1 BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 2 450 N STREET 3 SACRAMENTO, CALIFORNIA 4 5 6 7 REPORTER'S TRANSCRIPT 8 DECEMBER 14, 2010 9 10 OTHER ADMINISTRATIVE MATTERS 11 P3.1 12 SALES AND USE TAX DEPUTY DIRECTOR'S REPORT 13 14 Collection Cost Reimbursement Program 15 and Implementation Plan 16 17 18 19 20 21 22 23 24 Reported by: Juli Price Jackson 25 No. CSR 5214 26 27 28 1 1 2 P R E S E N T 3 4 For the Board Betty T. Yee of Equalization: Chair 5 6 Barbara Alby Acting Member 7 Michelle Steel 8 Member 9 Marcy Jo Mandel Appearing for John 10 Chiang, State Controller (per 11 Government Code Section 7.9) 12 Diane G. Olson 13 Chief, Board Proceedings Division 14 15 For the Board of Equalization Staff: Jeff McGuire 16 Deputy Director Sales and Use 17 Tax Department 18 David Gau Deputy Director 19 Property and Special Taxes Department 20 21 22 23 24 ---oOo--- 25 26 27 28 2 1 450 N STREET 2 SACRAMENTO, CALIFORNIA 3 DECEMBER 14, 2010 4 ---oOo--- 5 MS. YEE: Next item? 6 MS. OLSON: Next item is P3, Sales and Use Tax 7 Deputy Directors' reports, P3.1, Collection Cost 8 Reimbursement Program Implementation Plan. 9 MS. YEE: Okay, let me have Mr. McGuire and Mr. 10 Gau speak to this issue. 11 Good afternoon. 12 MR. MC GUIRE: Good afternoon, Members, I'm 13 Jeff McGuire with the Sales and Use Tax Department. 14 Actually, I have two items for you today. The 15 first is a discussion item on -- for the Board on 16 implementation of a new collection cost recovery fee 17 that was established by Senate Bill 858 as part of the 18 budget. 19 The second item is a status update on the Field 20 Office of the Future project. 21 With me today is David Gau of our Property and 22 Special Taxes Department for the discussion on the 23 collection fee, cost recovery fee. 24 And we do have some Power Point slides just to, 25 maybe, kind of go through an outline of what the 26 provisions of the bill were and then also the 27 alternatives that were developed for staff for your 28 consideration today. 3 1 So, SB 858 is -- establishes a new collection 2 cost recovery fee that shall be imposed effective 3 January 1st, 2011. The fee will be in an amount equal 4 to the Board's collection costs. 5 The fee would be imposed only if the Board has 6 mailed a demand billing containing a warning to the 7 taxpayer that the fee would be imposed. Interest shall 8 not accrue on the fee. The fee shall be collected in 9 the same manner as the underlying tax or fee, in this 10 case a special taxes fee, not the collection fee. 11 The fee can be waived for reasonable cause. 12 And, if the taxpayer so chooses, they can make a request 13 for a fee waiver, but it must be in writing, under 14 penalty of perjury. And, then, finally, the collection 15 cost recovery fee should -- will be deposited in the 16 same manner as the underlying tax or the fee that we're 17 talking about that the fee applied to. 18 So, just kind of some general attributes of how 19 we would actually implement the fee program. 20 Notification beginning on or shortly after January 1st 21 of 2011, all of our notices will include a special 22 notice to the taxpayer regarding the fee and how it 23 applies. 24 The assessment time, meaning actually when the 25 fee would be applied, is it would apply after the 26 liability is 91 days old. It will also apply to 27 existing liabilities, so, those are liabilities that 28 currently on our books. But beginning in January we 4 1 will send notifications to those taxpayers. And they 2 will also have the same 90 day time period that any new 3 liabilities would have under the bill. 4 So, the earliest any fees would actually be 5 assessed on liabilities would be April 1st of 2011. 6 Taxpayers, of course, can avoid the fee by either paying 7 the liability in full or entering into an installment 8 payment agreement before the 91 days and that would -- 9 then the fee would not be charged in those cases. 