BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 1036 - Cedillo
Amended: April 6, 2010
Hearing: April 14, 2010 Fiscal: No
SUMMARY: This bill allows cities to contract with third
parties to view taxpayer information received
from the Franchise Tax Board.
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. The Franchise
Tax Board (FTB) must notify a taxpayer if criminal charges
have been filed for willful unauthorized inspection or
disclosure of their tax data. However, FTB may publish
statistical data related to taxpayer information so long as
nothing specific to a single taxpayer is disclosed
EXISTING LAW allows an exception to the above
provisions by authorizing the Franchise Tax Board (FTB) to
provide tax information - name, address, social security
number and business activity code to a city subject to a
written agreement between the city and the FTB. The city
may request information only on taxpayers who file a tax
return within its boundaries and report trade or business
income. Only city employees may use this information; they
are bound by the same confidentiality requirements as FTB
employees. This statute is repealed on January 1, 2014.
THIS BILL allows a city with a reciprocal agreement
with the FTB to adopt a resolution to enter into a contract
with a third-party vendor to process the taxpayer data
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received by the FTB.
THIS BILL specifies that any agent designated by the
resolution to examine tax records must meet certain
conditions, including already having an existing contract
with the city and executing a confidentiality statement as
provided by the FTB.
FISCAL EFFECT:
The FTB estimates that this bill would not
significantly impact the department's cost. Also, the FTB
estimates that this bill would not impact state income tax
revenues.
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COMMENTS:
A. Purpose of the Bill
According to the author, this bill is intended to
assist the FTB and cities exchange business taxpayer
information in order to identify businesses that have not
paid business license taxes and related fees. By
authorizing cities to obtain the assistance of contractors
in processing tax data, this bill will help cities improve
tax collections, increase enforcement of city business tax
laws, and thereby increase city revenue.
The contractors authorized under this bill would be
restricted to: obtaining and filling out eight fields of
data required by the FTB from business tax records, cross
referencing cities' business tax records with FTB income
tax records, and validating a business's existence by
providing additional business indicators.
B. Background
The City Business Tax (CBT) Program dates back to
1984, when the FTB first sponsored legislation mandating
California cities to annually report information obtained
from businesses they licensed. This caused California
cities to identify for the FTB new businesses subject to
filing state income tax returns. While the program brought
in direct revenue upwards of $12 million and $30 million in
indirect revenue (to the state), the difference between
revenue and cost narrowed. In 1999, the Legislature
repealed the program because the cost of state reimbursed
mandate claims from local agencies grew from $ 3 million to
$9 million. Thus, the Legislature determined the program
was no longer worth the state reimbursements to local
agencies remitting the information.
Since the elimination of the mandate, legislation has
been enacted to allow sharing of tax information between
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the FTB and cities. Under current law, the FTB and
participating cities have the authority to exchange data
through a reciprocal agreement at no cost to either party.
Under the current CBT program, the FTB may disclose limited
confidential tax data to participating city tax officials.
In exchange for this information, the cities provide
information to FTB on local business taxpayers.
C. Taxpayer Confidentiality
Opponents of the measure have expressed the concern
that taxpayer confidentiality could be compromised if
private individuals and consulting firms are permitted to
access taxpayer information provided by the FTB. Cal-Tax
states that "the mishandling of taxpayer records has been
well-documented in the case of private debt collection
firms assigned to handle state and local government tax
collections, and we object to extending access to these
records to other private firms hired by local governments
to enhance local revenue."
Also, the FTB has expressed concern regarding taxpayer
confidentiality. The FTB points out that the bill's
language could be tightened to specify that each agent
named in the resolution be a party to, or independently
execute the confidentiality agreement. This specification
would uphold FTB's institutional commitment to taxpayer
information confidentiality.
Support and Opposition
Support: California Municipal Revenue & Tax
Association
City of Pleasanton
City of San Rafael
City of Newport Beach
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City of Roseville
California Professional Firefighters
Oppose: Cal-Tax
California Chamber of Commerce
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Consultant: Meg Svoboda