BILL NUMBER: SB 38 AMENDED
BILL TEXT
AMENDED IN SENATE JUNE 2, 2015
AMENDED IN SENATE MAY 6, 2015
AMENDED IN SENATE MARCH 23, 2015
INTRODUCED BY Senator Liu
DECEMBER 1, 2014
An act to add Section 22255.5 to the Business and
Professions Code, and to add and repeal Sections 17052.1 and 17052.2
of the Revenue and Taxation Code, relating to the earned income tax
credit. amend Sections 19136 and 19167 of,
and to add Section 17052 to, the Revenue and Taxation Code, relating
to taxation, and making an appropriation therefor.
LEGISLATIVE COUNSEL'S DIGEST
SB 38, as amended, Liu. Personal income tax: credit:
earned income: tax preparer education. taxes: earned
income credit.
(1) The
The 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. Federal income tax laws allow a
refundable earned income tax credit for certain low-income
individuals who have earned income and who meet certain other
requirements.
This bill, for taxable years beginning on or after January 1,
2016, and before January 1, 2027, would allow a credit based
upon earned income that is equal to 30% for eligible individuals
with qualifying children and 100% for eligible individuals with no
qualifying children, as specified, of the earned income tax credit
allowed by federal law. 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. The
bill would require the Franchise Tax Board to report to the
Legislature regarding the utilization of the tax credit, as provided.
2015, in modified conformity with federal income tax
laws, would allow a refundable earned income credit to an eligible
individual that is equal to the earned income tax credit allowed by
federal law in an amount determined by the earned income tax credit
adjustment factor as determined in the annual Budget Act.
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.
(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.
This bill, for purposes of basic instruction and continuing
education, would require an approved curriculum provider to include
instruction for preparing 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.
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.
This bill would provide that no reimbursement is required by this
act for a specified reason.
Existing law establishes the continuously appropriated Tax Relief
and Refund Account, and provides that payments required to be made to
taxpayers or other persons from the Personal Income Tax Fund are to
be paid from that account.
By authorizing a new, refundable income tax credit to be paid from
that account, this bill would make an appropriation.
The Personal Income Tax Law imposes taxes based upon taxable
income and also imposes interest and penalties with regard to those
taxes under specified circumstances, including a penalty for the
underpayment of estimated tax. Existing law provides no addition to
tax shall be imposed to the extent that the underpayment was created
or increased by any law that is chaptered during and operative for
the taxable year of the underpayment.
This bill would provide that addition to tax shall not be imposed
if the applicable percentage for the earned income tax credit for the
taxable year was less than the applicable percentage for that credit
for the preceding taxable year and would impose a penalty, in
conformity with federal law, for failure to be diligent in
determining eligibility for the earned income tax credit, as
specified.
Vote: majority 2/3 . Appropriation:
no yes . Fiscal committee: yes.
State-mandated local program: yes no .
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 17052 is added to the
Revenue and Taxation Code , to read:
17052. (a) (1) For each taxable year beginning on or after
January 1, 2015, there shall be allowed against the "net tax," as
defined by Section 17039, an earned income tax credit in an amount
equal to an amount determined in accordance with Section 32 of the
Internal Revenue Code, relating to earned income, as applicable for
federal income tax purposes for the taxable year, except as otherwise
provided in this section.
(2) (A) The amount of the credit determined under Section 32 of
the Internal Revenue Code, relating to earned income, as modified by
this section, shall be multiplied by the earned income tax credit
adjustment factor for the taxable year.
(B) Unless otherwise specified in the annual Budget Act, the
earned income tax credit adjustment factor for a taxable year
beginning on or after January 1, 2015, shall be zero percent.
(C) The earned income tax credit authorized by this section shall
only be operative for taxable years for which resources are
authorized in the annual Budget Act for the Franchise Tax Board to
oversee and audit returns associated with the credit.
(b) (1) In lieu of the table prescribed in Section 32(b)(1) of the
Internal Revenue Code, relating to percentages, the credit
percentage and the phaseout percentage shall be determined as
follows:
In the case of an The credit The
eligible individual percentage phaseout
with: is: percentage
is:
No qualifying children 7.65% 7.65%
1 qualifying child 34% 34%
2 or more qualifying 40% 40%
children
(2) (A) In lieu of the table prescribed in Section 32(b)(2)(A) of
the Internal Revenue Code, the earned income amount and the phaseout
amount shall be determined as follows:
In the case of an The earned The
eligible individual income phaseout
with: amount is: amount is:
No qualifying children $3,290 $3,290
1 qualifying child $4,940 $4,940
2 or more qualifying $6,935 $6,935
children
(B) Section 32(b)(2)(B) of the Internal Revenue Code, relating to
joint returns, shall not apply.
