BILL ANALYSIS                                                                                                                                                                                                    �




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  SB 1419                     HEARING:  4/25/12
          AUTHOR:  Correa                       FISCAL:  Yes
          VERSION:  2/24/12                     TAX LEVY:  No
          CONSULTANT:  Miller                   

                       BOE: DISCHARGE FROM ACCOUNTABILITY
          

            Allows the BOE to discharge tax liability under specific 
                                 circumstances.


                           Background and Existing Law  

          Existing state law allows the Franchise Tax Board (FTB) to 
          provide relief of liability to a taxpayer if those 
          liabilities are discharged from accountability (deemed 
          uncollectable) and if at least one of the following 
          conditions is met:  

                 The liability is for an amount less $500. 
                 The liable person has been deceased for more than 
               four years and there is no active probate for that 
               person. 

                 The FTB has determined that the taxpayer has a 
               permanent financial hardship.

                 The liability has been unpaid for more than 30 
               years.  

          The FTB also has a 20-year statute of limitation (SOL) on 
          collection.  After 20 years from the date the latest tax 
          liability for a taxable year becomes due and payable, the 
          FTB may not collect the amount owed and the liability is 
          abated.  

          The BOE has no statutory authority to extinguish a tax 
          liability when the debt has been discharged.  An account 
          that has been deemed uncollectable does not have the effect 
          of relieving the taxpayer of the responsibility to pay.  







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                                   Proposed Law  

          Senate Bill 1419 conforms BOE to the FTB practice above, 
          and allows the BOE to extinguish outstanding liability for 
          the payment of any tax, fee, or other liability deemed 
          uncollectible that is due and owing to the state, if at 
          least one of the following conditions is met:

                 The liability is for an amount less than five 
               hundred dollars ($500). 
                 The liable person has been deceased for more than 
               four years and there is no active probate for that 
               person. 

                 The BOE has determined that the taxpayer has a 
               permanent financial hardship.

                 The liability has been unpaid for more than 30 
               years.  

          

                               State Revenue Impact
           
          The BOE estimates that this bill will result in a revenue 
          loss of $227,000 annually.


                                     Comments  

          1.   Purpose of the bill  .  According to the author, "The BOE 
          and the FTB follow the same statutes to enforce collection, 
          and operate under similar statewide statutes.  Unlike the 
          FTB, the BOE has no statutory authority to extinguish a tax 
          liability when a debt has been discharged from 
          accountability and deemed uncollectable. Hence, an account 
          that has been deemed uncollectable by the BOE does not have 
          the effect of relieving the taxpayer of the responsibility 
          to pay.  There have been circumstances where the cost to 
          the BOE of pursuing an outstanding liability exceeds the 
          liability itself, the liable taxpayer is deceased or the 
          liable taxpayer has a permanent financial hardship. 
          Collecting these liabilities is often a burden not only on 
          the state, but also on struggling individuals and 
          businesses.  SB 1419 will help reduce this burden, while 
          providing appropriate relief to taxpayers, by giving the 





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          BOE statutory authority to extinguish an uncollectable tax 
          liability."


          2.   Say what you mean  .  This bill allows certain tax 
          liabilities to be deemed uncollectible if one of four 
          criteria is met.  One criterion is "permanent financial 
          hardship" but does not define that term.  Presumably, the 
          BOE Members would have full discretion of the discharge and 
          definition.   Since the BOE, unlike the FTB, oversees debts 
          and tax liabilities that are often directly collected from 
          the consumer (sales and use tax, cigarette tax), the 
          Committee may wish to define "financial hardship" to 
          specifically cite the federal bankruptcy code sections and 
          require that more than one of the criteria is met before a 
          tax liability may be discharged.


                         Support and Opposition  (4/19/11)

           Support  :  State Board of Equalization (sponsor); California 
          Chamber of Commerce; California Taxpayer's Association.

           Opposition  :  Unknown.