BILL ANALYSIS �
SB 1207
Page 1
Date of Hearing: June 25, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
SB 1207 (Wolk) - As Amended: May 27, 2014
Majority vote. Fiscal committee.
SENATE VOTE : 37-0
SUBJECT : California Voluntary Contribution Program
SUMMARY : Establishes the California Voluntary Contribution
Program (Program) to promote charitable giving and provide
individual taxpayers' voluntary contributions to "qualified
applicants". Specifically, this bill :
1)Contains the following legislative findings:
a) The state has a role in informing the public of the
value and need for community service, volunteerism, and
charitable giving as a form of civic engagement in order to
support important social and community programs.
b) There are many worthy charitable causes in California
that may benefit from taxpayers' voluntary charitable
contributions on the tax form, but are not able to do so
under the existing tax check-off process.
c) It is the Legislature's intent:
i) To promote civic engagement by establishing a
program where taxpayers have the opportunity to give to a
wide range of charitable causes on their tax return;
ii) To retain all existing funds currently on the tax
return form until their repeal dates, and, in legislation
to be enacted at a later date, transition the remaining
funds to the Program by 2020; and,
iii) That the dates of repeal for the California Fund for
Senior Citizens, the California Firefighters' Memorial
Fund, and the California Peace Officer Memorial
Foundation Fund be extended in legislation to be enacted
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at a later date.
2)Charges the Office of California Volunteers (Office) with
responsibility for administering the Program.
3)Defines a "qualified applicant" as either of the following:
a) A "local agency" or "state agency"; or,
b) A "charitable organization" that has:
i) Registered with the Attorney General's Registry of
Charitable Trusts (Registry) for each of the three years
preceding the date of application and has met each of the
applicable requirements under statute and as established
by the Attorney General for the Registry;
ii) Submitted annual returns or statements with the
Franchise Tax Board (FTB), pursuant to Revenue and
Taxation Code (R&TC) Section 23771, 23772, or 23774 for
each of the three years preceding the date of
application; and,
iii) Average annual total revenues exceeding the "minimum
contribution amount", as calculated from each of the
three years preceding the date of application, not
including those contributions made by a designation in
excess of the tax liability on an individual's tax
return.
4)Provides that the terms "local agency" and "state agency" have
the same meanings as defined in Government Code Section 6252.
5)Limits the number of qualified applicants that may participate
in the Program each taxable year to 200, less the number of
funds established under the voluntary contribution fund (VCF)
provisions of the R&TC.
6)Defines a "charitable organization" as an organization exempt
from income tax as an organization described in R&TC Section
23701d.
7)Requires a qualified applicant that wishes to receive
voluntary contributions through the Program to submit an
application to the Office by a date established by the Office.
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The application shall include all of the following:
a) Evidence satisfactory to the Office that the applicant
is a qualified applicant; and,
b) An application fee, as established by the Office in an
amount sufficient to cover the reasonable costs of
administering the application process.
8)Specifies that all documents submitted to the Office shall be
made public.
9)Provides that a qualified applicant whose application is
approved may continue to receive voluntary contributions if
the following requirements are met:
a) Contributions received by the qualified applicant
through the Program in the prior year meet or exceed the
"minimum contribution amount" established for the Program;
b) The qualified applicant continues to meet the
requirements established for qualified applicants; and,
c) The qualified applicant submits an application for
renewal and pays a renewal fee.
10)Specifies that the "minimum contribution amount" for each
approved qualified applicant is $100,000. Nevertheless, the
Office is authorized to adopt regulations to adjust the
minimum contribution amount beginning on January 1, 2020.
11)Specifies that a qualified applicant may no longer receive
voluntary contributions if either of the following apply:
a) The average amount of contributions received during
three calendar years did not equal the minimum contribution
amount; or,
b) The designee no longer meets the definition of a
"qualified applicant".
12)Provides that when a qualified applicant is no longer
eligible to receive voluntary charitable contributions, the
Office shall revoke the qualified applicant's Program
eligibility and notify the FTB of the revocation by a date the
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FTB specifies.
13)Provides that a qualified applicant whose eligibility is
revoked may participate in the Program for the subsequent
calendar year if the FTB is unable to revise the tax form and
related materials for that year.
14)Provides that a qualified applicant whose eligibility is
revoked from participation in the Program may reapply to the
Program no sooner than three years after the eligibility was
revoked.
15)Allows an individual to designate on the personal income tax
(PIT) return that a contribution in excess of tax liability,
if any, be made as follows:
a) To up to five specific qualified applicants whose
applications have been approved.
b) To a newly established Charitable Giving Fund.
16)Allows a deduction for any contribution made.
