BILL ANALYSIS �
AB 1044
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Date of Hearing: April 4, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1044 (Butler) - As Introduced: February 18, 2011
Majority vote. Fiscal committee.
SUBJECT : Registered warrants: taxation
SUMMARY : Revises the statutory provisions that allow any
taxpayer named as a payee on a registered warrant (RW) to
satisfy their liability for certain taxes by issuing a check in
an amount no greater than the RW. Specifically, this bill :
1)Expands the provisions to cover taxes, fees, and surcharges
required to be remitted to the State Board of Equalization
(BOE).
2)Provides that liabilities may be satisfied by submitting the
original RW, signed on the reverse side by the payee and
endorsed as payable to the agency to which the liability is
owed.
EXISTING LAW :
1)Allows any taxpayer named as a payee on a RW to satisfy their
liability for certain taxes by issuing a check in an amount no
greater than the RW, exclusive of any interest thereon. In
such cases, the state may not present the check for payment
until the RW is payable upon its presentation to the State
Treasurer. These provisions currently apply only to
liabilities for personal income taxes and bank and corporation
taxes.
2)Precludes any taxpayer who submits a check pursuant to the
above provisions from receiving interest on the RW from the
date the check is submitted.
3)Provides that, in the event a tax liability is paid with a RW
that is redeemable at the time the tax liability is paid,
specified interest shall be credited to the taxpayer's
account.
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FISCAL EFFECT : the BOE notes, "This bill would have no impact
on state and local revenues, as well as any special fund
revenues. However, because payment of taxes, fees, and
surcharges using a registered warrant would require the warrant
to be held until the warrant redemption date, there could be a
deceleration of cash receipts."
COMMENTS :
1)The author has provided the following statement in support of
this bill:
This bill is sponsored by the BOE in order to codify the
BOE's current administrative practice to accept registered
warrants as payment for tax and fee liabilities. Current
law requires the Franchise Tax Board to accept payment by
registered warrants from a taxpayer. However, BOE is not
required to accept registered warrants, but is not
prohibited from doing so. Having clear statutory
authorization to accept registered warrants would eliminate
any future ambiguity. And, given that the fiscal situation
of the State may necessitate further use of registered
warrants, it will be clear that the BOE is required to
accept them as payment.
2)The BOE notes the following in its staff analysis of this
bill:
a) "This change would eliminate any future ambiguity on the
issue and allow BOE staff to immediately implement plans to
accept and process any registered warrants and thereby
avoid any future uncertainty on whether or not an
outstanding liability may be satisfied in that manner."
b) "This bill would also delete confusing language in
subdivision (c) of Section 17280 related to a taxpayer
receiving interest on a registered warrant. Currently, if
a taxpayer submits the warrant before it matures
(redeemable), the taxpayer does not receive any interest.
The current language can be misleading since taxpayers may
incorrectly read it to mean they are entitled to interest
from the issue date of the warrant to the taxpayer to the
date the taxpayer submits the warrant as payment of tax.
The proposed changes to Section 17280.1 protect a
taxpayer's right to receive interest on a mature warrant."
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c) "At the August 31, 2009 BOE Legislative Committee
meeting, the Members voted unanimously to support a
proposal that would give the BOE the same exact authority
as the FTB. The proposal would require the BOE to accept
registered warrants as payment for any tax, surcharge, or
fee liability to the BOE if the registered warrant is
issued specifically to that tax, fee, or surcharge payer."
3)Committee Staff Comments:
a) RWs : In normal times, the state issues warrants to
satisfy obligations to vendors, contractors, hospitals,
workers, and other entities. Warrants are the government
equivalent of checks, and are issued by the State
Controller. During periods of serious cash shortfalls,
however, the state may have to issue RWs. This occurs
when, after ranking all of the state's obligations and
setting aside all money that must be set apart for higher
ranking obligations, the State Controller determines that
there are insufficient funds to pay a warrant. In such
cases, a warrant is registered, and the state promises to
pay the face value as soon as money is available.
b) Arguments in Support : The author contends that this
bill addresses an inequity in current law whereby the state
can issue RWs when there are insufficient funds to pay all
of the state's obligations, but the state is not required
to accept RWs for obligations owed to it.
c) Arguments in Opposition : Critics argue that BOE
currently has discretion to accept RWs in lieu of cash
payments and that this bill would make a discretionary act
mandatory, regardless of the consequences for the state's
cash-flow situation. Furthermore, any loss in cash
payments resulting from the acceptance of RWs would require
the state to issue additional RWs to make up for the
additional shortfalls that result.
d) Equal Treatment or Precedent? : Existing law already
directs the Franchise Tax Board to accept RWs in
satisfaction of personal and corporate income tax
liabilities. It could be argued that this bill simply
extends these provisions to the state's other main tax
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agency - the BOE. Nevertheless, this bill would not
require any other state agency to accept RWs. Is there a
principled reason for requiring the BOE to accept RWs, but
not the Department of Motor Vehicles? Might this bill
establish a precedent for other agencies to seek explicit
statutory direction to accept RWs?
e) Related Legislation :
i) SB 1494 (Committee on Revenue and Taxation), Chapter
654, Statutes of 2010, contained multiple provisions
including RW provisions identical to those in this bill.
As a result of the RW provisions, SB 1494 was referred to
the Assembly Appropriations Committee's suspense file.
To move the BOE-sponsored bill off the suspense file, BOE
staff accepted the committee's recommendation to strike
the RW provisions from the bill.
ii) AB 1506 (Anderson), of the 2009-10 Legislative
Session, would have required state agencies to accept RWs
for the payment of any obligations owed by the RW payee
to the state agency. AB 1506 received broad bipartisan
support throughout the legislative process, but was
vetoed by the Governor. In his veto message, Governor
Schwarzenegger stated:
I sympathize with businesses that were issued IOUs
last year and those businesses that may receive them
this year. IOUs place enormous financial strains on
recipients who are unable to use them to pay their own
obligations, including debts owed to the state.
However, requiring state departments to accept IOUs in
lieu of cash payments defeats the purpose of issuing
IOUs in the first place. It would exacerbate the
state's cash crisis and would accelerate the
possibility of the state defaulting on its debt
service and payroll obligations.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization
Opposition
AB 1044
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None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098