10 And the final thing about setting the fee 11 amount is it would be recalculated annually and then -- 12 for your approval. And then it would take effect each 13 calendar year on January 1st, the new fee based on the 14 costs. 15 Some of the things we're doing so that our 16 taxpayers are aware of the fee is we are doing a special 17 notice to taxpayers that currently have unpaid 18 liabilities with our -- any of our tax and fee programs. 19 We're -- any new billing notices, as I mentioned, would 20 be containing the new fee assessment information on it 21 so taxpayers would know what the consequences are of not 22 paying the liability within 91 days. 23 Our tax and fee few newsletters will all 24 contain information and articles about the new fee 25 program. We will have information on our website. We 26 will be doing some press releases. 27 And then we will also be doing an additional 28 special mailing to tax practitioners and industry groups 5 1 so that they can answer, you know, questions that they 2 get from their constituents, as well, you know, 3 providing some outreach through their articles and 4 publications. 5 So, we actually do have several alternatives 6 for you today. Before I actually mention those, there 7 was one minor clarification in our paper. In our paper 8 it indicated that when a taxpayer makes a payment that 9 it would first be applied to the collection fee. 10 Actually, that's not correct. We are proposing that 11 payments initially be applied first to tax or the 12 surcharge fee under special taxes program because those 13 are the things that actually accrue interest. So, we 14 would pay all of the interest accruing items first 15 before we would pay the fee, the penalty or the 16 interest. 17 So, we do have three alternatives for you on 18 potentially how we can actually apply this fee and the 19 amount of the fee. 20 Alternative 1, which we call the stratified -- 21 stratified flat fee, would apply to liabilities over 22 $250 up to $2,000. And the fee amount would be $185. 23 For liabilities between $2,000.01 up to $50,000 would be 24 $550. And then any liabilities over $50,000.01 would be 25 $925. 26 I should mention, just again, that all of our 27 alternatives that the fee would not apply to any 28 liabilities under $250 because generally those fees are 6 1 just done through our automated systems and they don't 2 really ever get assigned to a collector. Or it's rare 3 that we would spend much effort on working those cases 4 on a small dollar amount. 5 Alternative 2 would just apply a flat fee to 6 all liabilities, regardless of amount -- of course, only 7 those over $250 -- and that would be $319 for each 8 liability. 9 And then the last alternative that we have is a 10 percentage based fee, which would be 6.9 percent on all 11 liabilities. And that, again, is liabilities over $250. 12 And that would also apply a cap on the fee of $50,000. 13 So, there would never -- it would never exceed 50,000, 14 even if 6.9 percent was higher than that. 15 Just a minor clarification, I know our paper 16 did mention that the percentage was 6.8 percent, but it 17 was recalculated because originally there was an error 18 that it was calculated only on -- it was calculated on 19 all liabilities, not just those over 250. So, when we 20 recalculated over 250, it's actually 6.9 percent. 21 MS. YEE: Okay. 22 MR. MC GUIRE: So, that's basically our 23 summary. And we're respectfully requesting your 24 approval of one of these alternatives so we can move 25 forward with implementation. 26 And, of course, David and I are here if you 27 have any questions. 28 MS. YEE: All right, thank you very much, 7 1 Mr. McGuire. 2 Questions, Members? 3 Ms. Alby? 4 MS. ALBY: Thank you very much. 5 My question is who would make the decision to 6 waive fee? Where would that decision be made? 7 MR. MC GUIRE: Our plan is initially it would 8 come to us like a relief of penalty request. So, it 9 would go to -- in Sales and Use Tax Department to our 10 Return Analysis Section, initially, to be reviewed and 11 approved. 12 And then we do have a process of the taxpayer 13 requesting reconsideration if we had denied it 14 initially. 