17)Establishes in the State Treasury:
a) The California Voluntary Contribution Fund to receive
contributions to qualified applicants; and,
b) The Charitable Giving Fund.
18)Provides that the Office shall administer the Charitable
Giving Fund and develop policies and procedures, including a
competitive grant process to distribute the funds to
charitable organizations.
19)Provides that all money transferred to the California
Voluntary Contribution Fund and the Charitable Giving Fund,
upon appropriation by the Legislature, shall be allocated as
follows:
a) To the FTB, the Controller, and the Office for
reimbursement of all administrative costs incurred;
b) From the California Voluntary Contribution Fund to the
Office for distribution to each qualified applicant
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designated by a taxpayer; and,
c) From the Charitable Giving Fund to the Office for
distribution according to the regulations established for
distributions from that fund.
20)Provides that, on and after January 1, 2020, no more than 5%
of money from the funds, exclusive of fee revenues, shall be
used for administrative purposes.
21)Requires the Office, not later than January 1, 2017, to do
all of the following:
a) Develop the application and related materials to be
completed by applicants to participate in the Program,
including the types of proof necessary to comply with the
Program;
b) Establish by regulation reasonable and necessary
application and renewal fees in an amount not to exceed the
reasonable costs of administering the application and
renewal process;
c) Develop procedures and adopt regulations to inform
taxpayers on how to contribute directly to a charitable
organization or state or local agency if that charitable
organization or agency is not eligible to receive
contributions because it did not meet the required minimum
contribution amount;
d) Develop, in consultation with other agencies that
regulate charitable organizations, policies and procedures
to ensure that qualified applicants are in compliance with
applicable statutes affecting those charitable
organizations;
e) Develop a plan to transition the remaining funds on the
tax return to the Program, which should be submitted to the
relevant committees of the Legislature by January 1, 2020;
and,
f) Work in consultation with the Department of Finance to
develop a strategy to propose to the Legislature for a
continuous appropriation to distribute taxpayers'
contributions to the designated qualified applicants.
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22)Authorizes the Office to do the following:
a) Form an advisory body or related bodies as deemed
necessary;
b) Contract with other agencies, public or private, as
deemed necessary in pursuit of the duties described in this
act;
c) Adopt necessary administrative regulations; and,
d) Adopt policies and guidelines that may include
application cut-off dates, a first-come-first-served
system, or a lottery, to limit the number of qualified
applicants participating in the Program based on
legislative appropriations and workforce capacity.
23)Requires the Office to provide annually to the Legislature,
and make publicly available, a report on the Program,
including goals, a baseline, metrics and targets to track,
over time, the effectiveness of efforts to encourage
charitable giving. The annual report shall include
information on total contributions received, administrative
and related costs, and total contributions distributed to
qualified applicants.
24) Sunsets this bill's provisions on January 1, 2023.
EXISTING LAW :
1)Allows taxpayers to contribute to one or more of 20 VCFs on
the 2013 PIT return.
2)Provides a specific sunset date for each VCF, except for the
California Seniors Special Fund and the State Parks Protection
Fund.
3)Requires each VCF to meet an annual minimum contribution
amount to remain in effect, except for the California
Firefighters' Memorial Fund, the California Peace Officer
Memorial Foundation Fund, and the California Seniors Special
Fund.
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FISCAL EFFECT : The FTB estimates a revenue loss of
approximately $60,000 for every $1 million of increased
charitable contributions.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
There are many worthy charitable causes in California that
would greatly benefit from [taxpayers'] voluntary
charitable contributions on the tax form, but are not able
to do so under the existing tax check-off program. The
current system is less than equitable, in that not all
nonprofits have the capacity to pursue legislative approval
to receive funds through the tax form, but are no less
worthy than those that do. The current system is also
underutilized in a state that donates billions of dollars
to charitable giving each year. There also are no clear
standards to ensure that charities receiving taxpayers'
donations are in compliance with state laws. SB 1207
expands access to taxpayers' donations to all eligible
charities, streamlines the process for charitable
organizations and donors, establishes clear standards, and
designates an administering agency to implement the
program, enforce standards, and monitor effectiveness.
2)Proponents of this bill note the following:
The increasing demands from charitable organizations that
want to participate in the check-off program are costly to
both the state and the charitable organization. While a
redesign of the tax return has accommodated more
check-offs, the FTB reports that it can accommodate 12-15
additional check-offs before it has to redesign its
information technology system, at a cost of between
$800,000 and $1 million. Depending on the number of
additional tax check-offs the Legislature elects to put on
the tax return, it could be between two and five years
before the FTB's system must be upgraded.
