BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 1420 (Correa) - Board of Equalization: relief of interest.
Amended: May 9, 2012 Policy Vote: G&F 8-0
Urgency: No Mandate: No
Hearing Date: May 21, 2012 Consultant: Mark McKenzie
This bill meets the criteria for referral to the Suspense File.
Bill Summary: SB 1420 would authorize the Board of Equalization
(BOE) to relieve interest imposed as a result of failure to make
a timely payment, if the failure was due to extraordinary
circumstances, as specified.
Fiscal Impact: General Fund revenue loss of up to $25,000 in a
12-month period, starting in 2013. Additional General Fund cost
pressures to the extent demand exceeds the interest relief limit
specified in the bill.
Background: Existing law requires payment of penalties and
interest for failure to pay sales and use tax obligations on
time. Simple interest is charged on a monthly basis at a rate
of seven percent annually from the date the tax is due to the
date of payment. The BOE currently has the authority to relieve
a late payment penalty when there is a finding that the failure
to make a timely payment was due to a disaster or reasonable
cause and circumstances beyond the person's control, and
occurred notwithstanding the exercise of ordinary care and the
absence of willful neglect. The BOE may only relieve interest
on a late payment in cases of a disaster or when failure to make
a timely payment was due to an unreasonable error or delay by a
BOE employee.
Proposed Law: SB 1420 would allow the Members of the BOE,
meeting as a public body, to relieve all or part of the interest
imposed on late payments, up to $25,000 total in a 12-month
period, if the failure to make a timely payment was due to
extraordinary circumstances. The person seeking relief must
have been granted relief from all penalties, paid the tax on
which the interest is imposed, requested an oral hearing before
the Members, and filed a specified written declaration that
includes facts and information about the claim. The failure to
SB 1420 (Correa)
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make a payment must be a result of the following "extraordinary
circumstances:" the death or medical incapacity of the person's
next of kin; the occurrence of an emergency, as specified in
current law (state of war, emergency, or local emergency); or
criminal misconduct by a person other than the claimant.
Related Legislation: AB 1352 (Logue) Chap 735/2011 contained
substantially similar interest relief provisions when the bill
was heard in this Committee last year, except the revenue loss
was capped at $50,000 in a 12-month period. That bill was
amended to delete the interest relief provisions when the
Committee approved the bill and send it to the Senate Floor. AB
2375 (Knight), which failed passage in the Senate Revenue and
Taxation Committee in 2010, also contained the same provisions.
Staff Comments: It is unclear how many taxpayers would seek
relief, and how many would be granted relief, as a result of the
discretionary authority provided by this bill. The BOE cites
one case in which a taxpayer was victim of embezzlement by a
bookkeeper who had falsified the taxpayer's accounting records,
resulting in an unpaid tax liability that was subject to
penalties and interest. The accumulated interest was $15,662
when that case came before the BOE. Since the demand for
interest relief related to this bill is unknown, the magnitude
of any potential interest revenue loss is indeterminable, but
the bill limits the aggregate relief in a 12-month period to
$25,000. If demand exceeds this limitation, the bill could
create additional General Fund cost pressures.
Staff notes that under federal law, the Internal Revenue Service
has considerable discretion to relieve late payment penalties
under a wide variety of circumstances. However, existing
federal law provides very little flexibility to abate interest
penalties, and these liabilities are generally not abated if an
error or delay is attributed to the taxpayer.