BILL ANALYSIS �
SB 1548
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Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1548 (Wyland) - As Amended: May 8, 2012
VOTE ONLY
Majority vote. Fiscal committee.
SENATE VOTE : 37-0
SUBJECT : State Board of Equalization: offer in compromise
SUMMARY : Extends, to January 1, 2018, the sunset date for the
State Board of Equalization's (BOE's) existing offer in
compromise (OIC) program (Program). Specifically, this bill :
1)Extends, from January 1, 2013, to January 1, 2018, the sunset
date for those Program provisions that allow the BOE to accept
an OIC even if the underlying liability was generated from a
business that has not been discontinued or transferred.
2)Provides that no reimbursement is required by this act
pursuant to the California Constitution for specified reasons.
EXISTING LAW :
1)Allows the BOE to accept an OIC in satisfaction of a final
tax, fee, or surcharge liability, as specified.
2)Provides, as a general rule, that the BOE's OIC authority
extends only to liabilities generated from a business that has
been discontinued or transferred, where the taxpayer making
the offer "no longer has a controlling interest or association
with the transferred business or has a controlling interest or
association with a similar type of business as the transferred
or discontinued business."
3)Provides that, notwithstanding this general rule, a
"qualified" liability may be compromised regardless of whether
the business has been discontinued or transferred or whether
the taxpayer has a controlling interest in or association with
a similar type of business. The provisions governing
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"qualified" liabilities are set to expire on January 1, 2013.
4)Provides that, for amounts to be compromised, the taxpayer
must establish that the amount offered in payment is the most
that can be expected to be paid or collected from the
taxpayer's present assets or income. It must also be shown
that the taxpayer does not have reasonable prospects of
acquiring increased income or assets in the short term.
Finally, the BOE must determine that acceptance of the
compromise is in the best interest of the state.
5)Provides that any person who willfully conceals property in
connection with an OIC shall be guilty of a felony.
FISCAL EFFECT : The BOE notes that, based on a review of OICs
accepted for open and active businesses during the past
two-and-a-half fiscal years, the estimated revenue is
approximately $286,034 annually.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Offer in Compromise programs are mechanisms that government
agencies use to help taxpayers settle outstanding tax
liabilities that they could not pay in full without having
to declare bankruptcy. The goal of establishing an OIC
program is to incentivize taxpayers to negotiate with the
government agency to pay a reduced amount to settle their
tax liability. This approach allows the taxpayer to keep
their business open, which creates further economic
development. At the same time, OIC programs increase the
likelihood that tax liabilities will be collected, even if
for a reduced amount. Both the Internal Revenue Service
(IRS) and the California Franchise Tax Board (FTB) operate
OIC programs for both taxpayers and businesses.
2)The BOE notes the following:
This bill is sponsored by the Board of Equalization (BOE)
and would allow the BOE to continue for an additional five
years to compromise final tax liabilities of (1) businesses
that are not discontinued or transferred if the final tax
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liability arises from transactions in which the taxpayer
did not fail to remit received sales tax reimbursement or
use tax, (2) persons liable as successors, and (3)
consumers who incurred a use tax liability.
This bill will provide an additional five years for the
continuation of the Offers in Compromise (OIC) program for
open and active businesses. If the provisions related to
open and active businesses are allowed to expire on January
1, 2013, then the OIC program will be limited to persons
with businesses that have been closed and discontinued. In
fiscal year 2009-10 and FY 2010-11, the BOE accepted offers
from eight open and active businesses; the offer amounts
totaled $532,668. Of the eight, seven of the businesses
have remained open.
One of the requirements for open and active businesses that
have an accepted OIC is that they must file and pay by the
due date all subsequently required returns and/or reports
for a five-year period, or until the business closes,
whichever is earlier. Even though the offer amounts
accepted only totaled $532,668, the businesses that
remained open continued to pay their sales and use taxes
and for the 2009-10 and 2010-11 FY's �sic] paid over
$238,000 to the benefit of state and local governments.