The state has a role in informing the public of the value
and need for community service, volunteerism, and
charitable giving as a form of civic engagement in order to
support important social and community programs; and there
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are many worthy charitable causes in California that may
benefit from taxpayers' voluntary charitable contributions
on the tax form, but are not able to do so under the
existing tax check-off process. SB 1207 would promote
civic engagement by establishing a program where taxpayers
have the opportunity to give to a wide range of charitable
causes on their tax returns, while providing significant
savings to the government.
3)Opponents of this bill note the following:
In our state, there is a small group of charities striving
to improve the lives of Californians, which also have the
ability, through the Legislature's and Governor's oversight
and approval to accept contributions directly from the
California state income tax form. Checking the donate
option on the state's income tax form can provide vital
resources that enable these charities to make a positive
impact in our state.
Indeed, donations accepted through the current tax
check-off program are an essential part of these charities'
revenue streams. If even half of those filing taxes in
California were to donate via their tax form, it could
raise a substantial amount of money for causes that are
contributing to the essential needs of Californians.
Currently, with 20 participating organizations in the
check-off program, and the up to 200 nonprofit
organizations that could be pooled should SB 1207 be
adopted, the goal of stimulating revenue to worthy
charitable causes through the check-off program would be
substantially diminished given that the new pool of
charities would be diluted, thereby preventing any one
organization from truly benefitting.
4)Committee Staff Comments:
a) Bills, bills, and still more bills : In 2008, there were
11 VCFs on the PIT return. Today, just six years later,
there are 20. With legislation introduced every year to
add new VCFs, there is little reason to expect this number
to stop growing. In response to the proliferation of VCF
legislation, and in recognition of the fact that space on
the PIT return is necessarily limited, this Committee has
adopted a formal policy specific to VCFs. This policy
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requires all new VCFs to have a statutory sunset date and
to meet a specified minimum contribution threshold to
remain on the return. This policy also provides that
existing VCFs "that have failed to meet their minimum level
of contributions will not be extended." Nevertheless,
legislation is routinely introduced to re-add VCFs to the
return after they have fallen off for failing to garner
sufficient support. Other bills are routinely introduced
to remove, temporarily or permanently, the inflation
adjustment for a VCF's minimum contribution threshold out
of fear that the fund may fall off the return in the
future. Still other bills seek to remove the minimum
contribution requirement outright. Even where a particular
fund has established a successful record of meeting its
contribution threshold, new legislation is often required
to extend a fund's sunset date (usually in five-year
increments) or to resolve administrative ambiguities
surrounding how contributions may be used. Prompted by
good intentions and issue-specific advocacy, the
introduction of all these bills consumes a considerable
amount of limited legislative resources.
b) What we have now : The current system for adding VCFs to
the PIT return rewards causes and organizations capable of
garnering legislative support. Obviously, however, for
every cause included, there are countless worthy causes not
afforded this preferential fundraising opportunity. Thus,
it could be argued that the current system has resulted in
a somewhat haphazard collection of organizations and causes
on the PIT return. While VCFs exist to support research
combatting Alzheimer's disease and breast cancer, no
similar VCF is dedicated to research on AIDS/HIV. While a
very successful VCF exists to promote the recovery of
California's sea otter population, there is no VCF
specifically dedicated to the less aesthetically blessed
California condor.
In addition, there is little uniformity in how the existing
VCFs are administratively structured. Some VCFs require
contributed funds to be awarded by a state agency to public
or private organizations through a competitive grant
program designed to advance the VCF's objectives. Other
VCFs are channeled to support the work of a single
nonprofit, like the American Red Cross. Still other VCFs,
like the California Fund for Senior Citizens, are used as
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the primary funding source for a state agency - in this
case, the California Senior Legislature. While many VCF
statutes limit the amount of fund moneys that may be used
for administrative purposes, it is often unclear that
sufficient structures are in place to provide more
meaningful oversight.
c) What would this bill do ? This bill attempts to impose a
degree of order and objectivity into the VCF process and
does so by establishing the Program under the
administration of the Office. Qualified applicants wishing
to receive voluntary contributions through the Program
would have to submit an application documenting their
eligibility. In addition, this bill would limit the number
of qualified applicants that could participate in the
Program in each taxable year to 200, less the number of
funds established under the VCF provisions of the R&TC.
Individual taxpayers would be permitted to contribute,
through the PIT return, to up to five specific qualified
applicants whose applications have been approved.