15 MS. ALBY: And what would be an example -- a 16 few examples of reasonable cause that would merit 17 waiving the fee? 18 MR. MC GUIRE: Some of the cases might be if 19 there was any kind of error or delay on our part by the 20 Board, if we found out maybe our notice was mailed to 21 the wrong address or something like that -- of course, 22 if there's any kind of special circumstances of the 23 taxpayer, like maybe they had some kind of injury or 24 illness that prevented them from responding timely to 25 the notice; of course, our typical things, like if there 26 was some kind of, you know, natural disaster or 27 catastrophe. 28 MS. ALBY: Or unemployed, would be that -- 8 1 MR. MC GUIRE: That would be something we would 2 have to look at because I think generally in the past 3 ability to pay hasn't been a reason for relief of those 4 penalties. 5 But we would take direction from the Board, of 6 course, on the criteria if that was so chosen. 7 MS. ALBY: Thank you. 8 MS. YEE: Thank you, Ms. Alby. 9 Other questions, Members? 10 MS. STEEL: Question? 11 MS. YEE: Yes, Ms. Steel? 12 MS. STEEL: Alternative 1 is $100 for flat fee 13 for all the late accounts, right? 14 MR. MC GUIRE: Yeah, that was -- 15 MS. STEEL: The past due accounts? 16 MR. MC GUIRE: -- varying flat amounts, it's a 17 stratified so there's a smaller amount on the smaller 18 liabilities, a medium and a large. 19 MS. STEEL: How much are we talking about? 20 These -- 21 MR. MC GUIRE: It would be $185 on liabilities 22 under 2,000 and $550 on liabilities up to 50,000 and 23 then $925 on liabilities over $50,000. 24 MS. STEEL: How many accounts we have, past due 25 accounts, between 250 to 500? 26 MR. MC GUIRE: About 60,000 currently. 27 MS. STEEL: Okay. 28 MR. GAU: And in Special Taxes we have about 9 1 8,400. 2 MS. STEEL: So, these amount -- the fees, any 3 relation with the actual cost? 4 MR. MC GUIRE: Yeah, because it's difficult for 5 us to determine on a case by case how much, you know, 6 the effort was on your individual case, in the case of a 7 taxpayer having a liability, we tried to do ranges. 8 And the ranges are primarily based upon the 9 fact that we tend to spend less effort on smaller 10 liabilities. Smaller liabilities are assigned to our 11 entry level collection staff versus the higher level 12 dollar amounts are assigned to our senior staff. There 13 is more of a cost involved in those. 14 So, it -- it's -- it's really just trying to 15 stratify that between the two, based upon, typically, 16 the effort that we have on those kinds of cases. 17 MS. STEEL: Because I'm asking if fee amount is 18 for -- liability dollar range is -- start from $250 and 19 we're charging 185 for that, so -- that's very high. 20 And then $2,000 their fee is -- our fee is 21 $550. This is the way too much for these liabilities. 22 MR. MC GUIRE: Yeah and that's again the 23 Alternative 3, which is a percentage based fee. We then 24 apply a percentage based upon that liability amount. 25 So, it would be 6.9 percent. So, that would vary and be 26 applied separately, depending on the liability amount. 27 And, of course that does have a ceiling that we 28 would never exceed $50,000 on the fee. 10 1 MS. STEEL: Thank you. 2 MS. YEE: Thank you, Ms. Steel. 3 Other questions, Members? 4 Okay, let me just make a comment. This is 5 something that the legislature had enacted that we were 6 expected to try to put some rationality behind how we 7 are going to structure this fee. I appreciate the 8 staff's work and its attempt to do so. 9 I do think the stratified alternative probably 10 is our best shot at getting at the true costs of what 11 our staff time is, even though it's imperfect relative 12 to the amount of the fee and the range of the liability. 13 But I also hope that the collection fee will 14 serve as an incentive for those who have past due 15 liabilities to come forward and either enter into a 16 payment plan or to satisfy their liability in 17 appropriate ways. 18 So, I really hope that we're not having to 19 impose this fee a lot and that it really does serve its 20 purpose in terms of taxpayers coming forward to try to 21 satisfy their liability. 