BILL ANALYSIS �
AB 1352
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1352 (Logue) - As Amended: March 22, 1011
Majority vote. Fiscal committee.
SUBJECT : Sales and use tax: administration: interest relief.
SUMMARY : Grants the State Board of Equalization (BOE), meeting
as a public body, discretion to relieve interest under specified
circumstances. Specifically, this bill :
1)Provides that if BOE finds in its discretion that a person's
failure to make a timely payment was due to "extraordinary
circumstances" and that it is inequitable to compute interest
in accordance with the Sales and Use Tax (SUT) Law, then BOE
may relieve all or part of the interest imposed on that
payment if all of the following occur:
a) The person was granted relief from all penalties that
applied to that payment;
b) The person has made the payment on which the interest
was imposed. (In the case of interest attributable to an
unpaid liability for which the person has filed a petition
for redetermination, the person must make the underlying
payment within 30 days of being served with a final BOE
decision on that petition);
c) The person files a request for an oral hearing before
BOE; and,
d) The person files with BOE a statement under penalty of
perjury setting forth the facts upon which the claim for
relief is based, along with any other information BOE
requires.
2)Limits the aggregate amount of relief granted to all persons
to $50,000 in a 12-month period but specifies that the $50,000
limitation does not apply to relief of interest granted by the
BOE pursuant to Revenue and Taxation Code (R&TC) Section 6593,
related to disasters.
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3)Defines "extraordinary circumstances" as any of the following:
a) The occurrence of a death or medical incapacity of the
person, or person's next of kin, that caused the person's
failure to make a timely payment;
b) The occurrence of an emergency, as defined in Government
Code (GC) Section 8558, that caused the person's failure to
make a timely payment; or,
c) Criminal misconduct by a person, other than the person
that failed to make a timely payment, that caused the
person's failure to make a timely payment.
4)Provides that payment includes any of the following:
a) A payment of tax;
b) A prepayment of tax on which interest is imposed under
the SUT Law; or,
c) A payment of an amount of tax required to be collected
and paid to the state.
5)Provides that any relief granted may be rescinded, and all
interest reestablished, without regard to any statute of
limitations, if a person fails to comply with the requirement
to make the underlying payment.
6)Provides that no reimbursement is required under the
California Constitution because the only costs that may be
incurred by a local agency will be incurred because this act
creates a new crime or infraction.
EXISTING LAW :
1)Requires, under the SUT Law, any person who fails to pay tax
within the prescribed time to pay a penalty equal to 10% of
the tax, plus interest at the modified adjusted rate per month
from the date on which the tax became due until the date of
payment. The rate of interest for late payments is currently
7% annually.
2)Provides that if BOE finds that a person's failure to make a
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timely payment was due to reasonable cause and circumstances
beyond the person's control, and occurred notwithstanding the
exercise of ordinary care and the absence of willful neglect,
then the person shall be relieved of penalties.
3)Provides that if BOE finds that a person's failure to make a
timely payment was due to a disaster, and occurred
notwithstanding the exercise of ordinary care and the absence
of willful neglect, the person may be relieved of interest.
Any person seeking to be relieved of interest must file with
BOE a statement under penalty of perjury setting forth the
facts upon which the claim for relief is based.
FISCAL EFFECT : The BOE staff states that it is difficult to
determine, with any degree of certainty, to what extent the BOE
Members would provide relief, and to what extent relief of
interest would be sought by taxpayers in general, under the
provisions of this bill. Therefore, the interest revenue loss
related to this bill is indeterminable; however, under the terms
of this bill itself, the loss would not exceed $50,000 during
any 12-month period.
COMMENTS :
3 The Author's Statement . The author has provided the following
statement in support of this bill:
This measure was brought to our attention by the BOE. It
is to allow the Members of the BOE some limited flexibility
in providing interest relief to taxpayers in situations
where otherwise law-abiding taxpayers make a late payment
that was caused by a personal tragedy, such as the death of
a family member, or a medical incapacity, or even criminal
misconduct by a taxpayer's own employee. The bill was
prompted by a specific case that came before the Members of
the BOE where a bookkeeper embezzled a substantial amount
of sales tax collected from the taxpayer's customers. Even
though the taxpayer had previously an excellent payment
record with the BOE, and acted swiftly and appropriately
when he discovered the embezzlement and fired the
bookkeeper (who was later prosecuted and sentenced to
prison), under the law, the BOE had no authority to grant
the taxpayer any relief of the interest.
