BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1326 HEARING: 4/11/12
AUTHOR: Harman FISCAL: Yes
VERSION: 2/23/12 TAX LEVY: No
CONSULTANT: Grinnell
TAX ADMINISTRATION
Requires FTB, BOE, and EDD to develop a web-based portal to
virtually consolidate the agencies from the taxpayer's
point-of-view.
Background and Existing Law
The California Constitution establishes the Board of
Equalization (BOE) as a five-member board composed of four
members elected by each district plus the State Controller.
Currently, BOE administers sales and use taxes, excise
taxes, special taxes, and the state's fee programs.
Retailers collect sales taxes from customers when they
purchase tangible personal property, and remit those taxes
quarterly to BOE.
State law requires employers who pay employees
California-sourced income to withhold expected taxes.
Businesses with one or more employees in the current or
preceding taxable year and who pays wages in excess of $100
per quarter must register with the Employment Development
Department (EDD). Employers deposit personal income tax
withholding by mail or electronically with EDD, along with
amounts for Unemployment Insurance (UI), Employment
Training Taxes, and State Disability Insurance (SDI).
Federal schedules determine when employers make Personal
Income Tax and SDI payments, while UI and ETT payments are
made quarterly. Each quarter, the taxpayer files a form to
reconcile these deposits with actual taxes due.
The Franchise Tax Board (FTB) is a three-person board
comprised of the State Controller, Director of the
Department of Finance, and Chair of the BOE. FTB
administers the Personal Income Tax and Corporation Tax
Law, and collects debts on behalf of state and local
agencies. FTB may issue forms necessary to administer the
SB 1326 - 2/23/12 -- PageB
taxes. Employees and others receiving payments reconcile
amounts previously withheld with actual tax due when filing
their annual tax returns with FTB.
Proposed Law
Senate Bill 1326 requires EDD, FTB, and BOE to collaborate
and focus their current and future information technology
efforts on developing a single web-based portal that
virtually consolidates the agencies to enable online,
self-service access through a single logon for taxpayers
to:
Electronically file returns
Submit forms or other information
Remit amounts due
Determine account balances and tax due dates
Identify appeal status
Claim a refund
Request relief from interest or penalty
Any other information the agencies deem helpful to
the taxpayer to assist in compliance with the state's
tax laws.
The bill additionally requires agencies to consolidate
forms, applications, and other documents to reduce or
eliminate the number of multiple submissions on the same
information buy taxpayers wherever operationally feasible.
The measure also makes legislative findings and
declarations to support its purposes.
State Revenue Impact
No estimate. However, BOE, EDD, and FTB identify possible,
significant implementation costs for the bill depending on
the manner of implementation. BOE specifically estimates
$1 million for developing and implementing system
modifications.
Comments
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1. Purpose of the bill . According to the Author, "With
three tax agencies and multiple departments within each
agency, and various reporting due dates and filing
obligations, taxpayers can become confused and overwhelmed
with their responsibilities in complying with the various
tax laws. The development of an enhanced 'one-stop shop'
portal that allows taxpayers an easy and up-to-date
integrated access to their accounts with all three tax
agencies would be significantly beneficial to taxpayers.
With an easily understood website, www.taxes.ca.gov ,
taxpayers would be able to find critical documents in less
time, with less hassle. Such a portal would have a
standard look and navigational structure, notwithstanding
the fact that it ties together three separate tax agencies.
It would give taxpayers not only a sense of continuity -
that they're actually using one system rather than a
collection of mini sites within three separate agencies
websites - but also an opportunity to better comply with
the tax laws and varied reporting obligations."
"This bill calls for the Board of Equalization, Franchise
Tax Board, and Employment Development Department to work
together and focus their current and future information
technology efforts on developing a single web-based portal
that virtually consolidates the agencies to enable on-line,
self-service access through a single log-on for taxpayers.
