of BOE-administered taxes or fees.
Currently, the BOE uses the EDD's online wage and
employment information, which is based on quarterly
employment returns filed by employers. Even though this
information is available to the BOE shortly after the end
of each quarter, this information is relatively old when
compared to the new employee registry information (four to
six months more current). According to the FTB, the new
employee registry has been a valuable enforcement resource
in allowing that agency to identify delinquent taxpayers
and begin collection action shortly after those taxpayers
have started a new job. The BOE believes this information
could be valuable for its collection efforts as well.
Support and Opposition
Support:BOE (sponsor)
Oppose: None on file.
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Consultant: Meg Svoboda