Amended in Senate March 23, 2015

Senate Bill No. 38

Introduced by Senator Liu

December 1, 2014

An act to add Section begin insert 22255.5 to the Business and Professions Code, and to add and repeal Sections end insert 17052.1 begin delete to end delete begin insert and 17052.2 of end insert the Revenue and Taxation Code, relating to begin delete taxation, to take effect immediately, tax levy. end delete begin insert the earned income tax credit. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 38, as amended, Liu. Personal income tax: credit: earned begin delete income. end delete begin insert income: tax preparer education. end insert

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The

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begin insert (1) end insert begin insert   end insert begin insert The end insert Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws.

This begin delete bill would, end delete begin insert bill, end insert for taxable years beginning on or after January 1, 2016, and before January 1, 2027, begin insert would end insert allow a credit based upon earned income that is equal to begin delete 15% end delete begin insert 30% for eligible individuals with qualifying children and 100% for eligible individuals with no qualifying children, as specified, end insert of the earned income tax credit allowed by federal law. begin insert If the amount allowable as a credit exceeds tax liability, the bill would require the excess to be credited against other amounts due, if any, and the balance, if any, to be carried forward, or, upon appropriation by the Legislature, be paid from the General Fund and refunded to the eligible individual. end insert The bill would require the Franchise Tax Board to report to the Legislature regarding the utilization of the tax credit, as provided.

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This bill would take effect immediately as a tax levy.

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This bill would also require the Franchise Tax Board to establish a pilot program to allow eligible individuals to secure advance payments of the aforementioned credit. The bill would make the pilot program applicable to taxable years beginning on or after January 1, 2017, and before January 1, 2019, where an employer and an eligible individual have agreed to participate in the pilot program. The bill would require the Franchise Tax Board to study and report on the pilot program by a specified date.

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(2) Existing law establishes the California Tax Education Council, a nonprofit organization, and requires the council to register and regulate tax preparers. Existing law requires the council to issue a “certificate of completion” to the tax preparer when the tax preparer demonstrates that he or she has completed basic tax instruction from an approved curriculum provider. Existing law also requires a tax preparer to annually complete continuing education from an approved curriculum provider. Except as provided, a violation of the provisions governing tax preparers is a crime.

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This bill, for purposes of basic instruction and continuing education, would require an approved curriculum provider to include instruction for filing taxes for a taxpayer who is an eligible individual and meets the requirements for the state earned income tax credit, as described above. Because a violation of these requirements would constitute a crime, the bill would impose a state-mandated local program.

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The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

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This bill would provide that no reimbursement is required by this act for a specified reason.

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Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program:  begin delete no end delete begin insert yes end insert .

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

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The Legislature finds and declares all of the
following:

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(a) In its Supplemental Poverty Measure report for the year
2013, released in October 2014, the United States Census Bureau
reported California’s rate of poverty to be 23.4 percent. This rate
is the highest among all 50 states.

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(b) Using census data released in September 2014, the
California Budget Project (CBP) reported that the economic
recovery from the Great Recession has largely bypassed low- and
middle-income Californians, with the bottom three-fifths of the
income distribution experiencing stagnating income gains. This
is contrasted with the top one-fifth of the income distribution
experiencing gains of 52.4 percent.

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(c) A briefing on poverty released by the CBP in August 2014
reports that 67 percent of families living in poverty were supported
by one or more workers in 2012. Given that the majority of families
living in poverty are working families in California, it is evident
that poverty largely reflects low-paying jobs, not the absence of
employment.

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(d) In California, the Public Policy Institute of California
(PPIC), in collaboration with the Stanford Center on Poverty and
Inequality, has developed the California Poverty Measure (CPM),
which underscores the role of California’s social safety net amount,
which includes the CalFresh Program, CalWORKs, and the federal
Earned Income Tax Credit (EITC), in mitigating poverty.

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(e) Using data from 2011, a PPIC report on the CPM released
in October 2013, reveals that 22 percent of Californians, 8.1
million people, lived in poverty. A comparison of CPM rates by
county show that the three most populous counties, Los Angeles
County, San Diego County, and Orange County, all had rates
above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3
percent, respectively.

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(f) The CPM rate for children statewide, those under 18 years
of age, was 25.1 percent, the highest rate of any age group. This
amounts to 2.3 million of California’s children living in poverty.

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(g) Without need-based safety net programs and resources, over
30 percent of Californians would be living in poverty. The absence
of the safety net would increase the poverty rate among
California’s children to 39 percent according to the CPM.

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(h) Refundable tax credits, including the federal EITC, reduced
the poverty rate in California by 3.2 percent overall. Among
children, the poverty rate reduction was 6 percent. This means
that 560,000 fewer children and 600,000 fewer working-age adults,
1.16 million people fewer in total, are living in poverty when
refundable tax credits are accounted for in the CPM.

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(i) According to the National Conference of State Legislatures,
25 states in the country and the District of Columbia, provide an
EITC in addition to the federal EITC. California does not currently
have a state EITC.

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(j) A Brookings Institution report issued in January 2003, shows
that in addition to boosting the family incomes of families in
poverty, state EITC refunds served as an important economic
stimulus for the communities and regions of the families by
magnifying the impact of the federal EITC overall.

