BILL ANALYSIS �
AB 2439
Page 1
ASSEMBLY THIRD READING
AB 2439 (Eng)
As Amended May 25, 2012
Majority vote
REVENUE & TAXATION 5-2 APPROPRIATIONS 10-5
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|Ayes:|Perea, Beall, Charles |Ayes:|Blumenfield, Bradford, |
| |Calderon, Wieckowski, | |Charles Calderon, Davis, |
| |Gordon | |Gatto, Ammiano, Hill, |
| | | |Lara, Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Wagner, Nestande |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
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SUMMARY : Requires the Franchise Tax Board (FTB) to make
available, upon request, information regarding the tax liability
of each publicly traded corporation, as provided. Specifically,
this bill :
1)Contains legislative findings and declarations relating to the
following:
a) Disclosure of federal and state corporation taxes paid
by publicly traded corporations to the Securities and
Exchange Commission (SEC) on Form 10-K; and,
b) Recent changes in the state's Corporation Tax (CT) Law
that provide for the elective use of the single-sales
factor (SSF) apportionment formula and their potential
impact on taxpayers and California.
2)States the legislative intent to supplement federal tax
reporting requirements for corporations filing a Form 10-K by
adding a single data point that would disclose the amount of
specified tax liability of those corporations that are already
required to disclose their federal and aggregate state
corporation taxes. Provides that this information would be
available to the public upon request.
3)Requires the FTB, on or after September 1, 2014, to make
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available to the public, upon request, information regarding
the tax liability of each corporation that files an annual
Form 10-K with the SEC.
4)Provides that the information shall include both of the
following:
a) The tax liability for a specified corporation with
respect to the taxes imposed by Revenue &Taxation Code
(R&TC) Part 11 (commencing with Section 23001) for the
taxable year that had closed two years before the request
was made; and,
b) Whether the corporation made an election to apportion
its income in accordance with R&TC Section 25128.5 for that
taxable year.
5)Requires the FTB, on or before September 1, 2013, to make
available, upon request, information regarding the tax
liability of each publicly-traded corporation with respect to
the taxes imposed by R&TC Part 11 for the 2010 and 2011
taxable years and its election of an apportionment formula
under R&TC Section 25128.5 for the 2011 taxable year.
6)Provides that, if the amount of tax liability is contested by
either a corporation or the FTB, or otherwise is under
dispute, the FTB must so indicate in its response for a
request for information regarding the tax liability of a
corporation.
7)Defines the phrase "tax liability" as the amount of tax owed
after the application of any credits and excluding
overpayments, estimated tax payments, withholding, or amounts
paid with an extension of time to file tax return.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, minor and absorbable costs for the FTB.
COMMENTS :
Author's Statement . The author states that, "AB 2439 helps
provide transparency and accountability in the corporation tax.
It asks for one simple data point which is very close to data
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which is already publicly reported in the SEC 10-K, for
publicly-traded corporations. Reporting tax liability
consistent with federal reporting will greatly advance the
discussion of corporate tax reform and potential changes in the
law, as it has at the federal level. Combined with other
publicly-available data, this information will be very helpful
in analyzing the impact of recent major changes in the
corporation tax. In order to have an informed discussion of
on-going tax reform and to evaluate future proposed policies, it
is important to know who pays and who has benefitted from the
recent tax changes and what the impacts may be of changing the
system during this difficult budget climate."
Public Disclosure of Corporate Tax Information . Disclosure of
corporate tax information has been debated for a long time. The
advocates of public disclosure have argued that making corporate
income tax returns public would shed light on the effectiveness
of tax policies designed to promote economic development, would
improve tax compliance, and would increase political pressure
for a more fair and efficient tax system. While the federal
lawmakers have access, albeit limited, through the SEC filings,
to some information on corporate profits and the amount of
federal corporate taxes paid, almost no public information is
available to state legislators in evaluating the "state" of the
state corporate income tax laws. Thus, when a state enacts a
corporate tax incentive for the purpose of creating jobs or
encouraging investment in the state, unless the incentive itself
is expressly contingent upon a determinable number of jobs
created, it is difficult, if not impossible, to ascertain the
effectiveness of such policies without the information provided
by company-specific tax disclosure.
Generally, the opponents of corporate disclosure argue that
public disclosure is unconstitutional; it also violates
corporate privacy, jeopardizes corporate trade secrets and
encourages businesses to move to other states. In 1911, the
U.S. Supreme Court dismissed the claim that the 1909 corporate
excise tax was unconstitutional and concluded that the publicity
of corporate tax returns violated neither the Fourth nor the
Fifth Amendment to the U.S. Constitution. Flint v. Tracy Co.
(1911) 220 U.S. 107, 174.
The opponents also believe that corporate tax disclosure would
violate corporate privacy and would reveal valuable proprietary
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business information. As far as the privacy rights are
concerned, publicly traded corporations cede any privacy rights
to keep their affairs private when they issue stock traded on
public stock exchanges. These corporations must file with the
SEC detailed public disclosures of their current finances and
the aggregate amount of state corporate income taxes, among
other items of information. The right to privacy argument is
much more compelling in the case of a privately held company
than in the case of a publicly traded corporation.
