BILL ANALYSIS �
SB 1185
Page 1
Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1185 (Price) - As Amended: May 29, 2012
Majority vote. Fiscal committee.
SENATE VOTE : 38-0
SUBJECT : Centralized Intelligence Partnership Act: pilot
program
SUMMARY : Establishes a multiagency partnership consisting of
the Employment Development Department (EDD), the Franchise Tax
Board (FTB), and the State Board of Equalization (BOE), to
collaborate in combating illegal underground operations, as
specified. Specifically, this bill :
1)Contains numerous legislative findings, including the
following:
a) According to the EDD's analysis of findings made by the
Internal Revenue Service, the underground economy in
California is estimated to be between $60 billion and $140
billion each year;
b) According to the BOE, an estimated $8 billion in
corporate, personal, and sales and use taxes goes
uncollected in California each year, with unreported and
underreported economic activity responsible for the vast
majority of that total;
c) The underground economy hurts all Californians.
Revenues to support government services are lost, workers
are forced to go without basic employment protections, and
legitimate businesses are confronted with unfair
competition;
d) Since the activities of many operating in the
underground economy span across multiple jurisdictions,
various joint agency enforcement efforts have been
undertaken to combat the underground economy, including the
creation of the Joint Enforcement Strike Force on the
Underground Economy (Strike Force) in 1993, and the
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creation of the Economic and Employment Enforcement
Coalition in 2005; and,
e) The Legislature intends this act to enhance existing
efforts to combat the underground economy by
institutionalizing collaboration among state agencies
through a Centralized Intelligence Partnership
(Partnership), a pilot program that acquires relevant data
for collaborative data analysis, economic threat
assessment, strategic planning, and provides a referral
tracking and value-added referral disbursement process to
monitor the progress of the Partnership activities.
2)Establishes the Partnership in state government as a pilot
program.
3)Provides that the Partnership shall include the EDD, the FTB,
and the BOE. In addition, the following agencies are
authorized to participate in the pilot program in an advisory
capacity:
a) The California Health and Human Services Agency;
b) The Department of Consumer Affairs;
c) The Department of Industrial Relations;
d) The Department of Insurance;
e) The Department of Justice; and,
f) The Department of Motor Vehicles (collectively,
'Advisory Agencies').
4)Provides that if, in its normal course of investigation, an
Advisory Agency discovers a violation of law that would result
in increased tax revenues to the state, that Advisory Agency
shall notify the EDD, the FTB, or the BOE, as appropriate.
5)Requires the Partnership to do all of the following to combat
illegal underground operations:
a) Provide a central intake process and organizational
structure to document, review, and evaluate data and
complaints;
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b) Establish a processing center to receive and analyze
data, share complaints, and research leads from the input
of each impacted agency;
c) Provide both participating and nonparticipating agencies
with value-added investigative leads where collaboration
opportunities exist for felony-level criminal
investigations, including referring leads to agencies with
appropriate enforcement jurisdiction; and,
d) Document and provide intake data analysis, analytic data
findings, referrals, collaborative opportunities, outcomes,
emerging evasion trends, lessons learned, as well as
additional enforcement, administrative, and legislative
opportunities.
6)Permits duly authorized representatives of Partnership
members, and Advisory Agencies, to exchange intelligence,
data, documents, information, complaints, or lead referrals to
investigate illegal underground operations.
7)Provides that information exchanged pursuant to this act shall
retain its confidential status and shall remain subject to the
confidentiality provisions contained in various specified code
sections.
8)Provides that the scope of activities undertaken by the
Partnership shall be consistent with the amount of funds
appropriated by the Legislature.
9)Authorizes the Partnership to hire "an administrator and
staff."
10)Establishes an advisory committee to the Partnership
(Advisory Committee) to provide guidance to, and advice on,
the activities and operations of the Partnership.
11)Provides that the Advisory Committee shall be comprised of
one representative from each of the Partnership entities
(i.e., the EDD, the FTB, and the BOE). Each representative
shall be appointed by the head of the entity in the
Partnership and shall serve at the pleasure of the appointing
authority. In addition, any Advisory Agency may provide a
representative to the Advisory Committee to offer guidance and
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advice to the Partnership.
12)Provides that the Advisory Committee shall determine the
appropriate agency to house the Partnership's processing
center.