22 MS. MANDEL: Because if -- 23 MS. YEE: Ms. Mandel? 24 MS. MANDEL: -- if they go into it, they're 25 going to get a notice -- 26 MS. YEE: Yes. 27 MS. MANDEL: -- before -- everybody is going to 28 get a notice in January before anybody gets the fee, 11 1 right? 2 MR. MC GUIRE: That's correct. 3 MS. MANDEL: And then that notice, they're 4 going to say -- it's going to say that they have 90 days 5 to -- I don't know what the wording is going to be 6 exactly in the notice -- but they have 90 days to 7 either -- to pay in full or enter into a payment plan, 8 right? 9 MR. MC GUIRE: Right. 10 MS. MANDEL: Or some other method by which they 11 resolve it, if they went into Offer-In-Compromise or 12 something like that? 13 I mean -- or it's just a payment plan and 14 the -- 15 MR. MC GUIRE: Yeah, I mean -- it would be a 16 payment plan or payment in full. 17 If they went into OIC, then that would be 18 something that would be eligible as part of the 19 compromise. 20 MS. MANDEL: Okay. So, all -- all of the 21 people who are out there now who have the potential for 22 the fee, all they really have to do when they get this 23 notice is enter into a payment plan. 24 MR. MC GUIRE: That's correct. 25 MS. MANDEL: And they're not going to get the 26 fee. 27 MR. GAU: That's correct. 28 MS. MANDEL: Okay. 12 1 MS. STEEL: Just one more question? 2 MS. YEE: Yes, Ms. Steel? 3 MS. STEEL: What does Franchise Tax Board do 4 with their collection fee? 5 MR. MC GUIRE: Franchise Tax Board has a fee as 6 well. They do a flat fee. And they do one flat fee for 7 personal income tax and a separate fee for corporate 8 taxes. 9 And I believe -- I recall what the amount of 10 one is 400 and something dollars and the other is, I 11 think, 300 and something. For personal it's lower than 12 it is for corporate. 13 MS. STEEL: Even amount is different, just flat 14 fee? 15 MR. MC GUIRE: Right, it's a flat fee -- 16 MS. STEEL: Even like $100,000? 17 MR. MC GUIRE: -- regardless of the amount. 18 MS. STEEL: Really? 19 MR. MC GUIRE: And I believe theirs applies on 20 all liabilities above $100. 21 MS. YEE: Right, I think that's -- 22 MR. MC GUIRE: But I can double-check that, 23 yes. 24 MS. STEEL: Okay. 25 MS. YEE: Okay. Thank you, Ms. Steel. 26 Okay. We've heard the presentation and the 27 alternatives. Is there a motion? 28 MS. MANDEL: I'll move the staff recommended 13 1 tiered -- whatever you called it -- 2 MR. MC GUIRE: Stratified flat fee. 3 MS. MANDEL: -- stratified flat fee. 4 MS. YEE: Alternative 1. 5 MR. MC GUIRE: Thank you. 6 MS. YEE: Okay. 7 MS. MANDEL: Yeah. 8 MS. YEE: Very well. We have a motion by 9 Ms. Mandel to approve the staff recommendation for the 10 stratified fee structure under Alternative 1. 11 I will second that motion. 12 Further discussion? 13 MS. STEEL: Objection. 14 MS. YEE: Okay. Please call the roll. 15 MS. OLSON: Madam Chair? 16 MS. YEE: Aye. 17 MS. OLSON: Ms. Alby? 18 MS. ALBY: No. 19 MS. OLSON: Ms. Steel? 20 MS. STEEL: No. 21 MS. OLSON: Ms. Mandel? 22 MS. MANDEL: Aye. 23 MS. OLSON: Motion fails. 24 MS. YEE: Okay, let's put this over 'til 25 tomorrow. I think Mr. Horton did want to have an 26 opportunity to weigh in on this, he's just stepped out. 27 ---o0o--- 28 14 1 2 REPORTER'S CERTIFICATE 3 4 State of California ) 5 ) ss 6 County of Sacramento ) 7 8 I, JULI PRICE JACKSON, Hearing Reporter for the 9 California State Board of Equalization certify that on 10 DECEMBER 14, 2010 I recorded verbatim, in shorthand, to 11 the best of my ability, the proceedings in the 12 above-entitled hearing; that I transcribed the shorthand 13 writing into typewriting; and that the preceding pages 1 14 through 14 constitute a complete and accurate 15 transcription of the shorthand writing. 16 17 Dated: January 20, 2011 18 19 20 21 22 ____________________________ 23 JULI PRICE JACKSON 24 Hearing Reporter 25 26 27 28 15