BILL ANALYSIS
SB 1036
Page 1
Date of Hearing: June 28, 2010
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Anthony J. Portantino, Chair
SB 1036 (Cedillo) - As Amended: April 20, 2010
Majority vote.
SENATE VOTE : 23-7
SUBJECT : Tax administration: information disclosure:
Franchise Tax Board and cities
SUMMARY : Allows cities that have entered into a "reciprocal
agreement" with the Franchise Tax Board (FTB) to designate, by
resolution, an outside agent to examine all of the tax
information obtained under the agreement. Specifically, this
bill requires any such resolution to certify that the designated
agent:
1)Has an existing contract with the city to examine those tax
records;
2)Is required by that contract to disclose information contained
in, or derived from, those tax records only to an employee of
the city or agent who is authorized by the resolution to
examine the information;
3)Is prohibited by that contract from performing consulting
services for private industry during the term of that
contract;
4)Is prohibited by that contract from retaining the information
contained in, or derived from, those tax records, after that
contract has expired; and,
5)Has executed a confidentiality statement, as provided by FTB.
Each executed confidentiality statement shall be retained by
the city and made available to FTB during its disclosure
review of the city or as otherwise requested by FTB. The
confidentiality statement must be executed by each agent
authorized.
EXISTING LAW :
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1)Authorizes FTB to permit the tax officials of any city to
enter into a reciprocal agreement with FTB to obtain tax
information from FTB, as specified. The information that may
be furnished to a city's tax officials is subject to the
following limitations:
a) The city's tax officials are only authorized to receive
information related to taxpayers with an address in the
city who report income from a trade or business to FTB;
b) The information is limited to a taxpayer's name,
address, social security or taxpayer identification number,
and business activity code;
c) Tax information provided to a city's taxing authority
may not be furnished to, or used by, any person other than
an employee of that taxing authority.
d) The information provided to a city's tax officials is
subject to Revenue and Taxation Code Section 19542, which
makes it a misdemeanor to disclose confidential tax
information. Specifically, the information may only be
used for the city's tax enforcement, or as otherwise
authorized by state or federal law.
2)Provides that any information, other than the limited type of
tax information specified above, may be requested by a city's
tax officials from FTB by affidavit. At the time a tax
official makes the request, he/she must provide the person
whose information is being requested with a copy of the
affidavit and, upon request, must make the information
obtained available to that person.
3)Provides for the automatic repeal of the above provisions on
January 1, 2014.
FISCAL EFFECT : FTB estimates that this bill would have no
impact on the state's income tax revenues.
COMMENTS :
1)The author states, "This measure is intended to assist the FTB
and cities to exchange business taxpayer information in order
to identify tax cheats. The bill does not increase any local
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or state tax. The bill would allow cash strapped cities to
hire contractors, by passage of a resolution, which would be
authorized to share local tax records with the FTB. These
contractors would be under strict privacy and confidentiality
restrictions to protect taxpayers."
2)Proponents state, "It's our understanding that current law
authorizes city tax officials and the [FTB] to exchange tax
information on businesses in order to identify businesses not
satisfying both State and local tax requirements. In
addition, processing this tax information is complex, and with
furloughs and staff reductions most municipalities have been
unable to provide information to the FTB or act on the
information it receives from the FTB."
3)Opponents state, "SB 1036 may compromise taxpayer
confidentiality and provides inadequate assurances that
taxpayer information will not be mishandled. Moreover, under
existing laws giving cities access to state taxpayer
information, a number of small businesses have been subject to
harassing and intimidating local tax collection practices."
4)Committee Staff Comments
a) Program Background : As noted in FTB's staff analysis of
this bill, "FTB and participating cities have the authority
to exchange data through a reciprocal agreement at no cost
to either party. Under the current program (City Business
Tax), 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."
b) Potential Issues for Discussion :
i) This bill requires a city resolution to certify that
the designated agent has an existing contract with the
city to examine tax information. However, this bill also
provides that tax information may only be furnished to an
agent designated by resolution. Does this mean that a
city must enter into a contract with an agent before a
resolution is formally adopted, and thus, before the
agent is actually permitted to receive tax information?
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Would the contract be conditioned upon city approval of a
resolution, or would the contract and resolution be acted
upon concurrently? The author may wish to take
amendments to clarify these issues.
ii) This bill provides that agents may only disclose tax
information "to an employee of the city or agent who is
authorized by the resolution to examine the information."
This raises two issues. First, the author may wish to
replace the term "an employee of the city" with "the tax
officials of the city" for the sake of internal
consistency within the statute. Second, Committee staff
does not understand the precise purpose of including the
phrase "or agent who is authorized by the resolution to
examine the information." Does this mean that a
designated agent would be authorized to disclose the
information to a second designated agent? Or is this
language meant to ensure that, if the agent is a company,
only employees of the company who have themselves been
named in the resolution would have access to the
information? Or is the language meant to address both
scenarios?
iii) It is not entirely clear whether the information a
city could furnish an agent would be restricted to the
limited taxpayer information available without an
affidavit (i.e., name, address, identification number,
and business activity code.) Specifically, if a city
were to obtain information from FTB by affidavit, would
it be entitled to share that information with a
designated agent?
c) Legislative History :
i) AB 63 (Cedillo), Chapter 915, Statutes of 2001,
authorized FTB to permit a city's tax officials to obtain
specified tax information regarding taxpayers in the city
who report income from a trade or business to FTB.
ii) SB 1146 (Cedillo), Chapter 345, Statutes of 2008,
required cities that assess a city business tax or that
require a city business license, upon the request of FTB,
to submit annually to FTB specified information collected
in the course of administering the city's business tax
program.
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REGISTERED SUPPORT / OPPOSITION :
Support
California Municipal Revenue & Tax Association
City of Commerce
City of Newport Beach
City of Sacramento
City of San Rafael
Opposition
California Chamber of Commerce
California Taxpayers' Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098