As part of this effort, the bill calls for these tax
agencies to consolidate forms, applications, and other
documents to reduce, or if possible, eliminate the number
of multiple submissions of the same information that
taxpayers are required to submit to the agencies."
2. Cost versus convenience . SB 1326 differs significantly
from consolidation efforts attempted in previous years that
eliminate or consolidate tax agencies; instead, the measure
aims at making tax filing more convenient for the taxpayer
by combining specified functions on a single website.
However, SB 1326 would require improvements to the existing
website, and may necessitate discarding existing systems
and forms in place of new ones, likely resulting in
significant initial costs for replacing information
technology systems and creating new forms. The key
question posed by the measure is whether the increased
convenience to the taxpayer is worth the expected
implementation costs. Additionally, while government
should always attempt to provide better customer service,
what are the exact benefits of taxpayer convenience that
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will outweigh the measure's anticipated fiscal costs?
3. Blowing Up Boxes . While not proposed by this measure,
the Governor and the Legislature have considered several
tax agency consolidation proposals in recent years,
summarized by the table below. The Legislative Analyst's
Office (LAO), and department analyses have consistently
argued that tax agency and function consolidation will
definitely incur significant immediate costs to implement,
with only possible long-term savings. Whether long-term
savings will offset those immediate costs is largely
unknown. The LAO summarized the findings of its report
released January 10, 2005, as follows:
Consolidation of the tax agencies' payment and
documentation processing activities could in the
medium to long term generate some annual cost savings
and interest earnings through elimination of
duplicative functions and increased efficiencies. The
state, however, would have to incur significant net
costs in the short term to achieve these savings. In
addition, such benefits are likely to be less than
benefits from increasing electronic processing. We
therefore recommend that low priority be given to
consolidation of payment and document processing
functions in favor of steps to increase electronic
processing.
Governor Brown again proposed tax agency consolidation as
part of his 2012-13 Budget. The Governor proposes to
consolidate the activities of the Employment Development
Department (EDD) that relate to tax collection with FTB
activities into a new Department of Revenue (DOR), and
house DOR within the new Government Operations Agency.
However, the Governor did not provide sufficient detail for
the proposal, or decide whether the consolidation should be
enacted by statute or by a Governor's Reorganization Plan.
DOF indicated at a recent hearing of the Assembly Budget
Subcommittee #4 that it has tasked working groups with
developing a specific proposal. If the Governor seeks to
proverbially blow up the boxes, is this measure so
impossible to separate from the goals of agency
consolidation that the Legislature should delay
consideration until after hearing the merits of the
Governor's plan, then pursue the integrated web portal then
if it deems it sufficiently important? The Committee may
wish to consider deferring action on SB 1326 until the
SB 1326 - 2/23/12 -- PageE
Governor advances a more specific tax agency consolidation
proposal.
4. What's Going On ? Independent of this measure and the
Governor's proposal, BOE identified several initiatives in
its analysis of this measure to improve coordination
between agencies in the hopes of enhancing efficiency and
taxpayer convenience. BOE states that it is working with
FTB and EDD to identify and collaborate on various aspects
to coordinate and consolidate aspects of business processes
as part of its general information technology replacement
project. Additionally, the FTB analysis points to a
history of collaboration between the agencies, and
additionally discusses the "California Fed State
Partnership," consisting of BOE, EDD, FTB, and the Internal
Revenue Service, developed the California Tax Service
Center website at www.taxes.ca.gov . The goal is to provide
one-stop tax help to California taxpayers and guide them to
the help they need, and includes links to forms, and
additional information. Given the current collaboration
efforts underway by the agencies, is SB 1326 truly
necessary? The Author responds that the bill is necessary
because the website is not clear, easy to use, or focused
on the taxpayer, and does not include a single taxpayer
log-on. The Committee may wish to consider whether a bill
is necessary to achieve the stated goals.
