BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 1559 |Hearing |6/15/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Dodd |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |4/13/16 |Fiscal: |Yes | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Grinnell | |: | | ----------------------------------------------------------------- State Board of Equalization: returns and payment: extension: disaster (Urgency) Allows BOE to grant an extension of up to three months to file a return or pay a tax in the case of a natural or economic disaster. Background The California Constitution of 1879 created the five-member Board of Equalization (BOE), composed of four members elected by district and the State Controller, to equalize rates and assessment practices among counties. In addition to its property tax duties, BOE also administers the Sales and Use Tax, locally-imposed transactions and use taxes, several excise taxes, and more than 30 other fee programs. Taxpayers must generally pay taxes or fees to BOE before the end of the month following the close of the reporting period, which is usually the calendar quarter. If not, state law imposes penalties, generally 10 percent of the tax due, plus monthly, simple interest based on the tax due from the date the tax was due to the date it was paid. In addition to the Sales and Use Tax, the same procedural requirements exist for many other BOE tax and free programs, as well as the state's general purpose statute that guides BOE administration of several fees, the Fee Collections Procedures Law. AB 1559 (Dodd) 4/13/16 Page 2 of ? All of the above listed laws authorize BOE to extend the period to file a return or pay tax for one month for good cause, provided that the taxpayer files a request within or before the extension period. If granted, taxpayers are usually still liable for the one month's interest, but don't pay a penalty, and can file the return and remit the tax one month late. Additionally, BOE can also relieve interest when it finds the taxpayer's failure to file the return or pay the tax was due to disaster, and occurred notwithstanding the exercise of ordinary care in the absence of willful neglect, so long as the taxpayer files a statement to that effect under penalty of perjury. BOE Regulation 1703 defines "disaster" for these purposes as fire, flood, storm, tidal wave, earthquake or similar public calamity, but doesn't require the disaster to result from natural causes. BOE can also relieve the taxpayer from penalties if it finds that the failure is due to reasonable cause, and occurred notwithstanding the exercise of ordinary care in the absence of willful neglect, again so long as the taxpayer files a statement to that effect under penalty of perjury. Seeking to assist taxpayers affected by recent disasters, BOE wants to allow extensions not to exceed three months for taxpayers affected by natural and economic disasters. Proposed Law Assembly Bill 1559 allows BOE to grant an extension of up to three months to file any return or pay any tax in the case of a natural or economic disaster. Taxpayers must file a request with BOE within or before the period for which the extension is requested. The bill applies these changes to the Sales and Use Tax, the Motor Vehicle Fuel Tax, Use Fuel Tax, Cigarette and Tobacco Products Tax, Alcoholic Beverage Tax, Timber Yield Tax, Energy Resources Surcharge, Emergency Telephone Users Surcharge, Hazardous Substance Tax, Integrated Waste Management Fee, Oil Spill Fees, Underground Storage Tank Fee, Diesel Fuel Tax Laws, as well as the state's general purpose statute that guides BOE administration of several fees, the Fee Collections Procedures Law. The measure also contains an urgency clause. AB 1559 (Dodd) 4/13/16 Page 3 of ? State Revenue Impact BOE states that the measure could result in a minor revenue loss related to foregone penalties for late returns and payment beyond the existing one-month extension. Comments 1. Purpose of the bill . According to the author, "under limited circumstances, individuals and businesses are permitted to defer state and local taxes and fees to assist them in recovering from a disaster such as a wildfire. Temporary relief from paying taxes and fees helps those individuals and businesses focus their limited resources where they are needed most - to restore their livelihood. However, the one month deferral allowed under current law is not much more than tinkering on the impacted taxpayer's financial margins. AB 1559 is an urgency bill, which revises current law by changing the one month deferral for paying of specified fees and taxes per filing period, to three months per filing period in the case of a declared disaster. This would grant disaster impacted taxpayers a more significant and meaningful amount of time to restore their business activities and get back on their feet." 2. Discretion . As described below, tax relief provisions in state law specifically for taxpayers affected by disasters are usually contingent on the Governor declaring a disaster or a state of emergency. One exception allows BOE under its own discretion to extend deadlines for one month for good cause, and additionally waive interest under certain circumstances, including disasters. AB 1559 would extend this authority to allow for three month extension, and apply it to "natural or economic disasters." However, the bill doesn't define either term, thereby granting significant discretion to BOE to grant relief as it sees fit. For example, the bill would allow BOE to declare areas of the state with high unemployment and poverty rates as "economic disasters," and grant relief to all taxpayers in the area from requirements to file returns and pay taxes, regardless of an individual business's circumstances. As such, BOE could grant relief under a broader set of circumstances that the Legislature may desire. Easing compliance for taxpayers would likely delay tax revenues to the state necessary to fund public services. The Committee may wish to consider which AB 1559 (Dodd) 4/13/16 Page 4 of ? disasters it wants AB 1559 to apply to, and whether it wants to clearly define the term, or require the Governor to declare an economic emergency for the measure's deadline extensions to take effect. 