BILL ANALYSIS �
AB 2688
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Date of Hearing: April 9, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2688 (Committee on Revenue and Taxation) - As Introduced:
March 12, 2012
Majority vote. Fiscal committee.
SUBJECT : State Board of Equalization: worthless accounts:
bullion and coins: transactions and use taxes: erroneous
charges
SUMMARY : Enacts four technical and noncontroversial proposals
sponsored by the State Board of Equalization (BOE).
Specifically, this bill :
1)Provides that, for purposes of the Sales and Use Tax (SUT)
Law's "bad debt" deduction and refund provisions, a proper
election shall be established when the retailer that reported
the tax and the lender prepare and retain an election form,
signed by both parties, designating which party is entitled to
claim the deduction or refund.
2)Changes, from September 1 to October 1, the date by which the
BOE must annually adjust the monetary value threshold for
sales of monetized bullion, non-monetized gold or silver
bullion, and numismatic coins (collectively, Precious Metals)
to be considered "bulk" sales qualifying for a statutory SUT
exemption.
3)Amends two sections of the Transactions and Use Tax (TUT) Law
as a housekeeping matter. Specifically, amends Revenue and
Taxation Code (R&TC) Sections 7261 and 7262 to conform to
changes implemented by AB 686 (Huffman), Chapter 176, Statutes
of 2011, which decreased the rate at which a city or county
may levy, increase, or extend a TUT from 0.25% (or a multiple
thereof) to a rate of 0.125% (or a multiple thereof).
4)Grants the BOE discretion to extend the 90-day filing period
for claims seeking reimbursement of bank charges and
third-party check charge fees incurred by a taxpayer as the
direct result of an erroneous BOE action.
5)Adds erroneous processing and collection actions to the list
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of BOE actions giving rise to a claim for reimbursement of
bank charges and third-party check charge fees incurred by a
taxpayer.
EXISTING LAW :
1)Worthless accounts :
a) Relieves retailers from SUT liability on transactions
that were reported on a retailer's SUT return, but which
were subsequently found to be worthless and written off for
income tax purposes. If a retailer is not required to file
income tax returns, the law allows a bad debt deduction if
the amount is charged off in accordance with generally
accepted accounting principles.
b) Provides that, in the case of accounts held by a lender,
a retailer or lender who makes a proper election, shall be
entitled to a deduction or refund of the SUT that the
retailer has previously reported and paid if the following
conditions are met:
i) No deduction was previously claimed or allowed on
any portion of the accounts;
ii) The accounts have been found worthless and written
off by the lender;
iii) The contract between the retailer and the lender
contains an irrevocable relinquishment of all rights to
the account from the retailer to the lender; and,
iv) The party electing to claim the deduction or refund
files a claim in a manner prescribed by the BOE.
2)Bullion and coins : Provides a SUT exemption for the sale or
purchase "in bulk" of Precious Metals, when substantially
equivalent to transactions in securities or commodities
through a national securities or commodities exchange.
Provides that a sale "in bulk" shall be deemed to have
occurred if the amount of Precious Metals sold in the
transaction totals $1,000 or more (or its present day
equivalent adjusted for inflation). The BOE is required by
law to adjust the "bulk sale threshold" annually by September
1.
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3)TUT :
a) Authorizes a county to impose a TUT for general purposes
at a rate of 0.125% (or a multiple thereof), if the
ordinance proposing the tax is approved by a two-thirds
vote of the board of supervisors and a majority vote of the
qualified voters of the county.
b) Authorizes a county to impose a TUT for special purposes
at a rate of 0.125% (or a multiple thereof), if the
ordinance proposing the tax is approved by a two-thirds
vote of the board of supervisors and a two-thirds vote of
the qualified voters of the county.
c) Authorizes a city to impose a TUT for general purposes
at a rate of 0.125% (or a multiple thereof), if the
ordinance proposing the tax is approved by a two-thirds
vote of all members of the governing body and a majority
vote of the qualified voters of the city.
d) Authorizes a city to impose a TUT for special purposes
at a rate of 0.125% (or a multiple thereof), if the
ordinance proposing the tax is approved by a two-thirds
vote of all members of the governing body and a two-thirds
vote of the qualified voters of the city.
e) Provides, per R&TC Section 7261, that the transactions
tax portion of any TUT ordinance adopted shall include a
provision imposing the tax for the privilege of selling
tangible personal property (TPP) upon every retailer in the
district at a rate of 0.25% (or a multiple thereof).
f) Provides, per R&TC Section 7262, that the use tax
portion of any TUT ordinance adopted shall impose a
complementary tax upon the storage, use, or other
consumption in the district of TPP at the rate of 0.25% (or
a multiple thereof).
4)Erroneous charges : Provides that, under the SUT Law, a
taxpayer may file a claim with the BOE for the reimbursement
of bank charges and any other reasonable third-party check
charge fees incurred as a direct result of an erroneous levy
or notice to withhold, erroneous processing action, or
erroneous collection action by the BOE. Such claims must be
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filed within 90 days from the date of the erroneous BOE
action.
FISCAL EFFECT :
1)Worthless accounts : The BOE notes, "While enactment of this
proposed change in law would allow additional refunds or
deductions that are not currently allowable, it would not
result in a revenue loss per se. These are amounts that would
otherwise be subject to refund or eligible for a deduction
that the claimant failed to obtain the election form claim."
2)All remaining provisions : Negligible revenue losses.
