BILL ANALYSIS Ó SENATE COMMITTEE ON GOVERNANCE AND FINANCE Senator Robert M. Hertzberg, Chair 2015 - 2016 Regular ------------------------------------------------------------------ |Bill No: |AB 1856 |Hearing |6/15/16 | | | |Date: | | |----------+---------------------------------+-----------+---------| |Author: |Dababneh |Tax Levy: |No | |----------+---------------------------------+-----------+---------| |Version: |4/6/16 |Fiscal: |No | ------------------------------------------------------------------ ----------------------------------------------------------------- |Consultant|Bouaziz | |: | | ----------------------------------------------------------------- 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 AB 1856 (Dababneh) 4/6/16 Page 2 of ? 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 AB 1856 (Dababneh) 4/6/16 Page 3 of ? 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 AB 1856 (Dababneh) 4/6/16 Page 4 of ? 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 -- AB 1856 (Dababneh) 4/6/16 Page 5 of ?