BEFORE THE CALIFORNIA STATE BOARD OF EQUALIZATION 5901 Green Valley Circle, Room 207 Culver City, California REPORTER'S TRANSCRIPT MARCH 22, 2011 ITEM P3.2 SALES AND USE TAX DEPUTY DIRECTOR'S REPORT ISSUE PAPER ON THE FIRM PROPOSAL Reported by: Beverly D. Toms No. CSR 1662 1 1 2 P R E S E N T 3 4 For the Board Jerome E. Horton of Equalization: Chairman 5 Michelle Steel 6 Vice-Chairwoman 7 Betty T. Yee Member 8 George Runner 9 Member 10 Marcy Jo Mandel Appearing for John Chiang 11 State Controller (per Government Code 12 Section 7.9) 13 Diane Olson, Chief Board Proceedings Division 14 Board of Equalization 15 Staff: Jeff McGuire Deputy Director 16 Sales and Use Tax Department 17 --oOo--- 18 19 20 21 22 23 24 25 26 27 28 2 1 Culver City, California 2 March 22, 2011 3 ---oOO--- 4 MR. McGUIRE: The second item today is a 5 request for Board position on whether BOE should pursue 6 legislation to participate in FTB's newly created FIRM 7 program, which will require banking institutions to 8 provide information on tax debtors. 9 Just for brief background -- 10 MR. HORTON: So moved. Is there a second? 11 Second by Ms. Yee. 12 MS. YEE: Yes, I do second. 13 MS. MANDEL: Assume -- assuming it -- 14 MR. HORTON: Without objection. 15 MS. MANDEL: -- gets signed. 16 MR. HORTON: Okay, continue with your 17 discussion. 18 MR. McGUIRE: I can continue or you guys can 19 make -- 20 MR. HORTON: I tried. 21 MR. McGUIRE: -- this easy for me. 22 MR. HORTON: We've got an objection. Continue. 23 MR. McGUIRE: Okay. Just for -- 24 MS. STEEL: I can't -- just have some question 25 on it. 26 MR. McGUIRE: -- brief background, during our 27 recent budget hearings the Legislature had requested a 28 Board position on BOE participation in some potential 3 1 FIRM legislation. Since those hearings SB86 was 2 approved by both houses of the Legislature to implement 3 or authorize FTB to implement the FIRM program, which is 4 a Financial Information Record Matching program. 5 Currently SB86 is to enrollment at this point. 6 Basically the way FIRM would work is quarterly 7 BOE would create a file containing tax debtors' names 8 and tax identification numbers. That file would be 9 given to FTB to combine with their tax debtor file and 10 provide it to banking institutions. 11 The banking institutions would form a match 12 against their account holders' records and identify 13 those debtors that have an account with their 14 institution. 15 The information provided to the banks would be 16 limited to the information BOE currently provides on a 17 Notice of Levy so there would be no exchange of more 18 taxpayer information than our current processes already 19 have. 20 In addition, exchange of data between BOE, FTB 21 and the banks would be transmitted in a secure encrypted 22 file to protect confidential taxpayer information. 23 Upon receipt of the information back from the 24 financial institutions BOE would populate that banking 25 information into our collection system. However, FIRM 26 would not change our existing levy process, which is 27 actually manually initiated by a collector when 28 voluntary collection actions have not been successful 4 1 and when a levy is the appropriate course of action to 2 take. 3 Finally, just as an update, FIRM initially had 4 a one-time implementation cost for BOE of $128,000 5 plus there's some yet to be determined FTB startup costs 6 as some of theirs have shifted based on the recent 7 legislation, the specific language. 8 In addition, based on the language contained in 9 SB86 there would be some additional ongoing costs that 10 weren't identified in our paper because banks would be 11 reimbursed up to $250 per quarter for participation in 12 the FIRM program. 13 Staff does estimate that the revenue generated 14 from this program would be $12.3 million annually. And 15 basically we have two alternatives for your 16 consideration. 17 Alternative One, which is recommended by staff 18 would provide Board support for participation in FIRM 19 and staff would work with the Legislature to include BOE 20 in -- in this new program. 21 Alternative Two would be a Board position of 22 non-support for participation in -- in FIRM. 23 And of course I'm available to answer 24 questions. 25 MR. HORTON: Thank you very much. 26 Discussion, Members? 27 Member Steel, then Mr. Runner. 