BILL ANALYSIS �
AB 2048
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Date of Hearing: May 2, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2048 (Donnelly) - As Amended: April 9, 2012
Policy Committee: Revenue and
Taxation Vote: 8-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the state to pay the same interest rate for
refunds as is charged for late tax payments, for all tax and fee
programs that the State Board of Equalization (BOE) administers.
FISCAL EFFECT
BOE estimates that this bill would result in a revenue loss of
$4.3 million for the second half of fiscal year 2012-13, $31
million in 2013-14 and $51 million in 2014-15.
COMMENTS
1)Purpose . The author argues AB 2048 simply allows the BOE to
pay taxpayers interest on their overpayments at the same rate
as the interest rate these taxpayers are charged when they are
late in paying their taxes. The author notes from 1937
through 1991, the interest rates for overpayments and
underpayments for the BOE programs were the same. According
to the author, that changed in 1991 when the Legislature
reduced the rate paid on overpayments because of an
unfavorable court decision that required the state to refund
significant amounts with interest. The author argues those
refunds have been paid for years now and it is time to end
this significant disparity that has been going on for over two
decades.
2)Background. Those who are late in paying their
BOE-administered taxes pay a penalty equal to 10% of the tax,
plus interest on the unpaid tax from the date the tax became
AB 2048
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due to the date of payment. The interest rate on
underpayments is calculated by adding three percentage points
to the rate specified in the Internal Revenue Code and is
adjusted semiannually. The rate for underpayments is
currently 7%.
Generally, those who have paid more of their BOE-administered
tax than is due receive interest on the amount refunded. The
state pays an interest rate calculated from the auction of
13-week Treasury bills, adjusted semiannually and rounded to
the nearest full percent. Since, July 2009, the interest rate
for overpayments has been 0%.
The IRS and the FTB have no disparity in interest rates for
non-corporate overpayments and underpayments. The IRS has
only a one percent disparity for corporate overpayments (the
disparity is higher if the corporate underpayment is over
$100,000 or the corporate overpayment exceeds $10,000). For
corporate overpayments, the FTB has a four percent disparity.
3)Support. BOE, the sponsor of the bill, notes they understand
that the passage of this bill will place more strain on the
General Fund, however, the issue here is fairness to
taxpayers. BOE notes that often, appeals arise before the
Board of Equalization can take years to resolve. They argue
that taxpayers are often required to pay the amount owed
before entering litigation. If they win, BOE argues,
taxpayers should receive a fair interest rate for the time the
government has been holding their money.
4)Opposition. The American Federation of State, County and
Municipal Employees (AFSCME) contends overpayments and
underpayments of taxes are two different situations and should
not necessarily be treated equally. They note the higher
interest payment on late payments is intended to serve as a
deterrent from underpaying taxes, but the same rationale does
not exist for paying too much to BOE. They also argue such an
application would put the state in the position of providing
high-interest returns to taxpayers who may deliberately pay
more taxes than they owe.
5)Related legislation : Since the disparity in interest rates
began, legislative efforts have been attempted to address the
interest rate disparity between refunds and late payments.
The most recent bills are listed below.
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a) SB 421 (Correa, 2011) reduced the interest rate on
unpaid taxes by 3%. SB 421 was held in the Senate
Appropriations Committee.
b) AB 1926 (Horton, 2008) equalized the interest rates. AB
1926 was held in Assembly Revenue and Taxation Committee.
c) AB 1589 (Villines, 2005) also equalized the interest
rates. AB 1589 was held in the Assembly Appropriations
Committee.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081