BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 1420 HEARING: 4/25/12
AUTHOR: Correa FISCAL: Yes
VERSION: 2/24/12 TAX LEVY: No
CONSULTANT: Miller
SALES AND USE TAX INTEREST
Allows the BOE to relieve interest in extraordinary
circumstances.
Background and Existing Law
Existing state law requires any person desiring to engage
in business as a seller in California to apply for a
seller's permit with the Board of Equalization (BOE). A
seller's permit is valid for as long at the seller
maintains a business and remains in good standing with the
BOE. A person who fails to comply with any provision of
the sales and use tax law, including payments of amounts
due, may have their seller's permit revoked by the BOE.
Prior to revocation of a seller's permit, the BOE must
provide advanced written notice of the time and place of a
hearing to be held which will afford the person the
opportunity to show why their seller's permit should not be
revoked. A seller whose permit has been revoked or
suspended may renew their permit after paying a $100
reinstatement fee to the BOE.
The BOE may require a person to file a security deposit
with the BOE to ensure compliance with the sales and use
tax law. The security deposit may not exceed $50,000 and
it must be released by the BOE after a three-year period in
which the person has filed all tax returns and paid all
taxes to the state.
Taxpayers who are late in payment of their sales and use
tax obligations must pay a penalty, plus monthly interest
on those unpaid taxes from the date the tax is due to the
date upon which they are paid. The rate of interest for
late payments is 7% annually.
SB 1420 -- 2/24/12 -- Page 2
Proposed Law
Senate Bill 1420 allows the BOE to relieve all or any part
of the interest imposed, not to exceed $50,000 during a
12-month period, on a late payment if members find, in
their discretion, that a person's late payment was due to
"extraordinary circumstances" and that it is inequitable to
compute interest as current law requires. All of the
following must apply in order for the relief to be granted:
1. The person was granted relief from all penalties
that applied to the late payment.
2. The person has paid the tax on which the interest
is imposed, or, in the case of an unpaid tax liability
for which a petition for redetermination is pending,
the person pays the tax on which the interest is
imposed within 30 days from the date the final
decision of the BOE on that petition was issued.
3. The person files a request for an oral hearing
before the BOE.
4. The person files a statement with the BOE under
penalty of perjury setting forth the facts upon which
the claim for relief is based and any other
information the BOE may require.
The bill defines "extraordinary circumstances" to mean any
of the following:
1. The occurrence of a death or medical incapacity of
the person or the person's next of kin that caused the
person's failure to make a timely payment.
2. The occurrence of an emergency, as defined in
Section 8558 of the Government Code, that caused the
person's failure to make a timely remittance.
3. Criminal misconduct by a person, other than the
person that failed to make a timely payment, that
caused the person's failure to make a timely payment.
If the person fails to pay the underlying tax, the interest
liability would be reestablished.
SB 1420 -- 2/24/12 -- Page 3
State Revenue Impact
According to the BOE, the exact revenue loss associated
with the bill is undeterminable but by the bills terms, the
revenue loss cannot exceed $50,000.
Comments
1. Purpose of the bill . This bill is sponsored by the BOE
and was prompted by a sales and use tax case from a
December 2009 public hearing. In this case, the taxpayer's
bookkeeper revised the taxpayer's computerized accounting
records and embezzled a substantial amount of sales tax
reimbursement collected from the taxpayer's customers.
Although the bookkeeper was fired and prosecuted and is
currently serving a prison sentence, the taxpayer remains
liable for the tax and interest. And, even though the
taxpayer had previously an excellent record of payment of
sales and use taxes, and acted swiftly and appropriately
upon discovery of the embezzlement, the fact that the
taxpayer was a victim of such a crime is not a basis for
relief. The law does not provide relief from tax or
interest based on a loss of the funds after the sale, by
embezzlement or otherwise. SB 1420 would remedy that
problem.
2. How much ? This bill allows the BOE to discharge
interest up to $50,000. The underlying tax liability on
that amount is $714,825 which the taxpayer is obliged to
pay largely because the taxpayer has already received the
tax from the consumer. At an average sales tax rate of
7.75%, that taxpayer's business is $9.3 million in goods
sold. The bill is intended to help smaller taxpayers
undergoing extraordinary circumstances, but instead could
help very large taxpayers with revenues exceeding $9
million annually. The Committee may wish to consider
whether such a large interest exception makes sense or
consider reducing the amount by at least half to affect
smaller taxpayers.
3. Slippery slope . Existing law holds taxpayers harmless
after a natural disaster for late taxes. This bill offers
SB 1420 -- 2/24/12 -- Page 4
identical relief to taxpayers that suffer personal
tragedies such as a death in the family with specific
requirements that the taxpayer make to the BOE directly.
The success of tax agencies often relies on the perfunctory
administrative actions of the staff and not on the board
members; the more exceptions to paying the tax and
interest, the fewer perfunctory functions of the BOE staff.
Would this bill create a slippery slope of exceptions to
the administrative functions of the BOE? The state also
allows excess disaster loss treatment and property tax
disaster relief after a natural disaster; would this bill
create a slippery slope of exceptions for personal
tragedies? The Committee may wish to consider whether
these decisions would be better left to the BOE staff
rather than the board members. Furthermore, the Committee
may wish to consider whether this bill will be one of many
suggesting extraordinary circumstances for which to waive
interest.
4. Similar legislation . This committee passed a similar
version of this bill last year, AB 1352 (Logue). That bill
was gut-and-amended at the end of session.
Support and Opposition (4/18/12)
Support : Board of Equalization (sponsor); California
Taxpayer's Association.
Opposition : Unknown.