28 MS. STEEL: I think this started try to collect 5 1 child support, not for taxes. And, you know, when we 2 collect taxes we can even levy from their bank account. 3 And second, that we can still wait until that 4 we going to get the tangible resert -- result from FTB 5 experience over next few years and after they start 6 doing it because I don't know how much it's going to be 7 effective. 8 And, third, that same as the other one, that 9 the CROS project that annual revenue of $12.3 million 10 issue paper dose not mean that that's going to be total 11 revenue will be. So I am totally against this project 12 and I just want to have wait to see. 13 MR. HORTON: Thank you very much, Ms. Steel. 14 Mr. Runner 15 MR. RUNNER: Just to clarify, the -- again, 16 this is focused just specifically on FIRM. Obviously 17 this was included in SB86, which was a broader 18 document -- or broader piece of legislation, had other 19 issues attached to it, the look-up table and some other 20 things, correct? 21 MR. McGUIRE: Correct. 22 MR. RUNNER: Okay. So we are not -- we're 23 not -- we're not adding on and saying we're -- you know, 24 do us -- do us something like SB86, we're talking about 25 just saying -- 26 MR. McGUIRE: Just related to the FIRM report. 27 MR. RUNNER: Great, FIRM. So you anticipate 28 that this would need to be another piece of legislation 6 1 at this time? 2 MR. McGUIRE: It -- it would be since SB86 has 3 already made it through both houses. 4 MR. RUNNER: Okay. 5 MR. McGUIRE: The initial question probably was 6 for us to -- if we wanted to be part of that, but again 7 we weren't able to. 8 MR. RUNNER: Right. That's -- that -- that 9 window has closed. 10 MR. McGUIRE: Yes. 11 MR. RUNNER: Just to -- just to clarify, the 12 purpose of this is to be able to identify and match 13 records on banking -- banking accounts that are outside 14 of the State of California, or in -- can include in -- 15 inside California? 16 MR. McGUIRE: It would only involve banking 17 institutions that do -- that do business in California. 18 MR. RUNNER: In California? 19 MR. McGUIRE: Yes. 20 MR. RUNNER: Okay. 21 MR. McGUIRE: There's about 900 of those, I 22 believe. 23 MR. RUNNER: Okay. So the banking institutions 24 inside the State of california. And the individuals who 25 that we would be dealing with these are individuals who 26 have gone through what kind of a process with us in 27 regards to -- where are they in the process with us in 28 regards to why it is that we're looking for their bank 7 1 account? 2 MR. McGUIRE: Yeah, this would -- basically, 3 once our tax debtors go into our collection process 4 where we actually assign them to staff to work, then 5 those taxpayers -- and at any given point there's 6 potentially maybe up to 100,000 accounts that we have 7 that are in that process at any given time, then those 8 taxpayers' information -- again their names and their 9 taxpayer identification number would be provided as part 10 of this program and -- to matched and provided back to 11 us in -- in case we did need to get to a levy point we 12 would have the actual banking information available. 13 MR. RUNNER: So when do we go find -- when do 14 we start looking for this information? 15 MR. McGUIRE: When someone would go into 16 collection action. 17 MR. RUNNER: Okay. Okay. That's when -- 18 that's when we actually start looking for it and then 19 we -- 20 MR. McGUIRE: Correct. 21 MR. RUNNER: -- and then we have it in -- in 22 case we need to go to a levy? 23 MR. McGUIRE: Right, yeah. 24 MR. RUNNER: Is that correct? Okay. 25 MR. McGUIRE: Because we would still attempt 26 all the normal processes -- 27 MR. RUNNER: First. 28 MR. McGUIRE: -- first. 8 1 MR. RUNNER: What happens -- what happens right 2 now, because I know ever once in a while I read these 3 really nasty reports about how it is that somebody just 4 had their bank account drained, and they were the wrong 5 person? 6 How -- how do we -- what -- what -- how do we 7 protect ourselves against that and then what is our 8 responsibility if and when that happens, when we do it 9 to an innocent party? 10 MR. McGUIRE: Right. So we're just really 11 talking about the general levy process because -- 12 MR. RUNNER: Right, I -- 13 MR. McGUIRE: -- FIRM wouldn't -- 14 MR. RUNNER: Right. 15 MR. McGUIRE: -- change that -- 16 MR. RUNNER: Right, but now we're -- right, 17 we're -- I'm talking about the general levy process but 18 now we're -- now we're trying to -- we're creating 19 another tool, right? 