BILL ANALYSIS                                                                                                                                                                                                    �




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair

                                          SB 421 (Correa)
          
          Hearing Date: 05/16/2011        Amended: 05/03/2011
          Consultant: Mark McKenzie       Policy Vote: G&F 9-0
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          BILL SUMMARY: SB 421 would reduce the interest that would apply 
          to penalties for underpayment of various taxes, surcharges, and 
          fees administered by the Board of Equalization (BOE).  
          Specifically, this bill would delete the addition of 3 
          percentage points to a specified federal rate which applies to 
          underpayment penalties.
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                            Fiscal Impact (in thousands)

           Major Provisions         2011-12      2012-13       2013-14     Fund
           Loss of interest revenue          $6,350      $12,700   
          $12,700General*
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          * Staff notes that total state and local revenue losses would be 
          approximately $28.2 million
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          ____

          STAFF COMMENTS: This bill meets the criteria for referral to the 
          Suspense File. 

          Existing law requires persons who pay their tax, fee, or 
          surcharge obligations to BOE late to pay a penalty of 10 percent 
          of the tax, plus interest on those amounts from the date the tax 
          was due to the date they are paid.  Interest on late payments is 
          calculated using the Internal Revenue Service (IRS) rate, as 
          specified, plus three percent.  During the 2009-10 fiscal year 
          the average total interest rate charged on underpayments of tax 
          and fee obligations was 7.5 percent.


          SB 421 would delete the addition of three percent to the IRS 
          rate when applying interest to penalties for underpayments of 
          taxes, fees, and surcharges administered by BOE.  The bill is 
          intended to provide more equity between the interest rates 
          charged by BOE for underpayments (debit interest) and the 








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          interest rate paid by BOE for overpayments (credit interest), 
          which is currently zero percent.  Current law requires interest 
          on overpayments to be based on the bond equivalent rate of 
          13-week treasury bills auctioned, rounded to the nearest full 
          percent.  Since bond rates have been so low in recent years, no 
          interest has been charged on overpayments since the period prior 
          to July 1, 2009.

          BOE indicates that approximately $51.3 million was collected in 
          sales and use tax underpayment interest and $19.2 million in 
          interest on tax and fee programs in 2009-10.  Had the debit 
          interest rate been three percentage points lower during this 
          period, as specified in this bill, BOE would have collected 
          $28.2 million less in debit interest, including $12.7 million in 
          General Fund revenues.