Individuals would also be permitted to contribute to a
newly established Charitable Giving Fund. As with existing
VCFs, taxpayers would receive the benefit of a deduction
for any contribution made.
d) A few open questions : As with any significant
legislative proposal of this nature, there are a few open
questions that might benefit from additional statutory
clarity. These issues include the following:
i) What is the Charitable Giving Fund ? This bill would
establish two new funds in the State Treasury. The
first, named the California Voluntary Contribution Fund,
would receive contributions to qualified applicants
participating in the Program. The purpose of the second
fund, called the Charitable Giving Fund, is less certain.
This bill directs the Office to develop a grant process
for awarding moneys in this fund to charitable
organizations. Nevertheless, it is not readily clear how
this distribution process would work and which charitable
organizations would be eligible to receive funding. The
author may wish to provide a greater degree of clarity on
these issues.
ii) Who's special ? This bill states that it is the
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Legislature's intent to retain all existing VCFs
currently on the tax return until their repeal dates,
and, in legislation to be enacted at a later date,
transition the remaining funds to the Program by 2020.
It is not entirely clear to Committee staff what this
means. For example, what remaining funds are being
referred to? Is this a reference to the two VCFs that
currently do not have a statutory sunset date - namely,
the California Seniors Special Fund and the State Parks
Protection Fund? What would happen to VCFs whose
statutory authorization is set to expire well before
2020? Would they be reauthorized to a future date
consistent with all other VCFs to facilitate a one-time
transfer to the Program? Furthermore, this bill states
that it is the Legislature's intent that the repeal dates
for the California Fund for Senior Citizens, the
California Firefighters' Memorial Fund, and the
California Peace Officer Memorial Foundation Fund be
extended in future legislation. Does this mean the
author contemplates these three funds remaining on the
PIT return as separate designations, even after all
others have been transferred to the Program? Obviously,
a certain amount of flexibility is useful and Committee
staff is cognizant of the fact that this bill can, in no
way, bind the actions of future Legislatures.
Nevertheless, it might be helpful to provide a bit more
guidance on how this delicate transition to the new VCF
regime might work.
iii) What's the threshold ? This bill makes a number of
references to a "minimum contribution amount". For
example, this bill provides that, to meet the definition
of a "qualified applicant", a charitable organization
must have average annual total revenues in excess of the
minimum contribution amount (i.e., $100,000). This bill
further provides that a qualified applicant whose
application is approved may continue to receive donations
if contributions received "in the prior year" meet or
exceed the minimum contribution amount (i.e., $100,000).
This bill goes on, however, to provide that a qualified
applicant may no longer receive donations if the "average
amount of contributions" received during three calendar
years did not equal the minimum contribution amount.
Thus, it is not clear whether the threshold for approved
qualified applicants is measured on a yearly basis, or on
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a rolling three-year average basis. The author may wish
to take appropriate amendments clarifying the intent.
iv) Who's limited ? This bill provides that, on and
after January 1, 2020, no more than 5% of money from the
funds, exclusive of fee revenues, shall be used for
administrative purposes. It is not entirely clear to
Committee staff whether this language is designed to
limit the governmental agencies charged with implementing
the Program or the recipients of the funding.
v) Is encouragement enough ? This bill requires the
Office to develop a plan to transition the remaining
funds on the return to the Program, and states that this
plan "should" be submitted to the relevant committees of
the Legislature by January 1, 2020. It is not clear to
Committee staff why the plan submission deadline is
permissive and not mandatory. Moreover, the author may
wish to specify the relevant committees of the
Legislature, instead of leaving this somewhat subjective
determination to the Office.
e) Suggested technical amendments :
i) On page 3, in line 2, insert "of" after "value";
ii) On page 3, in line 3, strike "a form" and insert
"forms";
iii) On page 3, in line 16, strike "Contributions" and
insert "Contribution";
iv) On page 4, in line 35, strike "Division 3" and
insert "Division 2";
v) On page 9, in line 30, strike "contribution" and
insert "contributions"; and,
vi) On page 9, in line 35, strike "be".
REGISTERED SUPPORT / OPPOSITION :
Support
ALS Association Golden West Chapter
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California Association of Nonprofits
California Senior Legislature
California Taxpayers Association
Lupus Foundation of America
March of Dimes California Chapter
Opposition
Alameda County Community Food Bank
CAL FIRE Local 2881
California Association of Food Banks
California Emergency Foodlink
California Professional Firefighters
Food Bank Coalition of San Luis Obispo County
Food Bank for Monterey County
Food Bank of Contra Costa and Solano
Food for People
Friends of the Sea Otter
Imperial Valley Food Bank
Jacobs & Cushman San Diego Food Bank
Los Angeles Regional Food Bank
Redwood Empire Food Bank
Resource Connection Food Bank
Second Harvest
Second Harvest Food Bank of Santa Clara and
San Mateo Counties
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098