20 MR. McGUIRE: We're creating an additional 21 piece of information, not a new tool, because the levy 22 tool -- 23 MR. RUNNER: Okay. 24 MR. McGUIRE: -- is -- 25 MR. RUNNER: Excuse me, I just -- some more 26 information that we believe is going to actually lead us 27 to some additional accounts. 28 MR. McGUIRE: Correct. 9 1 MR. RUNNER: Because we've actually booked some 2 money toward it. 3 MR. McGUIRE: Exactly. 4 MR. RUNNER: Right. So help me understand that 5 just so I kind of -- 6 MR. McGUIRE: The levy process? 7 MR. RUNNER: Yeah, and -- and when we do it 8 incorrectly, what happens? 9 MR. McGUIRE: Okay. Well, typically like our 10 levy document has the name and the taxpayer 11 identification number, whether it's a -- like a 12 corporation, have their number. If it's an individual 13 it would have their Social Security number on the -- 14 MR. RUNNER: Uh-huh. 15 MR. McGUIRE: -- levy document. That goes to 16 the bank. And then the bank matches that. And if they 17 actually give us like the wrong person by accident, a 18 copy of the levy also goes to the tax debtor. So they 19 would receive that. 20 Again, if it's not the tax debtor, somehow the 21 bank accidentally attached someone completely different, 22 that person would be notified by the bank and then they 23 can contact the Board if there is an error. 24 MR. RUNNER: Okay. 25 MR. McGUIRE: We do have a process in our Bill 26 of Rights that if we levied in error that we release and 27 pay any bank fees related to that. So that's part of 28 our Taxpayers' Bill of Rights, and we do that. 10 1 MR. RUNNER: No frivolous penalties or 2 anything, just -- 3 MR. McGUIRE: No, we don't have -- 4 MR. RUNNER: Okay. Okay, just wanted -- 5 MR. McGUIRE: -- frivolous penalties but we do 6 reimburse them for their bank charges. 7 MR. RUNNER: Okay. 8 MR. McGUIRE: And so, again, if for whatever 9 reason the tax -- the person that we identified is 10 contending that they're not the tax debtor or that those 11 funds in their account are not theirs, there's a third 12 party process where they can appeal to us regarding 13 their levy, and either stop the levy, itself, or refund 14 the money if the levy was already paid. 15 MR. RUNNER: Okay. Thank you. 16 MR. HORTON: Thank you, Members. 17 Further discussion, Members? 18 Hearing none, is there a motion, Members? 19 Just kidding about the original one. 20 MS. YEE: I'm going to make a motion that the 21 Board of Equalization join the Franchise Tax Board as 22 part of the FIRM program. 23 MR. HORTON: It's been moved. Second by -- 24 MS. MANDEL: Second. 25 MR. HORTON: -- Ms. Mandel. 26 Objection, Members? 27 MS. STEEL: Objection. 28 MR. HORTON: Hearing an objection -- objection, 11 1 Ms. Olson, please call the roll, but with -- let me ask 2 a quick question if I may, Members, with your 3 permission. 4 Is there any way to get this into like a 5 trailer bill or do we have to introduce legislation -- 6 find a bill and introduce it? Can we -- can -- can we 7 get it into a trailer bill? 8 MR. RUNNER: Sooner. 9 MR. McGUIRE: I believe we still can at this 10 time. 11 MR. HORTON: At this time. 12 MR. McGUIRE: We'll work with our Leg. Unit to 13 do that. Especially since the inquiry originally came 14 from the Legislature to -- for us to participate in 15 this. 16 MR. HORTON: Okay. 17 MS. YEE: Yeah. 18 MR. HORTON: Very good. 19 Ms. Olson, please call the roll. 20 MS. OLSON: Mr. Horton. 21 MR. HORTON: Aye. 22 MS. OLSON: Ms. Steel. 23 MS. STEEL: No. 24 MS. OLSON: Mr. Runner. 25 MR. RUNNER: Aye. 26 MS. OLSON: Ms. Yee. 27 MS. YEE: Aye. 28 MS. OLSON: Ms. Mandel. 12 1 MS. MANDEL: Aye. 2 MS. OLSON: Motion carries. 3 MR. HORTON: Thank you. 4 MR. McGUIRE: Thank you. 5 ---oOo--- 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 13 1 REPORTER'SCERTIFICATE 2 3 State of California ) 4 ) ss 5 County of Sacramento ) 6 7 I, BEVERLY D. TOMS, Hearing Reporter for the 8 California State Board of Equalization certify that on 9 March 22, 2011 I recorded verbatim, in shorthand, to the 10 best of my ability, the proceedings in the 11 above-entitled hearing; that I transcribed the shorthand 12 writing into typewriting; and that the preceding 13 13 pages constitute a complete and accurate transcription 14 of the shorthand writing. 15 16 Dated: April 5, 2011. 17 18 19 20 ____________________________ 21 BEVERLY D. TOMS 22 Hearing Reporter 23 24 25 26 27 28 14