The loss of proprietary information was a primary objection in
the 1930s to the original mandated financial disclosures for
publicly traded companies and has been raised for every new
financial disclosure. (See, e.g., Disclosure of corporate tax
return information: accounting, economics, and legal
perspectives, p. 20). While full disclosure of corporate tax
returns, most likely, would result in a loss of some proprietary
business information, the extent to which companies would be
disadvantaged is uncertain. To reduce the potential utility of
tax-related information to out-of-state competitors not subject
to the disclosure requirement, it is advisable to delay the
disclosure of a corporation's tax return information for a
particular tax year for at least two calendar years following
the end of the tax year. (See, e.g., State Corporate Disclosure
Report, Center for Budget and Policy Priorities, p. 21).
Finally, some business representatives argue that corporate tax
disclosure would raise the cost of doing business and would
create, or exacerbate, an anti-business climate in the state
adopting this policy. It is possible, however, that some
corporations may welcome disclosure of tax information to
"dispel the negative image that corporations are somehow tax
freeloaders." (Richard D. Pomp, Corporate Tax Policy and the
Right to Know, p. 49). The publication of corporate tax
information may also reveal that some businesses pay more than
their competitors and are at an economic disadvantage.
Disclosure of Tax Information in California . The State of
California, as well as other states, readily publishes
information on unpaid taxes and delinquent taxpayers with
respect to property taxes. An unpaid property tax becomes a
lien against the real property and dissemination of information
on such liabilities is important for protecting potential
buyers, lenders, etc. In the area of income tax liabilities,
however, the state law generally prohibits disclosure or
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inspection of any income tax return information, except as
specified in law. In fact, the FTB is required to notify
taxpayers if criminal charges have been filed for willful
unauthorized inspection or disclosure of their tax data.
However, FTB may release tax return information to certain other
agencies, including legislative committees, the Attorney
General, the California Parent Locator Service, the Commissioner
of the Internal Revenue Service, and others, for certain
statutorily enumerated purposes. The BOE is similarly
restricted from divulging taxpayer information. Furthermore,
since 2007, both FTB and BOE are required to make as a matter of
public record a list of the largest 250 tax delinquencies over
$100,000. Starting in 2012, the number of tax delinquencies
required to be reported by those tax agencies has increased to
500.
Corporate Tax Disclosure Proposed by This Bill . AB 2439
requires the FTB to make publicly available, upon request,
information regarding the state income or franchise tax
liability of each publicly traded corporation, which files Form
10-K, beginning with the 2010 tax year disclosure. The
disclosure of the corporation's tax liability will occur with a
two-year time delay. In other words, the FTB will release the
requested information only for the taxable year or years that
closed at least two years prior to the date of the request.
1) Who Is Subject to the Disclosure ? Publicly traded
companies filing Form 10-K with the SEC and paying
corporate tax to California would be subject to the
disclosure requirement proposed by this bill. Form 10-K is
an annual report that provides an overview of a public
company's business and a comprehensive summary of the
company's performance, including its financial condition.
A company's Form 10-K is public information and may be
found in the SEC's EDGAR database. According to the SEC's
Web site, Form 10-K generally must be filed with the SEC
within 90 days after the end of the company's fiscal year
(FY). However, in September 2002, the SEC changed this
deadline for "accelerated filers" -- certain companies that
have a public float of at least $75 million. In December
2005, the SEC voted to adopt amendments that create a new
category of "large accelerated filers" that includes
companies with a public float of $700 million or more.
Thus, currently, Form 10-K is due within 60, 75, or 90 days
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after the end of the company's FY, depending on the
company's "public float."
2) The Scope of the Disclosure . This bil takes a cautious
approach. While it proposes a company-specific tax
disclosure, the scope of the proposed disclosure is
limited. It does not require a disclosure of the amount of
gross receipts, sales, gross profit, the amount of credit
carryovers, or income subject to apportionment. Further,
there is no requirement to describe the source of any
non-business income reported on the return and the state to
which the income was assigned for taxation; nor is there an
obligation to include the tax information related to the
corporation's affiliated companies or to disclose the
corporation's total employment in the state. Finally, the
disclosure of a corporation's tax liability is delayed for
at least two calendar years following the end of the tax
year. The delay would reduce the potential, or perceived,
utility of the information to out-of-state competitors not
subject to the disclosure requirement.
3) The Stated Benefits of the Proposed Disclosure . The
author states that the disclosure of corporate tax
payments, in conjunction with other publicly-available
data, will provide an accurate view of how the state
corporate tax burden is distributed under the current tax
system and will greatly advance the discussion of corporate
tax reform and potential changes in the law, as it has at
the federal level. In addition, the information sought by
this bill will be helpful in analyzing the impact of recent
major changes in the corporation tax, i.e., an adoption of
the elective SSF apportionment.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0003932