COMMENTS :
1)Worthless accounts : The BOE notes the following in its staff
analysis of this bill:
The purpose of this revision is to address an unintended
consequence that has resulted in situations where the
lenders have failed to file properly completed election
forms when claiming the deduction or refund. In such
cases, the claim for deduction or refund is not considered
valid. Currently, staff allows the claimant to prepare and
file a proper election form after the claim for deduction
or refund is filed, but will not consider the claim valid
until such time as the election form is filed (see
Regulation 1642 (i)(5)(F), which interprets and explains
these provisions). Consequently, if an election form is not
filed by the lender within the general limitations period
for which a claim for refund or credit may be accepted as
timely under the law, the BOE is barred from accepting the
claim for deduction or refund for those periods that fall
outside the statute of limitations for filing refund claims
pursuant to Section 6902 (even if the claim itself was
filed within the limitations period). Consequently, staff
has disallowed otherwise valid claims for deductions or
refunds by lenders for periods beyond the limitations
period.
This bill would delete the requirement that the election
form be prepared and retained prior to claiming a deduction
or refund. Therefore, the date of filing of a proper
election will have no affect on the date of filing of the
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claim for a deduction or refund. Even where the lender
files a proper election form outside the limitations
period, the timeliness of the claim will still be
determined by the date of filing of the claim itself.
2)Bullion and coins : R&TC Section 6355 provides a SUT exemption
for the sale or purchase "in bulk" of Precious Metals. R&TC
Section 6355 further provides that a sale "in bulk" shall be
deemed to have occurred if the amount sold in the transaction
totals $1,000 or more (or its present day equivalent adjusted
for inflation). The BOE is required to adjust the $1,000
"bulk sale threshold" each year. Specifically, on or before
September 1 of each year, the BOE must multiply the current
bulk sale threshold by the inflation factor adjustment
determined by the Franchise Tax Board pursuant to R&TC Section
17041(h). When the result of this calculation is $500 greater
than the existing threshold, the threshold is adjusted and
rounded to the nearest $500 increment. To explain this
adjustment system, BOE staff provide the following example:
�I]f the bulk sale threshold amount is currently $1500, and
multiplying this amount by the inflation factor adjustment
results in a new threshold of $1700, the bulk sale
threshold does not become operative since it does not
exceed the $500 increment (it must equal or exceed $2,000
to become operative). The next year, the $1,700 threshold
must be multiplied by the inflation factor adjustment to
determine the new threshold.
BOE reports that the inflation factor adjustment is based on a
comparison of the California Consumer Price Index (CCPI)
published by the Department of Industrial Relations for June
of each year. Once the calculation is made by BOE staff, the
issue is placed on the BOE's consent agenda for the August BOE
meeting, so that the new threshold can be officially adopted.
The CCPI for June, however, is generally not available until
late August of each year. Since items placed on the BOE
meeting agenda are subject to public notice, this calculation
must be done by staff by the end of July. Since the CCPI is
generally not available, staff has been required to track down
"preliminary numbers" to perform its statutorily mandated
calculation. The BOE reports that it is often difficult to
obtain the preliminary numbers in a timely manner to have this
item placed on the BOE's August agenda.
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BOE notes, "This proposal would change the date from September
1 to October 1 of each year by which the BOE must determine
the bulk sale threshold. Changing the date from September 1
to October 1 will allow staff sufficient time to obtain the
June CCPI, prepare the necessary calculation, and place the
item on the BOE meeting agenda. An October 1 date will still
provide for adequate lead time in amending Regulation 1599 and
notifying the public in the event the calculation results in a
new operative threshold."
3)TUT : On August 4, 2011, Governor Brown approved AB 686
(Huffman). AB 686 amended various sections of the R&TC to
decrease the rate at which a city or county may levy,
increase, or extend a TUT from 0.25% (or a multiple thereof)
to a rate of 0.125% (or a multiple thereof). This
BOE-sponsored housekeeping proposal would change the rate in
R&TC Sections 7261 and 7262 from 0.25% to 0.125%, to conform
to the changes made by AB 686 (Huffman).
4)Erroneous charges : As noted above, this proposal grants the
BOE discretion to extend the 90-day filing period for claims
seeking reimbursement of bank charges and third-party check
charge fees incurred by a taxpayer as the direct result of an
erroneous BOE action. This proposal also adds erroneous
processing and collection actions to the list of BOE actions
giving rise to a claim for reimbursement of bank charges and
third-party check charge fees incurred by a taxpayer.
5)Suggested technical amendments : Committee staff suggests the
following technical amendments to this bill:
a) On page 12, line 10, strike "for reimbursement" and
insert "or reimbursed";
b) On page 12, strike lines 15-17 and insert "(1) The
erroneous levy or notice to withhold, erroneous processing
action, or erroneous collection action was caused by board
error.";
c) On page 13, line 5, strike "for reimbursement" and
insert "or reimbursed";
d) On page 13, line 40, strike "for reimbursement" and
insert "or reimbursed";
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e) On page 14, line 35, strike "for reimbursement" and
insert "or reimbursed";
f) On page 15, line 31, strike "for reimbursement" and
insert "or reimbursed";
g) On page 16, line 26, strike "for reimbursement" and
insert "or reimbursed";
h) On page 17, line 22, strike "for reimbursement" and
insert "or reimbursed";
i) On page 18, lines 17-18, strike "for reimbursement" and
insert "or reimbursed";
j) On page 18, line 25, strike "resulted from" and insert
"was caused by";
aa) On page 18, line 30, strike "that was";
bb) On page 18, line 31, strike "The requirement of this
paragraph" and insert "This provision";
cc) On page 19, line 13, strike "to" and insert "by";
dd) On page 19, line 14, strike "for reimbursement" and
insert "or reimbursed"; and,
ee) On page 20, line 9, strike "for reimbursement" and
insert "or reimbursed".
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
AB 2688
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