BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 43 (Bocanegra) - Sales and Use Tax: Claims for Refund:
Consumer Refund
Amended: August 5, 2014 Policy Vote: G&F 7-0
Urgency: No Mandate: No
Hearing Date: August 11, 2014
Consultant: Robert Ingenito
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 43 would authorize a retailer to make an
irrevocable election to assign to a customer the right to
receive a sales and use tax (SUT) refund if specified criteria
are met.
Fiscal Impact:
The Board of Equalization (BOE) would incur costs
estimated to be in the low hundreds of thousands of dollars
to implement the provisions of the bill. Roughly half of
this amount would come from the General Fund, while the
remainder would come from local SUT funds.
Under the bill, customers would be able to file a claim
for refund; consequently, the number of claims filed could
increase. However, the resulting decrease in revenue
represents funds the State initially overcollected relative
to current SUT law.
Background: Under current law, when a customer overpays sales
tax to the retailer, the customer must obtain a refund directly
from the retailer. Current law allows BOE to issue a refund for
excess tax reimbursement only to the retailer that collected and
reported the sales tax.
Proposed Law: This bill would authorize a retailer to make an
irrevocable election to assign the right to receive a refund of
excess tax reimbursement to a single customer so that BOE may
make a direct refund to the customer if all of the following
conditions are met:
AB 43 (Bocanegra)
Page 1
The amount is in excess of the actual tax owed, pursuant
to existing law.
The irrevocable election to assign to the customer the
amount refunded is provided by a statement signed by the
customer authorizing the named customer to receive a
refund.
The signed statement is submitted to the BOE in
conjunction with the person's claim for refund.
The amount to be refunded is $50,000 or greater.
Staff Comments: The previous version of this bill (January 6,
2014) proposed a single change to current law; namely, it
allowed a retailer to assign its right to receive a refund
payment to a customer. The current version of the bill proposes
a second change as well: permitting a retailer to assign to a
customer its right to file a claim for refund. This second
change would increase BOE's administrative costs by hundreds of
thousands of dollars annually.
Specifically, to implement AB 43 as amended on January 6, 2014
(the version that allows a retailer to assign its right to
receive a refund payment to a customer), BOE's implementation
(assuming a single customer) would look as follows:
Staff would develop an assignment form, as part of BOE's
Claim for Refund Form BT-101.
Both the retailer and customer would sign this form.
The retailer would file the Claim for Refund, which
would include the assignment form.
BOE staff would request the necessary documentation from
the retailer (including sales invoices, sales journal,
sales tax working papers, sales tax returns, and local tax
schedules).
BOE staff would examine the retailer's records and
process the refund to the single customer.
AB 43 (Bocanegra)
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Thus, the only additional workload arising from the January 6,
2014 version of the bill relative to current law would come at
the end of the refund process when BOE has approved the refund
and is ready to issue a warrant. At that time, BOE would verify
the customer's information on the assignment form, enter the
information into the its IT system, and then issue the warrant
to the customer. All of the processing would be contained
within the retailer's account.
For example, consider a retailer of farm equipment that makes
sales of equipment to 10 farmers. Subsequently, it is
determined that the farm equipment qualifies for the partial
state SUT exemption for farm equipment and machinery. The
retailer would complete one claim for refund with multiple
assignment forms (ten total, one for each farmer). A BOE auditor
would (1) travel to the retailer's place of business, (2)
confirm that the sales invoices verify that the tax was reported
to BOE, and (3) approve the refund. BOE's Refund Section would
amend the retailer's returns in its IT system. The auditor then
would then enter the assignment information and generate a
schedule to be sent to the State Controller's Office, which
would issue a warrant to each of the 10 farmers.
Next, consider how AB 43 as currently written would be
implemented (where the retailer can assign its right to file a
claim for refund to the customer). Under this scenario, BOE's
implementation/complications would look as follows:
Staff would develop an assignment form, as part of BOE's
Claim for Refund Form BT-101.
The retailer would complete and sign the assignment
form, but the customer would file the claim for refund
(including the assignment form) with BOE.
In order to verify that the tax was paid to BOE, staff
would contact the retailer to obtain the necessary
documentation (sales journal pages, sales tax working
papers, returns, and possibly sales invoice information).
If there is a large volume of records to examine, a Board
auditor may have to conduct the examination at the
retailer's place of business.
AB 43 (Bocanegra)
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There are a number of problems that can arise when the
customer files a claim for refund. First, the customer may
not realize that a purchase transaction is outside the
statute of limitations for issuing a refund (generally
three years from the due date of the return for which the
overpayment was made). In addition, in the case where a
customer has more than one vendor, BOE staff would have to
issue a separate audit report or field investigation report
for each retailer. This is necessary because BOE has to
amend each retailer's return or returns. This causes two
reports to be issued instead of one report, which would be
the case under the assignment of a refund payment only
provisions. In addition, the customer may not have the
documentation for BOE to validate and approve a refund.
In addition, when a retailer assigns its right to file a
claim for refund to its customer, the customer would now
have appeal rights. However, the customer would have to
file a separate appeal for each vendor/retailer. Whereas
under the assignment for the refund payment only, if the
Board denies a retailer's claim for refund (which can
include multiple customers), the retailer files one appeal
for the multiple transactions.
BOE staff could experience some workload issues
concerning customers calculating purchases to arrive at the
$50,000 threshold. For example, if a farmer makes five
purchases of farm equipment each at $10,000 in SUT over a
two-year period, if one purchase is outside the statute of
limitation, then the farmer will not meet the $50,000
threshold. In addition, the assignment is between one
retailer and a one customer ("a single customer"). This
means that a parent company with five subsidiaries cannot
count all of the subsidiaries' purchases for purposes of
reaching the $50,000 threshold. The subsidiary must have
purchased directly from the retailer. In other words, a
parent company cannot aggregate its related
entities/subsidiaries for purposes of reaching the
threshold. Under SUT Law, a subsidiary is a separate
entity/person from its parent.
Thus, staff could expect more administrative problems as
noted above, and therefore more processing in the case
where a customer is allowed to file a claim for refund.
AB 43 (Bocanegra)
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Another problem that causes complication is that some of
the customers will not hold a permit with the Board. Now,
that can also be the case under the assignment of the
refund payment only. There is just a greater workload to
process a refund versus cutting a check.
Under a scenario with a customer and only a few
purchases and one retailer, the processing will not be that
much more under the previous version of the bill. It's a
scenario with one customer and multiple vendors with
multiple transactions that complicates the refund process
A retailer assigning its right to file a claim for
refund to the customer creates the possibility of BOE
issuing duplicate tax refunds. This is the reason BOE cites
the need to develop a database to track refunds.
Consequently, BOE would likely experience workload costs
resulting from the current version of bill, in the hundreds of
thousands of dollars annually.