BILL ANALYSIS                                                                                                                                                                                                    Ó



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

                              
          
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          |Bill No:  |AB 1856                          |Hearing    |6/15/16  |
          |          |                                 |Date:      |         |
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          |Author:   |Dababneh                         |Tax Levy:  |No       |
          |----------+---------------------------------+-----------+---------|
          |Version:  |4/6/16                           |Fiscal:    |No       |
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          |Consultant|Bouaziz                                               |
          |:         |                                                      |
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                 Excise taxes:  claim for refund:  timely filed claims



          Allows a taxpayer making installment payments on an outstanding  
          liability on taxes administered by the Board of Equalization  
          (BOE) to file a single claim for refund to cover all prior  
          overpayments and all subsequent overpayments.


           Background 

           State law provides that when a taxpayer overpays a tax,  
          interest, fee, or penalty to BOE, he or she must file a claim  
          for refund within a specified period to recover amounts  
          overpaid.  The law requires a claim for refund to be in writing  
          and state the specific grounds for the claim.

          Under existing Sales and Use Tax Law, a claim for refund must be  
          filed within the latest of the following periods:

                 Three years from the due date of the return for the  
               period for which the claimed overpayment was made;

                 Six months from the date of the (claimed) overpayment;

                 Six months from the date a determination (billing)  
               became final; or

                 Three years from the date BOE collected an involuntary  







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               payment by the use of enforcement procedures, such as  
               levies or liens.

          State law provides that any taxpayer who wants to protest a  
          notice of determination must file a petition for redetermination  
          within 30 days of the determination becoming final.  The only  
          recourse for taxpayers who miss a 30-day deadline to file a  
          formal protest of an audit determination is to pay the tax owed  
          and file a claim for refund.  A claim for refund is only valid  
          for payments made 6 months before the claim is submitted.

          Similar statutes cover the Use Fuel Tax, Cigarette and Tobacco  
          Products Tax, Alcoholic Beverage Tax, Energy Resources  
          Surcharge, Emergency Telephone Users Surcharge, Hazardous  
          Substance Tax, Integrated Waste Management Fee, Oil Spill  
          Response, Prevention, and Administration Fees, Underground  
          Storage Tank Fee, Fee Collections Procedures, and Diesel Fuel  
          Tax Laws.

          State law allows a taxpayer that is making installment payments  
          on an outstanding income tax liability to the Franchise Tax  
          Board to file a single claim for refund to cover the entire  
          repayment period.  AB 1856 seeks to also allow a taxpayer to  
          file a single claim for refund to cover the entire repayment  
          period for liabilities owed to BOE


           Proposed Law

           Assembly Bill 1856 allows a taxpayer making installment payments  
          on an outstanding liability on taxes administered by BOE to file  
          a single claim for refund to cover all prior overpayments and  
          all subsequent overpayments.

          AB 1856 applies to refunds under the Sales and Use Tax Law, Use  
          Fuel Tax, Cigarette and Tobacco Products Tax, Alcoholic Beverage  
          Tax, Energy Resources Surcharge, Emergency Telephone Users  
          Surcharge, Hazardous Substance Tax, Integrated Waste Management  
          Fee, Oil Spill Response, Prevention, and Administration Fees,  
          Underground Storage Tank Fee, Fee Collections Procedures, and  
          Diesel Fuel Tax Laws.


           State Revenue Impact








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           According to BOE, this bill results in unknown revenue loss due  
          to refunds currently barred by statute.


           Comments

           1.   Purpose of the bill.   According to the author, "This bill  
          allows a taxpayer making installment tax payments to file a  
          single claim for refund to cover the period.  Taxpayers who have  
          entered into an installment payment plan often mistakenly  
          believe they need only file one claim for refund at the  
          conclusion of the payment plan, rather than filing claims for  
          refund for each payment within six months after the date of  
          payment.  This proposal is prompted by several cases in which  
          the taxpayer was barred by the statute of limitations from  
          recovering all the installment payments made to the BOE even  
          though the determination was either cancelled or reduced to an  
          amount less than the total payments received.  In each case, the  
          taxpayer did not file a timely petition for redetermination,  
          made multiple payments for one liability, but did not file  
          refund claims for each installment payment.  AB 1856 will  
          provide equitable relief for taxpayers who would be barred from  
          receiving a refund for one or more installment payments because  
          they did not file a timely claim for refund for each individual  
          payment."

          2.  Issue at hand.   In the case when a taxpayer does not believe  
          sales tax is due, but BOE has determined otherwise and issues a  
          billing for an amount due, the taxpayer may protest and submit a  
          petition for redetermination.  If the taxpayer fails to submit a  
          petition for redetermination, BOE puts the taxpayer into  
          repayment, who must then submit a monthly installment payment to  
          BOE to satisfy the amount due.  However, a taxpayer may only  
          submit a claim for refund for payments made during a six month  
          period before submitting the claim.  Thus, a taxpayer would have  
          to file a new claim every six months until the repayment period  
          is over.   According to BOE, in some instances the taxpayer is  
          not aware of the requirement to file multiple refund claims  
          throughout the repayment period.  Instead, the taxpayer believes  
          that they may file a single refund claim to recover the entire  
          amount.  If the taxpayer files the claim after the first  
          payment, the taxpayer may only recover the first payment.  In  
          instances where the taxpayer waits until the final payment has  








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          been made to file a refund claim, the statute of limitations  
          prevents the taxpayer from recovering all of their payments and  
          they are only allowed the last 5-6 payments at most.   

          3.   Example taxpayer.   Sunnyside Produce does not remit sales  
          tax to BOE on all squash sold because Sunnyside Produce does not  
          believe that squash is subject to sales tax under California  
          law.  However, BOE does believe squash sales are subject to  
          sales tax and sends Sunnyside Produce a determination of $2,400.  
           Sunnyside Produce waits 35 days to file a petition for  
          redetermination.  Because the petition for redetermination is  
          filed after the 30-day deadline, BOE puts Sunnyside Produce into  
          repayment.  Sunnyside Produce has to pay $100 a month for two  
          years while the appeal goes through the process.  Sunnyside  
          Produce submits a claim for refund after making 6 payments.   
          After the end of the payment period, Sunnyside Produce wins the  
          appeal.  However, Sunnyside Produce is only refunded $600,  
          because a claim for refund is only valid for payments made 6  
          months before the claim is submitted.  Sunnyside Produce has  
          overpaid $1,800 to BOE, and would only be able to recover  
          another 6 months of payments if Sunnyside Produce submits an  
          additonal refund claim.  Under AB 1856, the initial claim would  
          have allowed Sunnyside Produce to recover the entire $2,400.


           Assembly Actions

           Assembly Revenue and Taxation 9-0
          Assembly Appropriations       16-0
          Assembly Floor                76-0

           Support and  
          Opposition  6/9/16)


           Support  :  Board of Equalization; California Taxpayers  
          Association.

           Opposition  :  Unknown.



                                      -- END --









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