BILL ANALYSIS �
AB 2754
Page 1
ASSEMBLY THIRD READING
AB 2754 (Revenue and Taxation Committee)
As Amended December 25, 2014
Majority vote
REVENUE & TAXATION 6-2 APPROPRIATIONS 12-5
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|Ayes:|Bocanegra, Gordon, |Ayes:|Gatto, Bocanegra, |
| |Mullin, Pan, V. Manuel | |Bradford, |
| |P�rez, Ting | |Ian Calderon, Campos, |
| | | |Eggman, Gomez, Holden, |
| | | |Pan, Quirk, |
| | | |Ridley-Thomas, Weber |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Harkey, Beth Gaines |Nays:|Bigelow, Donnelly, Jones, |
| | | |Linder, Wagner |
| | | |> |
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SUMMARY : Requires that the dependent's tax identification
number be included on a return when claiming a Dependent
Exemption Credit, and requires a business entity that prepares a
return using tax preparation software to file the return
electronically. Specifically, this bill :
1)Provides, beginning on or after January 1, 2015, that a
Dependent Exemption Credit exemption shall not be allowed
unless the identification number, as defined in Internal
Revenue Code (IRC) Section 6109, of the dependent is included
on the return.
2)Provides that a taxpayer shall have the right to claim the
credit or refund of adjusted amounts within the statute of
limitation.
3)Requires, beginning on or after January 1, 2014, that a
business return be filed using electronic technology if the
return was prepared using a tax preparation software. The
return shall be filed in a manner prescribed by the Franchise
Tax Board (FTB). This provision applies to returns required
to be filed on or after January 1, 2015.
4)Provides that a business entity required to file a return
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electronically under this section may annually request a
waiver of the requirement from the FTB for a taxable year.
The FTB may grant the waiver if it determines that the
business entity is unable to comply with the requirements due
to technology constraints, where compliance would result in
undue financial burden, or due to circumstances that
constitute reasonable cause, and not willful neglect.
5)Provides that a business entity that is required to
electronically file a return and fails to comply shall be
subject to a penalty of $100 for the first year and $500 each
year thereafter unless the failure is due to reasonable cause,
and not willful neglect. This provision applies to returns
filed for taxable years beginning on or after January 1, 2017.
6)Provides that the penalty shall apply per combined reporting
group, not per taxpayer included in a combined reporting
group.
7)Provides that the FTB shall conduct a robust education program
advising businesses of the new electronic filing requirements
and shall liberally interpret and grant waivers of the penalty
to minimize unnecessary adverse impacts to businesses that
experience difficulty complying with these requirements.
8)Defines an "acceptable return" as an original or amended
return that is required to be filed by a business entity other
than the return for unrelated business taxable income.
9)Defines a "business entity" as a corporation, including an "S"
corporation, an organization exempt from tax, a partnership,
or a limited liability company.
10)Defines "tax preparation software" as any computer software
program used to prepare an acceptable return or for use in tax
compliance.
11)Defines "electronic technology" to include, but is not
limited to, the Internet, cloud computing, or an electronic
information delivery system.
12)Defines "technology constraints" as an inability of the tax
preparation software to electronically file the acceptable
return as required by this section as a result of the complex
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nature of the return or inadequacy of the software.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)Dependent Tax Identification Number Inclusion.
a) General Fund cost to the FTB to respond to and resolve
taxpayer contacts when the dependent exemption credit is
disallowed of approximately $500,000 per year.
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 fiscal year (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 FY
from reduced personnel and equipment needed to process
paper filings./
b) No impact to the state's income tax revenue.
COMMENTS :
The Purpose of E-Filing. If the return of a business entity is
prepared using tax preparation software, but a paper return for
that business entity is filed, the FTB must process that return
using costly manual data capture methods that lack the accuracy
and efficiency associated with e-filing. This bill would
require a business entity that files an acceptable return that
was prepared using tax preparation software to file the return
by electronic technology in a form and manner prescribed by the
FTB, unless the business entity, upon request, is granted a
waiver. Requiring a business entity to e-file a return when a
taxpayer uses tax preparation software would result in the FTB
processing returns more quickly, which would expedite approved
refunds and utilize cost-effective technology to meet
operational goals. E-filing a return lowers the initial cost of
processing returns. The FTB estimates that the average cost to
the department to process a business entity paper filed return
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is $6 (includes complex and smaller taxpayer returns), as
opposed to $0.36 (primarily based on smaller taxpayer returns)
for an e-filed return.
The Purpose for Requiring a TIN. Not requiring a TIN for each
dependent be included on the state tax return precludes the
department from validating Dependent Exemption Credits during
return processing, which delays the correction of erroneous or
duplicated dependent credits and increases the cost of
correcting these errors for taxpayers and the department. This
bill would allow the FTB to confirm that a dependent's TIN is
used only once, which would increase the integrity of the
returns, reduce inaccurate returns, and erroneous dependent
credits. This bill would also increase the timeliness of the
FTB's compliance efforts, and decrease the amount of incorrect
refunds issued to taxpayers. Additionally, this bill would
allow the FTB to create an automated versus manual method for
examining dependent credits that could reduce departmental cost.
Analysis Prepared by : Carlos Anguiano / REV. & TAX. / (916)
319-2098
FN: 0003751