BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
137 (Maldonado)
Hearing Date: 5/4/2009 Amended: 4/27/2009
Consultant: Mark McKenzie Policy Vote: Rev.&Tax. 7-0
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BILL SUMMARY: SB 137 would revise the period during which the
payment of interest is required on personal income tax
overpayments. Specifically, this bill would require the payment
of interest on tax refunds when the State Controller (SCO) has
determined there is a cash management emergency and postponed
issuance of refund warrants. SB 137 would require payment of
interest on refunds beginning 15 days after the date a tax
return is filed or 15 days after the date refunds are postponed,
whichever is later, and ending 30 days prior to the date the
refund is issued. Under current law, interest generally accrues
on refunds issued after May 30 for returns filed any time before
the April 15 filing deadline.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Interest payments Potential for significant costs in future
years General
--------(see staff
comments)----------
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
On February 2, 2009, State Controller John Chiang announced a
30-day delay in the payment of tax refunds in response to
California's cash flow shortage. This decision affected more
than three million taxpayers who had already filed their 2008
taxes and expected around $2 billion in refunds. The Controller
decided to toll these refunds, instead making other claims and
payments because the state did not have enough money to pay all
claims. After enactment of the 2009-10 state budget, the SCO
began sending out the delayed tax refunds on March 6, and paid
all claims by March 25. This bill is intended to compensate
taxpayers whose refund payments are substantially delayed as a
result of a cash management crisis.
Existing state law requires the Franchise Tax Board (FTB) to pay
interest on personal income tax overpayments, but prohibits FTB
from paying interest before the later of the following: 45 days
after the date a taxpayer files a return, or 45 days after the
date the return is due (generally April 15), without regard to
extension. Therefore, interest on a refund payment does not
accrue until after May 30. The annual interest rate is the
federal short-term rate, plus 3 percent, as specified. The
current rate for overpayments is 5 percent, compounded daily.
SB 137 would require interest to be paid, at the rate prescribed
in current law, on all personal income tax overpayments that are
delayed by the SCO after February 1, 2009 as a result of a cash
management emergency. The period of interest payment would
begin 15 days after the date the return is filed, or 15 days
after the date the SCO delays
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SB 137 (Maldonado)
the issuance of refunds, whichever is later. The period would
end on a date not more than 30 days preceding the date the
refund is issued as determined by FTB. Since the period of
interest payment is only between the 15-day delayed start date
and the 30-days preceding the refund, interest would only accrue
for delays of more than 45 days.
Staff notes that the fiscal impact of this bill as it pertains
to the delay in refunds that occurred this year would be minimal
since FTB indicates that no refunds were delayed long enough to
trigger interest payments under this bill. However, to the
extent that a cash management crisis was more protracted in a
future year, resulting in more lengthy delays in the issuance of
tax overpayment refunds, this bill could result in substantial
General Fund costs. For example, if $1 billion in refunds are
delayed 55 days (an additional 10 days beyond the 45 day period
during which interest would not accrue), SB 137 would result in
interest payments of approximately $1.4 million, at the current
rate of 5% compounded daily. Actual amounts would depend upon
the amount of refunds delayed, the timing and length of the
delay, and the applicable interest rate.