13)Requires the Advisory Committee to meet as needed, but at
least quarterly, to conduct its business.
14)Provides that, on or before July 1, 2014, and annually
thereafter, the Partnership shall report on its activities and
accomplishments to the Legislature and each entity in the
Partnership.
15)Requires the Partnership to submit to the Legislature on or
before December 1, 2016, a report of the pilot program that
includes the following information:
a) The number of leads or complaints received by the
Partnership;
b) The number of cases investigated or prosecuted through
civil action or criminal prosecution; and,
c) Recommendations for modifying, eliminating, or
continuing the pilot program.
16)Sunsets the act's provisions on January 1, 2018.
EXISTING LAW :
1)Establishes the EDD. Among its many duties, the EDD
administers the collection, accounting, and auditing of
payroll taxes and maintains employment records for more than
16 million California workers.
2)Establishes the FTB as a three-person board comprised of the
State Controller, the Director of the Department of Finance,
and the Chair of the BOE. Among its many duties, the FTB is
charged with administering the state's Personal Income Tax Law
and the Corporation Tax Law.
3)Establishes the BOE, which consists of five voting members:
the State Controller and four members elected for four-year
terms at gubernatorial elections. Among its many duties, the
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BOE administers the Sales and Use Tax Law, sets property
values for state-assessees, monitors the property tax
assessment practices of county assessors, and serves as the
administrative appellate body for final actions of the FTB.
4)Requires various state entities, including the BOE, the FTB,
and the Department of Justice, to enforce laws relating to the
taxation and legal operation of businesses throughout the
state under their respective jurisdictions.
FISCAL EFFECT : Unknown
COMMENTS :
1)The author has provided the following statement in support of
this bill:
I authored �SB 1185] at the request of Chairman Jerome
Horton to combat the underground economy. According to the
California Chamber of Commerce the "underground economy" is
a term that refers to individuals and businesses that deal
in cash and/or use other schemes to conceal their business
activities. In doing so, they escape their true tax
liability, responsibilities to employees, government
licensing, regulatory and taxing agencies. The underground
economy hurts legitimate businesses, creates an enormous
tax gap and hurts all California due to the loss of
revenue. The Board of Equalization (BOE) estimates that
the State of California �loses] about $8 billion dollars
annually in tax revenue due to the underground economy.
This revenue is needed to fund critical programs such as
education, public safety, infrastructure and social
services. Given the need to eliminate the underground
economy in order to support legitimate businesses and fund
critical programs to improve the quality of life for
Californians this bill must be immediately approved by the
Legislature and Governor.
SB 1185 will establish a Centralized Intelligence
Partnership in order to share information, resources and
best practices to reign in on the underground economy.
While there have been numerous efforts and attempts to
reign in on the underground economy they have not been
successful because of the lack of coordination and
collaboration among state agencies. Combating the
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underground economy is a difficult task and it takes
teamwork and the elimination of state agencies working only
in functional silos.
The Centralized Intelligence Partnership would include the
following state entities: Board of Equalization, Franchise
Tax Board, and the Employment Development Department.
According to the Board of Equalization's revenue estimate,
with the enactment of SB 1185, the Centralized Intelligence
Partnership will increase the BOE investigations of
underground economy activities by 120% of its 2010-2011
figures. In its first year the Centralized Intelligence
Partnership is estimated to yield $26 million dollars in
tax revenues for the state.
SB 1185 is a win-win for California. This legislation
addresses the underground economy by establishing a
partnership among the state's three taxing agencies. Given
chronic �budget] deficits the state faces on an annual
basis we must reign in on the underground economy that robs
our state �of] the vital resources needed to fund programs
so that our residents can thrive and prosper.
2)Proponents state:
The presence of an underground economy in California not
only threatens the economic vitality of the businesses who
comply with sound business practices and policies but also
allows dangerous criminal activity to continue and
flourish, posing significant safety and economic challenges
to the welfare of our communities. Creating a partnership
of agencies to monitor the activities of such illegal
business entities and take action against their continued
operation protects our cities by promoting legal,
responsible and ethical business practices.
3)The FTB notes the following in its staff analysis of this
bill:
It is recommended that the bill be amended to include
appropriation language that would provide funding to
implement this bill. Lack of an appropriation will require
the department to secure the funding through the normal
budgetary process, which may delay implementation of this
bill.
