BILL ANALYSIS �
AB 1044
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ASSEMBLY THIRD READING
AB 1044 (Butler)
As Amended May 11, 2011
Majority vote
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Perea, Donnelly, Beall, |Ayes:|Fuentes, Harkey, |
| |Charles Calderon, | |Blumenfield, Bradford, |
| |Cedillo, Alejo, Gordon, | |Charles Calderon, Campos, |
| |Harkey, Nestande | |Davis, Donnelly, Gatto, |
| | | |Hall, Hill, Lara, |
| | | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
| | | | |
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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)Disallows the submission of a RW to the BOE unless the State
Controller determines that the acceptance of RWs will not:
a) Jeopardize the state's ability to issue regular warrants
for education programs, debt service, state payroll,
pensions, In-Home Supportive Services, Medi-Cal providers,
or any other payment required by federal law, the
California Constitution, or a court order; and,
b) Result in a net cost to the state, as defined.
3)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 :
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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.
FISCAL EFFECT : Requiring acceptance of registered warrants
would have unknown, potentially moderate impacts on the state's
cash flow situation.
1)The BOE currently has discretion to accept registered warrants
in lieu of cash payments and, in fact, accepted $7 million in
such warrants last year. The effect of this bill would be to
make a discretionary act mandatory, regardless of the
consequences for the state's cash-flow situation.
2)Any loss in cash payments resulting from acceptance of IOUs
will require the state to issue additional IOUs to make up for
the additional cash shortfalls that result. In extreme
circumstances (involving much larger issuances of IOUs than in
the past), the loss of cash could affect the ability of the
state to make priority payments for debt service or other
purposes. However this bill contains a safeguard that the
State Controller must approve the accepting of registered
warrants, so it is unlikely to have an adverse impact on the
state's cash position.
COMMENTS : 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
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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.
Assembly Revenue and Taxation Committee Staff Comments:
1)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.
2)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 agency - the BOE, provided the State
Controller makes specified findings. 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?
3)Related legislation :
a) SB 1494 (Senate Revenue and Taxation Committee), Chapter
654, Statutes of 2010, contains multiple provisions
including RW provisions similar 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
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provisions from the bill.
b) AB 1506 (Anderson), of 2009, 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."
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0000943