The BOE is sponsoring this measure in order to address
those unique situations where the BOE believes that it
would be in the best interest of the state to compromise a
tax debt, when the taxpayer does not have the means to pay
more than the amount offered now or in the near future. It
would provide for a voluntary resolution that is agreeable
to both taxpayers as well as the BOE. (Emphasis in
original).
3)Proponents note:
The authority to offer compromises has been in place since
2002, and was expanded in 2006 to cover all special taxes
administered by the BOE. In 2008, AB 2047 (Ch. 222, St.
2008) expanded the offers in compromise program to ongoing
businesses meeting certain criteria, but included a January
1, 2013 sunset.
According to the BOE, the 2008 authority has facilitated
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more than half a million dollars in tax revenues under its
offers in compromise program, and another $238,000 in sales
and use tax collections, as participating taxpayers were
able to continue doing business and remit taxes.
Given the state's fiscal situation, we believe it pertinent
to continue BOE's offers in compromise program to provide
an avenue for taxpayers to reasonably resolve certain types
of tax liabilities. Furthermore, it would maximize the
state's opportunities to collect on tax liabilities that
may otherwise be uncollectible if businesses are forced to
close their operations.
4)Committee Staff Comments:
a) What is an OIC? : An OIC allows for the resolution of
outstanding tax liabilities in cases where there is no
dispute over the amount owed, but where the taxpayer lacks
sufficient funds to pay the full liability. Advocates
contend that, by negotiating an OIC, tax agencies are able
to collect the maximum amount feasible without forcing the
taxpayer into bankruptcy, which would only further delay
and compromise collection efforts.
b) Legislative history of the BOE's OIC program : AB 1458
(Kelley), Chapter 152, Statutes of 2002, first authorized
the BOE to accept an OIC on certain final tax and fee
liabilities. The original OIC program applied only to
liabilities arising under the Sales and Use Tax Law, the
Use Fuel Tax Law, or the Underground Storage Tank
Maintenance Fee Law. In addition, the original program
applied exclusively to liabilities generated from
discontinued or transferred businesses.
AB 3076 (Committee on Revenue and Taxation), Chapter 364,
Statutes of 2006, extended the BOE's OIC program to final
liabilities arising under the following: the Cigarette and
Tobacco Products Tax Law, the Alcoholic Beverage Tax Law,
the Timber Yield Tax Law, the Energy Resources Surcharge
Law, the Emergency Telephone Users Surcharge Act, the
Hazardous Substances Tax Law, the Integrated Waste
Management Fee Law, the Oil Spill Response, Prevention, and
Administration Fees Law, the Fee Collection Procedures Law,
and the Diesel Fuel Tax Law.
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AB 2047 (Horton), Chapter 222, Statutes of 2008, modified
the BOE's OIC program in a number of respects. Most
importantly, AB 2047 extended the BOE's OIC program to open
and active businesses, provided there is no evidence the
taxpayer collected tax reimbursement (e.g., sales tax
reimbursement from customers). Essentially, AB 2047
authorized the BOE to accept an OIC from a taxpayer who may
otherwise have to sell or discontinue their business
because of an inability to pay in full a final tax
liability that arose from transactions in which the
taxpayer did not collect tax reimbursement.
Pursuant to an amendment suggested by the Senate Committee
on Revenue and Taxation, AB 2047 included a January 1, 2013
sunset date for the bill's modifications to the OIC
program. The Senate Committee noted, "A sunset date would
allow the committee to evaluate the program after several
years of operation and determine if any improvements to the
program are necessary."
c) What would this bill do? : This bill would extend, to
January 1, 2018, the sunset date for the OIC program
provisions that apply to open and active businesses.
REGISTERED SUPPORT / OPPOSITION :
Support
State Board of Equalization (sponsor)
California Chamber of Commerce
California Grocers Association
California Manufacturers and Technology Association
California Taxpayers Association
National Federation of Independent Business
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
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