3. Disaster relief generally . Starting with the forest fires in 1985, and approximately 52 times thereafter for various other disasters, the Legislature enacted disaster tax relief legislation. Previous disaster tax relief bills generally enacted three distinct provisions: homeowners' exemption, fiscal relief to disaster-affected counties, and disaster losses: Homeowners' Exemption. The California Constitution grants taxpayers an exemption on the first $7,000 of taxable value for their personal place of residence; however, state law provides that when a property is vacant, under construction, or no longer occupied by the owner on the lien date of January 1, the property is no longer eligible for the exemption. Previous disaster relief bills formerly prohibited the assessor from revoking the exemption for property affected by each individual disaster, but the Legislature enacted a general protection for all taxpayers, negating the need for subsequent bills to prohibit the revocation (SB 1494, Committee on Revenue and Taxation, 2010). County fiscal relief. The California Constitution allows taxpayers to request the assessor to revalue property to its disaster-affected value until it's restored, reconstructed, or repaired. Disaster tax relief bills historically enact a process for the state to reimburse counties for property tax revenue losses resulting from reassessments in the first fiscal year following the disaster; however, the Legislature has not enacted these provisions since 2010, choosing not to for most recent disasters: tsunamis in Humboldt County in 2011, severe storms in Santa Cruz County in 2012, fires in San Diego County in 2014, and the Napa Earthquake that same year. However, earlier this year, the Legislature appropriated $105 million in funding to support fire recovery and debris removal for Lake and Calaveras counties, and the Governor's budget proposes funding of $1.9 million General Fund one-time in 2016-17 to backfill property tax, sales and use tax, and transient occupancy AB 1559 (Dodd) 4/13/16 Page 5 of ? tax revenue losses that Calaveras and Lake counties, and the special districts located in those counties, will incur due to wildfires last year. Recently approved by Senate Budget Subcommittee #4, the accompanying budget bill language requires counties to submit to Department of Finance a claim detailing the losses prior to being issued a warrant by the State Controller. Reimbursements cannot exceed $596,000 for Calaveras County, and $1.3 million for Lake County. Disaster losses. While the Legislature used to enact disaster loss treatment under the Personal Income and Corporation taxes for individual disasters, it will soon be rendered moot by the state's general loss treatment. Taxpayers can carry back 100% of general losses incurred in 2015 regardless of whether they were caused by a disaster, meaning that a bill that solely enacts one-year disaster loss carrybacks would provide inferior treatment. Additionally, the Legislature recently provided an extended amended return deadline similar to federal for any future President or Governor declared disaster (SB 35, Wolk, 2015). 4. Related legislation . On May 11th, the Committee unanimously approved SB 1304 (Huff), which responded to the Porter Ranch gas leak by expanding eligibility for disaster reassessment to apply to governor-declared disasters, not just emergencies, and allowing assessors to consider environmental contamination when revaluing the property. The Senate subsequently approved the measure, which is currently awaiting referral in the Assembly. 5. Urgency . Regular statutes take effect on January 1 following their enactment; bills passed in 2016 take effect on January 1, 2017. The California Constitution allows bills with urgency clauses to take effect immediately if they're needed for the public peace, health, and safety. AB 1559 contains an urgency clause declaring that it is necessary for BOE to meet urgent administrative need. However, this administrative need is unclear, as both the Butte and Valley fires occurred last year, so even if the measures was enacted today, its provisions wouldn't apply to the victims of the fires. The Committee may wish to consider deleting AB 1559's urgency clause. AB 1559 (Dodd) 4/13/16 Page 6 of ? Assembly Actions Assembly Revenue and Taxation 9-0 Assembly Appropriations 19-0 Assembly Floor 79-0 Support and Opposition (6/9/16) Support : State Board of Equalization, BOE Member Fiona Ma, BOE Member George Runner, California Asian Pacific Chamber of Commerce, California Society of Enrolled Agents, Castro Valley/Eden Area Chamber of Commerce, City of Lakeport, Lake County Board of Supervisors, Midtown Area Merchants Association, Sonoma County Board of Supervisors, Yolo County Board of Supervisors. Opposition : None received. -- END --