BILL ANALYSIS �
AB 2754
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Date of Hearing: May 7, 2014
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
AB 2754 ( Committee on Revenue & Taxation) - As Introduced:
March 24, 2014
Policy Committee: Revenue &
Taxation Vote: 6-2
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill makes two discrete changes to the state income tax
filing requirements, each of which begin on January 1, 2015 and
apply to tax years beginning on or after January 1, 2014:
1)Requires a taxpayer claiming a dependent exemption credit
provide the tax identification number of the dependent
included on the return.
2)Requires a business return to be filed electronically if the
return was prepared using tax preparation software. For
returns filed for tax years beginning on or after January 1,
2016, businesses that violate this rule will be subject to a
$500 penalty. The bill allows a business entity that would
otherwise have to comply with this provision to request a
waiver, which the Franchise Tax Board (FTB) may grant in cases
of reasonable cause or undue burden.
The bill directs the FTB to conduct a "robust" education
program to advise businesses affected by this section and
"liberally" interpret and grant waivers in a manner that
minimizes unnecessary adverse impacts to businesses.
FISCAL EFFECT
1) Dependent tax identification number inclusion.
a) GF costs to the FTB to respond to and resolve taxpayer
contacts when the dependent exemption credit is disallowed
of approximately $500,000 per year.
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b) Estimated revenue increase of approximately $10 million
per year as a result of having to include dependent
taxpayer identification numbers on returns.
2) Electronic filing for business entities.
a) One-time implementation costs of approximately $95,000
in FY 2014-15 to the FTB for accommodating the increase in
business entity electronic filings, more than offset by
estimated savings of $935,000 in the same fiscal year from
reduced personnel and equipment needed to process paper
filings.
b) No impact to the state's income tax revenue.
COMMENTS
1) Purpose. According to the sponsor, the FTB:
a) Requiring taxpayers claiming a dependent exemption
credit to provide the tax identification number of the
dependent allows the FTB to confirm a dependent is claimed
only once, increasing the integrity of returns while
reducing inaccurate returns and errors in the issuance of
exemption credits. This bill also allows the FTB to create
an automated method for examining dependent credits,
reducing department costs.
b) Requiring businesses to e-file their tax returns will
allow it to process business entity returns more quickly,
which will expedite approved returns and allow the
department to utilize cost-effective technology to meet
operational goals. The FTB reports 86% of the paper
returns currently filed by businesses are produced using
approved tax preparation software ready for e-filing, but
only 46% of those returns are actually e-filed.
2) Dependent Exemption Credit Noncompliance. A recent department
study confirmed the failure to require dependent tax
identification numbers resulted in substantial noncompliance.
The most common example is the same dependent being claimed
twice, whether by separated parents claiming the same child,
or a parent claiming the child as a dependent and the child
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claiming itself.
The federal Internal Revenue Service (IRS) already requires
tax identification numbers for dependents. Currently, the FTB
discovers such errors only after IRS information on disallowed
dependent exemptions is shared, which may occur up to 18
months after the state return was filed.
3) Federal e-filing Requirement. Existing federal law already
mandates e-filing for many business entities, including large
corporations, large partnerships, certain tax-exempt
corporations, and private foundations and charitable trusts
regardless of size. The federal rules allow exceptions and
hardship waivers from the e-filing requirement if a taxpayer
is unable to meet e-filing requirements due to technology
constraints or where compliance with the requirements would
result in undue financial burden.
4) Staff Comment. The authors and this Committee may wish to
consider whether the FTB education and waiver mandate of
Section 4 is sufficiently defined and clear, particularly
whether the requirement to conduct a "robust" program and
"liberally" grant waivers is sufficiently clear to prevent
confusion and complaint among aggrieved taxpayers.
Analysis Prepared by : Joel Tashjian / APPR. / (916) 319-2081