BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON GOVERNANCE AND FINANCE
                         Senator Robert M. Hertzberg, Chair
                                2015 - 2016  Regular 

                              
          
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          |Bill No:  |AB 1559                          |Hearing    |6/15/16  |
          |          |                                 |Date:      |         |
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          |Author:   |Dodd                             |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/13/16                          |Fiscal:    |Yes      |
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          |Consultant|Grinnell                                              |
          |:         |                                                      |
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            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.  







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          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.










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           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  








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          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  








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               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.










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          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.



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