BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 402|
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THIRD READING
Bill No: SB 402
Author: Wolk (D)
Amended: 4/28/09
Vote: 21
SENATE REVENUE & TAXATION COMMITTEE : 5-2, 4/22/09
AYES: Wolk, Alquist, Florez, Padilla, Wiggins
NOES: Walters, Runner
NO VOTE RECORDED: Ashburn
SENATE APPROPRIATIONS COMMITTEE : 7-5, 5/28/09
AYES: Kehoe, Corbett, DeSaulnier, Hancock, Leno, Oropeza,
Yee
NOES: Cox, Denham, Runner, Walters, Wyland
NO VOTE RECORDED: Wolk
SUBJECT : Franchise Tax Board: collections
SOURCE : Author
DIGEST : This bill requires the Franchise Tax Board
(FTB), in coordination with financial institutions doing
business in this state, to operate a Financial Institution
Record Match System utilizing automated data exchanges to
the maximum extent feasible in order to allow FTB to match
its list of delinquent tax debtors with the lists provided
by the financial institutions. This bill authorizes FTB to
institute civil proceedings to enforce specified provisions
of the bill, and imposes specified penalties on financial
institutions for failure to provide records in connection
CONTINUED
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with the match system, as provided. This bill provides
that the specified use of certain data is a misdemeanor.
ANALYSIS : Existing law established the Financial
Information Data Match (FIDM) program, which requires
financial institutions to match its customer records
against a list of child support obligors. Financial
institutions may comply with the requirement by sending its
depositor information to FTB, or match the names
themselves, either in-house or contracting with a data
management firm. Once a name from the child support
obligors list matches a name on the financial institution's
customer records, the FTB issues an order to withhold to
the financial institution, which must then freeze the
taxpayer's assets, hold the assets for ten days, and then
remit to the department all cash or cash equivalents
necessary to meet the amount owed. Federal law bars any
FIDM information from being used for any other purposes.
Additionally, FIDM prohibits collecting against any income
tax debts, allowing only for outstanding child support.
Existing law generally prohibits unlawful disclosure or
inspection of any income tax return information, except as
specified in law. Criminal sanctions, including
imprisonment apply to FTB personnel convicted of unlawful
disclosure or inspection of tax records. FTB must notify a
taxpayer if criminal charges have been filed for willful
unauthorized inspection or disclosure of their tax data.
This bill enacts the Financial Information Record Match
(FIRM) program, modeled after FIDM and administered by FTB,
which requires financial institutions to match a list for
delinquent tax debtors against its customer records. FIRM
applies only to individuals who are delinquent tax debtors
on or after the enactment date of the bill. Financial
institutions must provide to FTB, on a quarterly basis, the
name, record address, social security number or taxpayer
identification number for each delinquent tax debtor in its
customer records. Financial institutions shall not
disclose to a depositor that their name and information has
been submitted to FTB, except as otherwise required by law.
This bill requires FTB to reimburse a financial institution
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for its actual costs incurred to implement FIRM. Financial
institutions must supply FTB with an invoice, which will
then pay up to $2,500 for startup costs and no more than
$250 per calendar quarter thereafter.
This bill ensures that financial institutions cannot be
held liable for furnishing information to FTB as required
by FIRM, failing to disclose to a depositor that their name
and information was supplied to FTB, and any other action
taken in good faith to comply with the program.
This bill allows FTB to apply a penalty of $50 to a
financial institution for each record not provided, not to
exceed $100,000 per institution, for willfully failing to
comply with FIRM unless reasonable cause can be shown. FTB
may also pursue civil penalties.
This bill provides definitions for its terms to ensure
consistency with FIDM.
This bill allows FTB to prescribe any rules and regulations
necessary to implement FIRM, including:
1. A file matching structure for FTB and financial
institutions or their data processing agents.
2. An option for financial institutions without the
technical ability to process the data or hire a data
processing agent to forward customer information to FTB
to perform the match instead.
3. Authority for the FTB to temporarily suspend the
requirements of the section for a financial institution
provides the FTB with a written notice from its
supervisory banking authority that is determined to be
undercapitalized, significantly undercapitalized, or
critically undercapitalized as defined by FDIC [Federal
Deposit Insurance Corporation] regulations or NCUA
[National Credit Union Administration] regulations, as
specified.
This bill states that implementing FIRM is contingent on an
appropriation of funds, and is not operative until 120 days
after the date the funds are appropriated. This bill
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further limits the first data file to 600,000 data records,
and subsequent data files cannot increase by more than
600,000 records.
This bill also provides an exception to laws barring
unlawful inspection and disclosure to allow FTB to disclose
names and information to financial institutions to
effectuate the program, however, this bill ties in criminal
sanctions that currently apply to FTB to any use of
information other than collection of taxes and non-tax debt
referred to FTB for collection. This bill also exempts
FIRM from the provisions of the California Right to
Financial Privacy Act.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to FTB, this bill results in increased tax
collections of $35 million in 2010-11, $63 million in
2011-12, and $99 million in 2012-13, plus some increases in
non tax-debt collections. This bill also incurs
implementation costs to FTB of $3.9 million in 2009-10,
$7.2 million in 2010-11, and $5.3 million in 2011-12.
SUPPORT : (Verified 5/28/09)
California School Employees Association
California Tax Reform Association
Franchise Tax Board
ARGUMENTS IN SUPPORT : According to the author, "In
today's times of fiscal strife, where key public services
face tremendous cuts and law-abiding taxpayers pay higher
sales and income tax rates than ever before, the state must
do a better job of employing modern collection techniques
and information technology to collect uncollected taxes
due. SB 402 presents such a step by requiring financial
institutions to match its customer records against the
FTB's database of individuals with final tax delinquencies.
Tax delinquents are often very smart - moving money from
account to account before the state can catch them. SB 402
is a smart approach - it allows FTB to share data with
banks and credit unions to identify depositors with unpaid
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tax obligations and quickly issue orders to withhold,
resulting in the state collected delinquent taxes before
tax cheats can evade collections again. Banks and credit
unions already perform this data matching to collect
outstanding child support, and SB 402 builds on this
infrastructure by helping enhance tax collections without
an unworkable administrative difficulty for financial
institutions. Several other states use data matching for
income tax delinquencies, and there's never been a more
crucial time to update its efforts to collect outstanding
taxes."
DLW:mw 5/29/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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