5. Ghosts of Consolidations Past . On June 10, 2009, the
Senate Committee on Revenue and Taxation, the predecessor
to this Committee, heard the Department of Finance's
proposal for tax agency consolidation. The Committee
Chair's recommendation to the Budget Committee stated:
BOE and FTB both need to upgrade key components of
their information technology systems, which each
agency now operates independently. Additionally, the
situation with the BOE building which houses its
workers is untenable. Any significant future
acquisitions of information technology systems or
physical infrastructure should serve both BOE and FTB,
and possibly integrate with EDD systems, which are
currently considered superior. The Committee
recommends that to the maximum extent practicable, any
SB 1326 - 2/23/12 -- PageF
acquisitions of property or information technology
should serve both agencies, and BOE should move
employees from the BOE building to the FTB campus,
especially those employees who can help enhance
economies of scale for the revenue system by being
housed together.
Additionally, the Department of Motor Vehicles'
(DMV) vehicle license and registration collection
functions should be included in consolidation efforts.
DMV should immediately join the three-agency task
force which currently includes FTB, BOE and EDD.
The four agencies, FTB, BOE, EDD and DMV, should
immediately begin working on a technology that
incorporates a single taxpayer identification number.
With a single number, there would be greater
information sharing and ultimately greater tax
compliance which will result in increased revenues.
The issue of governance is inextricably intertwined
with any consideration of consolidation. The
Administration's proposal consolidates the tax policy
elements of FTB and BOE away from its existing
governing boards to a Department of Revenue, led by a
Gubernatorial-appointed, Senate-confirmed executive
director. Shifting tax policy regulatory authority
and oversight under the Governor will inevitably bear
different tax policy results, and presents risks of
executive interference in tax cases. FTB is widely
considered one of the world's most innovative and
respected revenue-collection agencies in the world;
its record does not merit removing its authority over
tax policy and assigning it to the Governor. The
Committee recommends deferring discussion over
governance of the tax system because of the
substantive issues involved, and that issues regarding
governance do not have a current, measurable fiscal
impact.
The administration similarly recommends
consolidating audit functions immediately to realize
economies of scale and better deploy existing audit
resources, and claims savings in the 2010-11 fiscal
year. In concept, the Committee endorses this plan.
For now, the committee recommends that the agencies
create the single taxpayer identification number as
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discussed above.
As to the major recommendation of the Governor,
which is a new Department of Revenue, the LAO suggests
that consolidating the agencies might accelerate the
process of coordination. I will work with the LAO and
the Department of Finance to further refine this
proposal which I support in concept
6. Come Together .
This chart briefly describes seven options that have
been associated with consolidation in the past.
-------------------------------------------------------------
|Option |Source |Fiscal Impact |Analysis |
| | | | |
|--------------+-----------+-----------------+----------------|
|BOE & FTB |LAO, 1994 |Reduced expenses |LAO argued that |
|merge | |in the long run; |consolidation |
|functions; | |significant |enhanced |
|BOE retains | |initial startup |accountability |
|tax appeal | |costs. Little |and decreased |
|function | |Hoover estimated |taxpayer |
| | |$50 million |confusion. |
| | |savings in 1994 |Direction and |
| | | |implementation |
| | | |from the |
| | | |executive |
| | | |branch would be |
| | | |clearer. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |California |Planning, |Again, |