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begin insert SEC. 2. end insert   

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begin insert Section 22255.5 is added to the end insert begin insert Business and
Professions Code end insert begin insert , to read: end insert

begin insert

begin insert 22255.5. end insert   

For purposes of basic instruction and continuing
education as described in subdivisions (a) and (b) of Section 22255,
an approved curriculum provider shall include instruction for
preparing taxes for a taxpayer who is an eligible individual and
meets the requirements for the state earned income tax credit
described in Section 17052.1 of the Revenue and Taxation Code.

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begin delete SECTION 1. end delete
begin insert SEC. 3. end insert   

Section 17052.1 is added to the Revenue and Taxation
Code, to read:

17052.1.  

(a) For each taxable year beginning on or after
January 1, 2016, and before January 1, 2027, there shall be allowed
a credit against the “net tax,” as defined begin delete by end delete begin insert in end insert Section 17039, begin insert in end insert
an amount computed by multiplying the “federal earned income
credit amount,” as defined in subdivision (b), by begin delete 15 percent. end delete begin insert 30
percent for eligible individuals with qualifying children and 100
percent for eligible individuals with no qualifying children. end insert

(b) For begin insert the end insert purposes of this section, “federal earned income
credit amount” means the amount determined under Section 32 of
the Internal Revenue Code, begin insert relating to earned income end insert as amended
by Section 1002(a) of Public Law 111-5, as amended by Section
219(a)(2) of Public Law 111-226, as amended by Section 103(c)
of Public Law 111-312, and as amended by Section 103(c) of
Public Law 112-240.

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(c) For the purposes of this section, an “eligible individual”
shall have the same meaning as in Section 32(c)(1) of the Internal
Revenue Code, except that Section 32(c)(1)(A)(ii)(II) of the Internal
Revenue Code is modified to substitute “age 21” for “age 25.”

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(d) (1) Except as provided in paragraph (2), in the case where
the credit allowed under this section exceeds “net tax,” the excess
credit may be carried over to reduce the “net tax” in the following
taxable year, and succeeding taxable years, if necessary, until the
credit is exhausted.

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(2) If the amount allowable as a credit under this section exceeds
the tax liability computed under this part for the taxable year, the
excess shall be credited against other amounts due, if any, and the
balance, if any, shall, upon appropriation by the Legislature, be
paid from the General Fund and refunded to the qualified taxpayer.

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(e) Any amounts refunded to a taxpayer pursuant to this section
shall not be included in income subject to tax under this part.

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(f) For an individual who is a nonresident or is a part-year
resident of this state, the amount of the credit or refund allowed
under this section shall be determined based on the part of the
earned income credit allowable for the taxable year that is
attributable to California, determined by multiplying the federal
earned income credit by a fraction as follows:

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(1) The numerator of which is the California adjusted gross
income of the individual.

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(2) The denominator of which is the federal adjusted gross
income of the individual.

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(g) Notwithstanding any other provision, for the purpose of
determining eligibility to receive benefits under Division 9
(commencing with Section 10000) of the Welfare and Institutions
Code or the amounts of those benefits, any refund made to an
individual (or the spouse or registered domestic partner of an
individual) pursuant to this section, and any payment made to the
individual (or the spouse or registered domestic partner) by an
employer pursuant to Section 17052.2, shall not be treated as
income and shall not be taken into account in determining
resources for the month of its receipt and the following month.

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(c)

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begin insert (h) end insert  (1) Notwithstanding Section 10231.5 of the Government
Code, on or before January 1, 2026, the Franchise Tax Board shall
submit a report on the utilization of the credit described in
subdivision (a) to the Legislature. The report shall include
information regarding the effectiveness of the credit, including the
amount of the credit claimed, the number of claims made, and an
estimate of the amount overclaimed and underclaimed.

(2) The report submitted pursuant to this subdivision shall be
submitted in compliance with Section 9795 of the Government
Code.

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(i) Section 41 does not apply to the credit allowed by this
section.

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(j) This section is repealed on December 1, 2027.

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SEC. 2.  

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.

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begin insert SEC. 4. end insert   

end insert

begin insert Section 17052.2 is added to the end insert begin insert Revenue and Taxation
Code end insert begin insert , to read: end insert

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begin insert 17052.2. end insert   

(a) The Franchise Tax Board shall establish a pilot
program to allow eligible individuals to secure advance payments
of a credit amount for which they are qualified pursuant to Section
17052.1. The purpose of the pilot program is to study the feasibility
and effectiveness of preventing debt and financial hardship among
low-income working individuals and families.

(b) The pilot program shall apply to any credits for which a
taxpayer is an eligible individual in accordance with Section
17052.1 on or after taxable years January 1, 2017, and before
January 1, 2019, where an employer and an eligible individual
have agreed to participate in the pilot program.

(c) (1) Not later than January 1, 2020, the Franchise Tax Board
shall study the pilot program and report the findings of the pilot
program to the Legislature.

(2) The report submitted pursuant to this subdivision shall be
submitted in compliance with Section 9795 of the Government
Code.

(d) This section is repealed on December 1, 2020.

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begin insert SEC. 5. end insert   

end insert begin insert

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.

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