(3) Section 32(b)(3)(A) of the Internal Revenue Code, relating to
increased percentage for 3 or more qualifying children, is modified
by substituting "the credit percentage and phaseout percentage is 45
percent" for "the credit percentage is 45 percent".
(c) (1) Section 32(c)(1)(A)(ii)(I) of the Internal Revenue Code is
modified by substituting "this state" for "the United States".
(2) Section 32(c)(2)(A) of the Internal Revenue Code is modified
as follows:
(A) Section 32(c)(2)(A)(i) is modified by deleting ", plus" and
inserting in lieu thereof the following: "and only if such amounts
are subject to withholding pursuant to Division 6 (commencing with
Section 13000) of the Unemployment Insurance Code".
(B) Section 32(c)(2)(A)(ii) shall not apply.
(3) Section 32(c)(3)(C) of the Internal Revenue Code, relating to
place of abode, is modified by substituting "this state" for "the
United States".
(d) Section 32(i)(1) of the Internal Revenue Code is modified by
substituting "$3,400" for "$2,200".
(e) In lieu of Section 32(j) of the Internal Revenue Code,
relating to inflation adjustments, for taxable years beginning on or
after January 1, 2016, the amounts specified in paragraph (2) of
subdivision (b) and in subdivision (d) shall be recomputed annually
in the same manner as the recomputation of income tax brackets under
subdivision (h) of Section 17041.
(f) 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 be paid from the Tax Relief and Refund Account
and refunded to the taxpayer.
(g) The Franchise Tax Board may prescribe rules, guidelines, or
procedures necessary or appropriate to carry out the purposes of this
section. Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
rule, guideline, or procedure prescribed by the Franchise Tax Board
pursuant to this section.
(h) Notwithstanding any other law, amounts refunded pursuant to
this section shall be treated in the same manner as the federal
earned income refund for the purpose of determining eligibility to
receive benefits under Division 9 (commencing with Section 10000) of
the Welfare and Institutions Code or amounts of those benefits.
(i) (1) For the purpose of implementing the credit allowed by this
section for the 2015 taxable year, the Franchise Tax Board shall be
exempt from the following:
(A) Special Project Report requirements under State Administrative
Manual Sections 4819.36, 4945, and 4945.2.
(B) Special Project Report requirements under Statewide
Information Management Manual Section 30.
(C) Section 11.00 of the 2015 Budget Act.
(D) Sections 12101, 12101.5, and 12102, and 12102.1 of the Public
Contract Code.
(2) The Franchise Tax Board shall formally incorporate the scope,
costs, and schedule changes associated with the implementation of the
credit allowed by this section in its next anticipated Special
Project Report for its Enterprise Data to Revenue project.
SEC. 2. Section 19136 of the Revenue
and Taxation Code is amended to read:
19136. (a) Section 6654 of the Internal Revenue Code, relating to
failure by an individual to pay estimated income tax, shall apply,
except as otherwise provided.
(b) Section 6654(a)(1) of the Internal Revenue Code is modified to
refer to the rate determined under Section 19521 in lieu of Section
6621 of the Internal Revenue Code.
(c) (1) Section 6654(e)(1) of the Internal Revenue Code, relating
to exceptions where the tax is a small amount, does not apply.
(2) No addition to the tax shall be imposed under this section if
the tax imposed under Section 17041 or 17048 and the tax imposed
under Section 17062 for the preceding taxable year, minus the sum of
any credits against the tax provided by Part 10 (commencing with
Section 17001) or this part, or the tax computed under Section 17041
or 17048 upon the estimated income for the taxable year, minus the
sum of any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, is less than five hundred dollars
($500), except in the case of a separate return filed by a married
person the amount shall be less than two hundred fifty dollars
($250).
(d) Section 6654(f) of the Internal Revenue Code does not apply
and for purposes of this section the term "tax" means the tax imposed
under Section 17041 or 17048 and the tax imposed under Section 17062
less any credits against the tax provided by Part 10 (commencing
with Section 17001) or this part, other than the credit provided by
subdivision (a) of Section 19002.
(e) (1) The credit for tax withheld on wages, as specified in
Section 6654(g) of the Internal Revenue Code, is the credit allowed
under subdivision (a) of Section 19002.
(2) (A) Section 6654(g)(1) of the Internal Revenue Code is
modified by substituting the phrase "the applicable percentage" for
the phrase "an equal part."
(B) For purposes of this paragraph, "applicable percentage" means
the percentage amount prescribed under Section 6654(d)(1)(A) of the
Internal Revenue Code, as modified by subdivision (a) of Section
19136.1.
(f) This section applies to a nonresident individual.
(g) (1) No addition to tax shall be imposed under this section to
the extent that the underpayment was created or increased by
any law that is chaptered during and operative for the taxable year
of the underpayment. either of the following:
(A) Any law that is chaptered during and operative for the taxable
year of the underpayment.