|Department of |Constitutio|budgeting |consolidation |
|Revenue. |nal |functions |could enhance |
|Eliminate FTB |Revision |consolidated as |accountability |
|& BOE |Commission.|above. Unknown |and create "one |
|(including | Various |impact from |stop shop" for |
SB 1326 - 2/23/12 -- PageH
|tax appeal |Bills<1> |removing tax |taxpayers. |
|functions) | |appeals function |There is lots |
|and combine | |from BOE. |of disagreement |
|with EDD | |Eliminating BOE |on the |
| | |requires a |appropriate |
| | |Constitutional |location for |
| | |amendment. |the tax appeals |
| | | |functions: BOE, |
| | | |Department of |
| | | |Revenue or Tax |
| | | |Court. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Create |Governor |Potentially |This option |
|California |Wilson, |reduced expenses |retains the BOE |
|Tax |1994. |in the long run |and creates a |
|Commission: |California |but large |Commission but |
|Eliminate |Performance|upfront |it is unclear |
|FTB, combine | Review, |consolidation |who serves on |
|with DMV and |2007. |costs. |the commission |
|EDD. |Various | |and whether the |
| |Bills<2> | |BOE or the |
| | | |Governor would |
| | | |be the umbrella |
| | | |organization. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Eliminate FTB |Various |Same as above; |This option |
|and |Bills<3> |unknown impact |combines the |
|consolidate | |from eliminating |two largest tax |
|into BOE or | |BOE |entities in the |
|eliminate BOE | | |state; one |
|and | | |retains the |
|consolidate | | |Governor as the |
|into FTB | | |executive; the |
-------------------------
<1>
California Constitutional Revision Commission (1996); SB
87/SCA 5 (Kopp, 1994), SB 1727/SCA 9 (Kopp, 1995), SCA 39
(Killea, 1996), and AB 2794 (Bowen, 1996).
<2> Without EDD and DMV: AB1996/ACA 39 (Harris) and SB 1695
(Kopp, 1992) created a consolidated Department of Revenue
and a Tax Commission, see also ACA 13 (Leonard, 2001), ACA
22 (Dutra, 2003), ACA 14 (DeVore, 2005))
<3> SB 1052/SCA 22 (Alquist), AB 3338 (McClintock, 1992),
AB 15
(Klehs, 1993), AB 2000 (Dutton, 2003), SB 216 (Dutton,
2005), and SB 274 (Dutton, 2007).
SB 1326 - 2/23/12 -- PageI
| | | |other makes BOE |
| | | |responsible for |
| | | |all taxes in |
| | | |the state. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Tax Court |Various |Unknown |Tax Courts in |
| |Bills<4> | |other states |
| | | |apply a |
| | | |precedent-based |
| | | |objective legal |
| | | |forum for |
| | | |adjudicating |
| | | |tax cases; |
| | | |judges selected |
| | | |based on tax |
| | | |law expertise. |
| | | | |
|--------------+-----------+-----------------+----------------|
|Consolidate |Various |CPR estimating a |LAO projects |
|cashiering |Bills<5> |savings of |medium to long |
|functions | |approximately |term savings |
|only | |$20 million per |contingent on |
| | |year |initial costs |
| | | |to fund |
| | | |upgrades in the |
| | | |new systems. |
| | | |Partial |
| | | |consolidation |
| | | |would have to |
| | | |precede full |
| | | |consolidation |
| | | |of functions. |
| | | | |
-------------------------------------------------------------
-------------------------
<4> SB 1395 (Kopp, Ayala, et al, 1989), SB 23/SCA 25 (Kopp,
1991),
SB 87/SCA 5 (Kopp, 1993) eliminated BOE and FTB and
replaced with Department of Revenue and Tax Court, also SB
1424 (Burton, 2004) and AB 2472 (Wolk, 2004).
<5> LAO (2005) resulting from study required by AB 986
(Horton),
California Performance Review (2007); SB 956 (Rosenthal,
1997), SB 896 (Speier, 1999) transferred DOI revenue
collection functions to BOE.
SB 1326 - 2/23/12 -- PageJ
7. Technical Amendments : Committee staff recommends the
following clarifying amendments:
On Page 3, line 12, delete "file returns, submit"
and insert "submit returns and forms,"
On Page 3, line 17, delete "where operationally
feasible," and insert "and upon joint determination of
the agencies that a need exists to improve
cost-effective service to taxpayers, and upon
appropriation from the Legislature,"
Support and Opposition (04/05/11)
Support : None received.
Opposition : None
received.