BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1158 HEARING: 4/11/12
AUTHOR: Price FISCAL: Yes
VERSION: 2/22/12 TAX LEVY: No
CONSULTANT: Grinnell
ABATEMENT OF INTEREST FOR DISASTERS
Allows Postponement of Deadlines and Abatement of Penalties
and Interest for Taxpayers Affected by Disasters Declared
by the Governor.
Background and Existing Law
Federal law allows the Internal Revenue Service (IRS) to
specify a period for up to one year to postpone tax-related
deadlines in the event of a President-declared disaster or
terrorist or military action that affects the taxpayer.
During that period, the taxpayer is eligible for later
deadlines, as well as relief from any penalty, interest, or
addition to tax.
Currently, state law provides that a taxpayer that misses a
deadline for filing an income tax return, paying tax, or
filing a claim for refund is subject to penalties and
payment of interest, assessed by the Franchise Tax Board
(FTB). However, FTB may abate interest when an
unreasonable delay occurs in the administrative process is
due to the tax agency's error or delay. Additionally, FTB
may also abate interest for disaster victims if the tax
agency extends the period for any single taxpayer residing
in a disaster area as declared by the President of the
United States or the Governor of California. However,
while penalty abatement is automatic, FTB only abates
interest in either case at its discretion, and no specific
authority exists to abate interest when the delay is
attributable to FTB sending a notice that requires response
from the taxpayer affected by the disaster. Additionally,
while state law conforms to federal law relating to
disaster-affected taxpayers when the President declares a
disaster, it does not provide similar authority for FTB to
postpone deadlines due to disasters declared by the
Governor, but not the President.
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Generally, taxpayers may appeal FTB determinations of the
appropriate tax due to the State Board of Equalization
(BOE) once they have exhausted their administrative
remedies. Among the determinations, taxpayers denied
interest abatement due to FTB's error or delay may appeal
that determination to BOE.
Proposed Law
Senate Bill 1158 conforms state law to federal law,
allowing FTB to postpone deadlines for a period up to one
year for Governor-declared disasters, and abate interest to
the extent that the interest is attributable to FTB's delay
in mailing a notice of correspondence that requires a
response from the taxpayer affected by a disaster declared
by either the President or the Governor. The measure
provides a process for taxpayers to appeal FTB denials of
requests for interest abatement to BOE. Taxpayers must
apply in writing, and have 30 days to file an appeal for
unpaid interest, and 90 days for paid interest. The appeal
process mirrors existing law on BOE appeals for interest
abatement for errors made by FTB.
The measure applies to taxable years starting on or after
January 1, 2013. The measure also corrects an erroneous
cross-reference.
State Revenue Impact
According to FTB, "Due to the unpredictable nature of
disasters, department staff is unable to provide a revenue
estimate."
Comments
1. Purpose of the bill . According to the Author, "SB 1158
is needed to provide equitable treatment to 'all' taxpayers
located in presidentially or gubernatorially declared
disaster areas. Currently, only taxpayers who are
"affected by the disaster" can request abatement of
interest. This bill ensures that taxpayers who live in the
SB 1158 (Price) - 2/22/12 -- Page 3
disaster area but who are "unaffected" by the disaster, can
also request abatement of interest when circumstances are
beyond their control and for which they are not responsible
(i.e., the FTB sends out delayed notices). During a
presidentially-declared disaster, the FTB routinely delays
billings, notices, and correspondence to affected taxpayers
in a disaster area. (An FTB public service bulletin is
published to inform the public of the period of the
suspended notices and the counties affected by the
disaster.) As a result of the delayed mailings to
disaster areas, many taxpayers in the area who are
"unaffected" by the disaster, but who are engaged in the
tax audits, protests, or appeals, suffer delays in these
processes, which ultimately could result in additional
interest being accrued. This bill gives the FTB the
authority, in these instances, to abate the interest. In
addition, this bill gives FTB the authority to delay
tax-related deadlines when a disaster is declared by the
Governor for specific areas in California, but these areas
were not declared a disaster by the President.
2. We're one, but we're not the same . Each year, the
Legislature responds to individual disasters by enacting
legislation that provides taxpayers in affected areas
excess disaster loss treatment on personal and corporate
income taxes, provide that the assessor cannot revoke a
taxpayer's homeowners' exemption from property tax when he
or she must vacate the property due to the disaster, and
reimburses property tax revenue losses to local agencies
attributable to downward reassessments of disaster-affected
property. SB 1158 provides different, disaster-related tax
benefits: first, it applies to all future Governor-declared
disaster, not specific ones, and second, it provides
authority for FTB to delay tax-related deadlines and allow
interest abatement in a wide set of circumstances.
Support and Opposition (04/05/11)
Support : State Board of Equalization Chair Jerome Horton
(Sponsor)
Opposition : None received.
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