AB 1352 provides the BOE with the authority to relieve some
AB 1352
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or all of the interest in those extraordinary circumstances
that come before it, and sets a reasonable limit on the
amount of interest the BOE may relieve each year.
3 BOE Comments . BOE, the sponsor of this bill, notes the
following in its staff analysis:
a) This bill was prompted by a SUT case that BOE heard at
its December, 2009 public hearing. In that case, the
taxpayer's bookkeeper altered the taxpayer's computerized
accounting records and embezzled a substantial amount of
sales tax reimbursement collected from the taxpayer's
customers. Although the bookkeeper was fired and is
currently serving a prison sentence, the taxpayer remains
liable for the tax and interest. And, even though the
taxpayer had an excellent record of paying SUT, and acted
swiftly upon learning of the embezzlement, the fact that
the taxpayer was the victim of a crime does not provide a
basis for relief under existing law.
b) There have been other extraordinary cases in the past
where charging interest on a late payment has seemed
severe. For example, there have been situations in which
taxpayers had documented medical emergencies or family
deaths that occurred the day the returns were due, and even
though the returns were filed only a day or two late,
monthly interest as still imposed.
c) AB 1352 is needed to provide BOE members with some
limited flexibility to grant interest relief in those
unusual cases that come before them, such as those
described above.
4)Extraordinary Circumstances : This bill would grant BOE
discretion to waive interest if a taxpayer's failure to make a
timely payment was due to "extraordinary circumstances,"
defined to include emergencies described in GC Section 8558.
Those emergencies include "state of war emergency," "state of
emergency," and a "local emergency." Under existing law, some
of those types of emergencies may already qualify for interest
relief under RT&C Section 6593, which applies in the case of
disasters. A "disaster" is defined in the BOE's Regulation
1703 to mean fire, flood, storm, tidal wave, earthquake or
similar public calamity, whether or not resulting from natural
causes. The inclusion of emergencies described in GC Section
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8558 in the definition of "extraordinary circumstances" will
have no impact on BOE's current authority to abate interest
under RT&C Section 6593, but it may be, in some ways, a
duplication of existing law. However, RT&C Section 6593
applies to any qualifying disaster, does not require a
taxpayer to ask for an oral hearing before the BOE and does
not limit that amount of interest that may be abated by BOE
during the 12-month period. In the last two years, 26
taxpayers were granted relief under this section, resulting in
$6,604 of interest amount relieved.
5)"Slippery Slope" or Issue of Fairness ? As discussed, under
existing SUT Law, relief of interest imposed on a late payment
of tax is generally not available, except in cases of a
disaster or where the failure to pay on time was due to an
unreasonable error or delay by a BOE employer. Similarly,
under federal tax law, the Internal Revenue Service does not
grant interest abatement if the error or delay can be
attributed to the taxpayer. The Franchise Tax Board (FTB) is
also authorized to abate interest only in limited
circumstances, such as a case of a disaster, the agency's
error or delay, a taxpayer's reliance on FTB's formal written
advice, a taxpayer's extreme financial hardship that resulted
from a significant disability or other catastrophic
circumstance, a refund issued to a taxpayer in error, through
no fault of the taxpayer, and specified cases involving
certain military personnel.
The issue before the Committee is whether the BOE's authority
should be expanded to allow BOE members broad discretion in
waiving interest in a number of situations. It is clear that
some of those situations are extraordinary cases where
charging interest on a late payment seemed unwarranted. This
bill tries to identify the circumstances that would justify
the exercise of BOE's authority to waive interest. But, at
the same time, it implicitly denies relief in other cases, not
included in this bill, that may be equally compelling. Thus,
the question to be decided is whether this bill appropriately
balances the need for abating interest for taxpayers who
suffered personal tragedy against the risk of creating a
"slippery slope" of providing interest relief in some
circumstances and not others.
4)Related Legislation.
AB 1352
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AB 2375 (Knight), introduced in the 2009-10 legislative session,
is identical to this bill. AB 2375 failed passage in the
Senate Revenue and Taxation Committee.
SB 1028 (Correa), Chapter 316, Statutes of 2010, would have
enabled BOE members, meeting as a public body, to compute
daily, rather than monthly interest, on a payment that is only
one day late, under specified circumstances.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
Opposition
None on file
Analysis Prepared by : Oksana G. Jaffe / REV. & TAX. / (916)
319-2098