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4)Committee Staff Comments:
a) The Joint Enforcement Strike Force on the Underground
Economy : On October 26, 1993, the Governor signed
Executive Order W-66-93, which established the Strike
Force. The Governor subsequently signed legislation
placing the Executive Order's provisions into law effective
January 1, 1995. �Unemployment Insurance Code Section
329].
The Strike Force, which is chaired by the EDD's Director,
is responsible for both developing and sharing information
necessary to combat the underground economy. The Strike
Force also works to improve the coordination of enforcement
activities, and to develop methods to target the
enforcement resources of participating agencies. The
Strike Force is empowered to form "joint enforcement teams"
when appropriate to utilize the investigative and
enforcement capabilities of the Strike Force's members. In
addition to the EDD, the Strike Force's formal membership
is comprised of the Department of Consumer Affairs, the
Department of Industrial Relations, the Department of
Insurance, and the Office of Criminal Justice Planning.
The FTB, the BOE, and the Department of Justice are each
encouraged, under existing law, to participate in the
Strike Force's activities. The Strike Force is required to
report to the Governor and the Legislature annually
regarding its activities.
b) The Labor Enforcement Task Force : The Department of
Industrial Relations also works to combat the underground
economy in California through its Labor Enforcement Task
Force. In this joint effort between state agencies and
affected communities, information and resources are shared
to ensure workers receive proper payment of wages and are
provided a safe working environment. In addition, the
Labor Enforcement Task Force works to ensure that
California receives all employment taxes, fees, and
penalties due from employers. The Labor Enforcement Task
Force is comprised of the Labor and Workforce Development
Agency, the Department of Industrial Relations, the EDD,
the Contractor's State Licensing Board, the California
Department of Insurance, the BOE, the Bureau of Automotive
Repair, and the State Attorney General.
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c) What would this bill do? : This bill would establish a
multiagency partnership consisting of the EDD, the FTB, and
the BOE to collaborate in combating illegal underground
operations. Specifically, this bill would establish the
Partnership as a pilot program to, among other things,
create a processing center to receive and analyze data,
share complaints, and research leads from the input of each
impacted agency.
d) The right approach? : California's underground economy
is a well-documented problem that places legitimate
businesses at a competitive disadvantage. Moreover,
prosecuting bad actors in the underground economy is
notoriously challenging. Often, violators fail to obtain
appropriate business licenses or report taxes, and pay
their employees in cash, leaving little or no paper trail.
Nevertheless, it appears that this bill's proposal is largely
duplicative of existing state efforts to curb activity in
the underground economy. As noted above, existing law
already provides for the Strike Force, and encourages both
the BOE and the FTB to take part in its activities. The
Strike Force is presently authorized to facilitate the
sharing of information among participating agencies, and to
reduce enforcement costs wherever possible by eliminating
duplicative audits and investigations. In addition, the
Strike Force is empowered to establish procedures for
soliciting leads from the public through an advertised
telephone hotline.
If improvements in agency collaboration and enforcement are
needed, the Committee may wish to consider whether it would
make more sense to reform the existing Strike Force
program, instead of creating an entirely new program,
involving many of the same state agencies. Essentially,
this Committee is being asked to authorize the creation of
a new bureaucracy, with staff-hiring authority, to engage
in many of the same practices the Strike Force is already
authorized to carry out.
e) Who makes the call? : As noted above, this bill
authorizes the Advisory Committee to determine the
"appropriate agency" to house the Partnership's processing
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center. The Committee may wish to consider whether it
would be more appropriate for the Legislature to make this
determination.
f) Suggested technical amendments :
i) On page 2, line 9, strike "estimate of" and insert
"estimated"; and,
ii) On page 4, line 24, strike "include all" and insert
"be comprised".
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
California Chamber of Commerce
California Grocers Association
California Healthcare Institute
California Manufacturers and Technology Association
California Municipal Revenue & Tax Association
California Taxpayers Association
City of Commerce
City of Culver City
City of Lakewood
City of Long Beach
Hawthorne Chamber of Commerce
League of California Cities, Los Angeles County Division
Motion Picture Association of America, Inc.
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098