BILL ANALYSIS �
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 1475
Author: Committee on Budget
As Amended: June 13, 2012
Consultant: Mark Ibele
Fiscal: Yes
Hearing Date: June 14, 2012
Subject: Budget Act of 2012: Tax Administration and
Compliance.
Summary: This measure makes various changes to state laws
regarding tax administration and compliance necessary for
the implementation of the Budget Act of 2012.
Background: Under current law, the state is authorized to
issue a withholding order for taxes to collect an
outstanding state tax liability, including any penalties,
accrued interest, and costs in accordance with state law
and regulation. Currently, "state tax liability" is
defined to mean an amount for which the state has a state
tax lien created pursuant to specified provisions. Under
existing law, the Franchise Tax Board imposes certain
penalties in connection with tax avoidance and partially
conforms to federal law in this respect, but not with
respect to erroneous refund claims. Current law requires
multistate corporations to apportion income among the
states based on specified criteria. From 1993 through
2010, corporations were required to apportion income using
a four-factor formula based on the relative proportion in
California of property value, payroll cost and sales
revenue (weighted twice). Current law allows the Franchise
Tax Board to use automatic data exchanges to identify
accounts of delinquent tax debtors held at financial
institutions doing business in California.
Proposed Law: This bill includes the following
provisions:
1. Changes the Ability of Franchise Tax Board to
Impose Earnings Withholding. Expedites and reduces the
costs associated with the earnings withhold process by
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expanding the term "state tax liability" to include
any liability under the Personal Income Tax Law,
Corporation Tax Law, or specified franchise and income
tax provisions that is due and payable and that
remains unpaid. The proposal would save the
administrative costs associated with recording a lien.
It would also allow the tax agency to collect tax
liabilities that are over 10 years old. (Tax debts
over 10 years old expire unless renewed by recording a
lien.) The change is expected to result in additional
General Fund revenues of $11 million in the current
year and $27 million in 2012-13.
2. Imposes a Penalty on Certain Erroneous Refund
Claims. Alters state tax law to achieve additional
conformity with federal law by imposing a penalty for
filing an erroneous claim for refund, when the claim
lacks a reasonable basis. The corresponding federal
treatment imposes a penalty if a claim for refund is
made for an excessive amount unless there is a
reasonable basis for the claim. The measure would
close a loophole in the general accuracy-related
penalty framework by imposing a penalty is equal to 20
percent of the excessive amount. The new policy is
intended to further restrict the potential use of
refund requests when the reason for refund is not
substantiated. The estimated revenue impact is $1
million in 2011-12 and $3 million in 2012-13.
3. Confirms Existing Law with Respect to the
Apportionment of Income. Confirms that current law
with respect to apportionment of corporation income is
pursuant to an original return, repeals all provisions
related to the Multistate Tax Compact resulting in
budgetary savings of about $0.5 million, and adopts
non-inference language regarding this action.
4. Expands the Use of a Financial Institution Records
Match. Authorizes the expansion of the Financial
Institutions Records Match (FIRM) program to the
Employment Development Department and Board of
Equalization. The 2011 Budget Act authorized the
Franchise Tax Board to operate and administer FIRM and
utilize automated data exchanges to identify accounts
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of delinquent tax debtors held at financial
institutions doing business in California. The
Franchise Tax Board estimated that the use of FIRM
would generate $30 million in additional General Fund
revenues in 2011-12. Expanding the FIRM program to
tax programs administered by the Employment
Development Department and Board of Equalization is
expected to result in additional General Fund revenues
of $4 million in 2011-12 and $11 million in 2012-13.
Fiscal Effect: The measure will result in additional
General Fund revenues of $16 million in 2011-12 and $41
million in 2012-13.
Support: Unknown
Opposed: Unknown
Comments: This measure would facilitate the collection of
tax liabilities that remain unpaid by changing the existing
earnings withholding procedures; imposing a penalty on the
filing of refund claims with no reasonable basis;
confirming the income apportionment method for multistate
corporations; and expanding the existing Financial
Institutions Records Match program from Franchise Tax Board
to include taxes programs administered by the Employment
Development Department and the Board of Equalization.
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