BILL ANALYSIS �
SB 211
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Date of Hearing: August 21, 2013
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Mike Gatto, Chair
SB 211 (Hernandez) - As Amended: August 13, 2013
Policy Committee: Revenue and
Taxation Vote: 6-1
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill extends the sunset on the state-local tax information
sharing program. Specifically, this bill:
1)Extends the January 1, 2014 sunset date on the reciprocal
sharing of tax information between the FTB and city tax
officials until January 1, 2019.
2)Allows a city, participating in the tax information sharing
program, to provide tax information to third party agents.
3)Requires that tax information provided to a city shall be
utilized in a form and manner to safeguard the tax information
as required by the FTB.
FISCAL EFFECT
FTB indicates that this measure would result in revenue gains of
$1.5 million in 2014-15 and $4.9 million in 2015-16. FTB
indicates it currently has reciprocal agreements with 102 cities
and its costs to administer the program are about $700,000
annually.
COMMENTS
1)Purpose . The author states SB 211 would extend the sunset
date currently in statute until January 1, 2019 to ensure the
continuity of a proven cost effective tax data sharing program
and would preserve the revenue benefit to the state and
participating cities.
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2)Support . Proponents state that this bill clarifies that
cities may contract with third party agents in pursuing such
activities. Passage of this measure will continue to allow
disclosure of limited confidential tax information for the
specific purpose of enhancing local and state tax enforcement
activities. This is an important tool that cities across
California use for business license discovery efforts to
identify businesses that are operating without a license.
3)Opposition . The California Taxpayers Association states,
despite safeguards, outsourcing tax administration functions
heightens the risk for security breaches, resulting in
dissemination of confidential information for unauthorized
use. They note this information can be sold for profit,
resulting in physical or financial risk to taxpayers. They
argue potential security breaches are exacerbated by
inappropriate incentives, usually a contingency-fee, to
contractors.
4)Increased Security Risk. Providing confidential taxpayer
information to third party agents may increase the likelihood
of data breaches. In July, the Office of the Attorney General
released the first report detailing 131 data breaches, which
compromised the personal information of 2.5 million
Californians. According to the report, Pinkerton Government
Services and Advanced Data Processing, two companies that
contract with government entities, suffered at least three
data breaches in 2012, compromising the social security
numbers of potentially thousands of Californians.
5)Contingency Fee : According to the FTB, only 102 of the 478
incorporated cities in California currently participate in the
sharing program. FTB cites a lack of funds by smaller cities,
although it is unclear why the increased revenues from joining
the data sharing program would not provide an incentive for
more local governments to participate. This bill is intended
to increase participation by allowing smaller cities to
contract with third parties. These contracts could be done on
a contingency fee basis. However, contingency fees, when used
for tax audits, may also create an incentive to distort tax
administration for private gain.
In Sears, Roebuck and Co. v William J. Parsons, the Georgia
Supreme Court voided a contract between Chatham County Board
of Tax Assessors and Atlantic Resources because the contract
SB 211
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allowed for a 35% contingency fee on additional revenue plus
100% of all first-year penalties. The Supreme Court noted
"the people's entitlement to fair and impartial tax
assessments lies at the heart of our system, and, indeed, was
a basic principle upon which this country was founded.
Fairness and impartiality are threatened where a private
organization has a financial stake in the amount of tax
collected as a result of the assessment it recommends."
Contingency fee agreements make it less likely that a taxpayer
will be informed of audit adjustments like tax credits and
refund claims that could lower tax payments. Incidentally, if
a tax is later found to have been assessed incorrectly, the
city will remain liable to the taxpayer for the full amount.
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081