(B) If, for a taxable year prior to its repeal, the adjustment
factor for the credit authorized by Section 17052 for the taxable
year was less than the adjustment factor for that credit for the
preceding taxable year.
(2) (A) Notwithstanding Section 18415,
this section subparagraph (A) of paragraph
(1) applies to penalties imposed under this section on and
after January 1, 2005.
(B) Notwithstanding Section 18415, subparagraph (B) of paragraph
(1) applies to penalties imposed under this section on or after
January 1, 2016.
(h) The amendments made to this section by Section 5 of Chapter
305 of the Statutes of 2008 apply to taxable years beginning on or
after January 1, 2009.
(i) The amendments made to this section by the act adding
this subdivision Section 3 of Chapter 15 of
the 4th Extraordinary Session of the Statutes of 2009
apply to amounts withheld on wages beginning on or after
January 1, 2009.
SEC. 3. Section 19167 of the Revenue
and Taxation Code is amended to read:
19167. A penalty shall be imposed under this section for any of
the following:
(a) In accordance with Section 6695(a) of the Internal Revenue
Code, for failure to furnish a copy of the return to the taxpayer, as
required by Section 18625.
(b) In accordance with Section 6695(c) of the Internal Revenue
Code, for failure to furnish an identifying number, as required by
Section 18624.
(c) In accordance with Section 6695(d) of the Internal Revenue
Code, for failure to retain a copy or list, as required by Section
18625 or for failure to retain an electronic filing declaration, as
required by Section 18621.5.
(d) Failure to register as a tax preparer with the California Tax
Education Council, as required by Section 22253 of the Business and
Professions Code, unless it is shown that the failure was due to
reasonable cause and not due to willful neglect.
(1) The amount of the penalty under this subdivision for the first
failure to register is two thousand five hundred dollars ($2,500).
This penalty shall be waived if proof of registration is provided to
the Franchise Tax Board within 90 days from the date notice of the
penalty is mailed to the tax preparer.
(2) The amount of the penalty under this subdivision for a failure
to register, other than the first failure to register, is five
thousand dollars ($5,000).
(e) The Franchise Tax Board shall not impose the penalties
authorized by subdivision (d) until either one of the following has
occurred:
(1) Commencing January 1, 2006, and continuing each year
thereafter, there is an appropriation in the Franchise Tax Board's
annual budget to fund the costs associated with the penalty
authorized by subdivision (d).
(2) (A) An agreement has been executed between the California Tax
Education Council and the Franchise Tax Board that provides that an
amount equal to all first year costs associated with the penalty
authorized by subdivision (d) shall be received by the Franchise Tax
Board. For purposes of this subparagraph, first year costs include,
but are not limited to, costs associated with the development of
processes or systems changes, if necessary, and labor.
(B) An agreement has been executed between the California Tax
Education Council and the Franchise Tax Board that provides that the
annual costs incurred by the Franchise Tax Board associated with the
penalty authorized by subdivision (d) shall be reimbursed by the
California Tax Education Council to the Franchise Tax Board.
(C) Pursuant to the agreement described in subparagraph (A), the
Franchise Tax Board has received an amount equal to the first year
costs described in that subparagraph.
(f) In accordance with Section 6695(g) of the Internal Revenue
Code, for failure to be diligent in determining eligibility for
earned income credit for returns required to be filed on or after the
effective date of the act adding this subdivision.
SEC. 4. It is the intent of the Legislature to
enact legislation, as required by Section 41 of the Revenue and
Taxation Code, to specify the goals, purposes, and objectives that
the tax credit allowed by Section 17052 of the Revenue and Taxation
Code will achieve along with indicators and data collected to measure
whether the tax credit implemented by this act achieves the intended
purpose.
SECTION 1. The Legislature finds and declares
all of the following:
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
SEC. 2. Section 22255.5 is added to the
Business and Professions Code, to read:
22255.5. 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.
SEC. 3. 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 in Section 17039, in an amount
computed by multiplying the "federal earned income credit amount," as
defined in subdivision (b), by 30 percent for eligible individuals
with qualifying children and 100 percent for eligible individuals
with no qualifying children.
(b) For the purposes of this section, "federal earned income
credit amount" means the amount determined under Section 32 of the
Internal Revenue Code, relating to earned income 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.
(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."
(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.
(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.
(e) Any amounts refunded to a taxpayer pursuant to this section
shall not be included in income subject to tax under this part.
(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:
(1) The numerator of which is the California adjusted gross income
of the individual.
(2) The denominator of which is the federal adjusted gross income
of the individual.
(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.
(h) (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.
(i) Section 41 does not apply to the credit allowed by this
section.
(j) This section is repealed on December 1, 2027.
SEC. 4. Section 17052.2 is added to the Revenue
and Taxation Code, to read:
17052.2. (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
for 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.
(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.
SEC. 5. 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.