BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SBX1 3 HEARING: 6/15/11
AUTHOR: La Malfa FISCAL: Yes
VERSION: 4/12/11 TAX LEVY: No
CONSULTANT: Faulkner
Voluntary Payment of Additional Taxes
Adds an option for taxpayers to pay an "additional tax" on
the tax form.
Background and Existing Law
Existing state law allows taxpayers to contribute money to
one or more of 15 voluntary contribution funds (VCFs) by
checking a box on their personal state income tax return.
California law requires contributions made through
check-offs to be made from taxpayers' own resources and not
from their tax liability, as is possible on federal tax
returns. If a taxpayer does not designate to a specific
fund, the contribution is transferred to the General Fund.
This option is not delineated on the tax form.
Existing law allows the Franchise Tax Board (FTB) to design
tax returns to provide for the designation of contributions
to specified funds either on the return itself or on a
separate schedule that must be attached to the return.
With a few exceptions, VCFs remain on the return until they
are either repealed or fail to meet the minimum
contribution amount. The minimum contribution amounts are
adjusted annually for inflation. For most VCFs, the
minimum contribution amount is $250,000 in the fund's
second year. By September 1st of each year, the FTB must
determine the minimum contribution amount required for each
fund to remain on the form for the following calendar year
and whether estimated contributions to each fund will be
less than the minimum contribution amount for that calendar
year. If the FTB estimates that a fund will fail to meet
the minimum contribution amount, that fund is repealed
effective for taxable years beginning on or after January
1st of the following calendar year.
SBX1 3 -- 04/12/11 -- Page 2
Proposed Law
Senate Bill X1 3 adds the "Help Our State: Voluntary
Contribution to the State Budget" Act. SBX1 3 requires the
FTB to revise the personal income and corporate income tax
forms and instructions to add a step for taxpayers to make
an additional payment of taxes for the purpose of funding
state government.
State Revenue Impact
The FTB estimates this bill will result in revenue gains of
$5,000 in Fiscal Year (FY) 2011-12, $6,000 in FY 2012-13,
and $6,000 in 2013-14 (See Comment 5).
Comments
1. Purpose of the bill . The author states, " California
currently allows taxpayers to voluntarily contribute money
to various funds supporting issues ranging from sea otter
restoration to child abuse prevention. However,
California's income tax forms fail to provide any clear
means for citizens to contribute in support of the state
government's general operations, including education,
public safety and other important programs. This bill
rectifies this problem by creating a clear means for
Californians to voluntarily support state government above
any amount that they may be required to pay. This is a
simple, common sense measure that will give those
Californians who wish to pay increased taxes any easy means
to do so and will only result in increased revenue to the
state's General Fund."
2. A VCF by another name ? SBX1 3 adds a "step" to the tax
form, not a VCF, yet it can most readily be compared to a
VCF. However, unlike a VCF, this additional "step" has not
been thoroughly addressed in the bill. For example, the
bill allows for additional payment of taxes owed. What
about taxpayers due a refund? Does the author intend for
taxpayers due a refund to have the option of applying a
portion of their refund to the state budget? Probably so,
but SBX1 3 does not clearly address this scenario in the
"step" it adds to the tax form. Additionally,
contributions of $1 or more can be made, in whole dollar
amounts only, to VCFs; voluntary contributions can only be
SBX1 3 -- 04/12/11 -- Page 3
made on the original return and are irrevocable; and the
State Controller and the Franchise Tax Board may be
reimbursed a percentage of administrative costs for a VCF.
SBX1 3 does not consider any of these or other essential
issues. The Committee may wish to consider amending SBX1 3
to deal with these issues.
3. SB 1288's fraternal twin ? SBX1 3 is identical to SB
1288 (McClintock, 2002) with the exception of its title; SB
1288 was known as the "Tax Me More" Act. The bill failed
to pass the Senate Revenue and Taxation Committee.
As the SB 1288 analysis pointed out, the FTB generally
determines particular wording and formatting for tax forms;
the Legislature makes general requirements and the tax form
experts at FTB make the actual forms. For example, this
bill uses the term "step." California tax forms don't have
"steps," but the bill would require that a "step" be added
to the forms. This would doubtless create confusion, and
which in turn might reduce the actual usage of this form of
contribution.
This bill considers the contribution a tax and therefore it
is deductible for federal purposes. If FTB or the courts
determine that this is actually a "tax" rather than a
contribution, it would not be deductible for California tax
purposes. (Regular check-offs are clearly contributions,
and are therefore deductible).
The Committee may wish to consider whether it is sound
policy to dictate the content and wording of tax forms to
the FTB.
4. Is there a better way ? Since the inception of VCFs in
1982, over 13 million taxpayers have contributed $95.1
million to a variety of charities. The tax form currently
includes 15 VCFs and the parameters for contributing to
VCFs are clearly established. If the Committee is
interested in including a spot on the tax form for a
voluntary contribution to the State Budget, the Committee
may wish to consider adding it as a VCF, along with a
sunset and aggregate contribution threshold, and not a
"step" as proposed by SBX1 3. This will simplify the
approach to contribute to the General Fund and eliminate
the implementation concerns and costs associated with
changing the tax form. The Committee may wish to consider
SBX1 3 -- 04/12/11 -- Page 4
amending this bill to add a General Fund VCF.
5. Implementation Concerns . The FTB's analysis states the
language in the bill is ambiguous in regards to the
characterization of the additional voluntary amount
assessed and paid by taxpayers. While appearing to allow a
taxpayer to make a voluntary contribution to fund the state
government, this bill refers to the contribution as an
"additional tax" and includes the additional amount in the
total amount of "new tax owed." Because of this ambiguity,
it is unclear if:
Penalties or interest could be assessed on the
"additional tax" in the instance where taxpayers fail
to pay their "new tax owed" in full. If penalties or
interest can be assessed, it is unclear on what date
the penalties or interest could be assessed;
Taxpayers undergoing an audit, filing a claim for
refund, or filing an amended return could revoke their
"additional tax" designation. If so, it is unclear if
the refund would bear interest. The interest rate
paid by the department is higher than industry
standards, which could encourage a taxpayer to use the
"additional tax" as a savings account;
The department could apply the "additional tax" to
any unpaid taxes due from taxpayers, such as
understated tax, prior year liabilities, prior
discharged amounts, underestimates of current tax due,
or non-tax debts. The department is currently
authorized to offset an overpayment of tax against
such items as previously listed.
The "additional tax" could be considered a state
income tax or a charitable contribution for federal
and state income tax deductibility purposes.
The FTB also states that the language in this bill fails to
authorize the department to transmit the "additional tax"
proceeds to the General Fund. The department is currently
authorized to transmit income tax proceeds to the General
Fund. It is recommended that the author amend the bill to
expressly authorize the department to treat the "additional
tax" proceeds in the same manner as income tax proceeds.
SBX1 3 -- 04/12/11 -- Page 5
Until the implementation concerns have been resolved, FTB
staff is unable to determine the costs to administer the
bill. FTB staff expects costs could be significant if
substantive system changes are required.
The Committee may wish to consider amending the bill to
address the implementation concerns.
Support and Opposition (06/09/11)
Support : Unknown.
Opposition : Unknown.