AB 567: Medical cannabis: regulation and taxation amnesty.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2016-08-31
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, exempts from specified criminal penalties the possession or cultivation of medical marijuana by patients and primary caregivers. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
Existing law imposes sales and use taxes collected and administered by the State Board of Equalization. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties.
This bill would require the State Board of Equalization to administer a tax penalty amnesty program during the period beginning on July 1, 2017, through December 31, 2017, inclusive, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require the Department of Consumer Affairs to suspend or refuse to issue a state license to a medical cannabis-related business that is eligible to, but does not participate in, the program and meets other specified conditions.
(2)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(3)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that a tax penalty amnesty program to incentivize a specific type of business to become current with its tax obligations serves a general public purpose and therefore is not a gift of public funds.
(4)This bill would incorporate additional changes to Section 19323 of the Business and Professions Code proposed by AB 26 that would become operative if this bill and AB 26 are enacted and this bill is enacted last.
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, exempts from specified criminal penalties the possession or cultivation of medical marijuana by patients and primary caregivers. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
Existing law imposes sales and use taxes collected and administered by the State Board of Equalization. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties.
This bill would require the State Board of Equalization to administer a tax penalty amnesty program during the period beginning on July 1, 2017, through December 31, 2017, inclusive, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require the Department of Consumer Affairs to suspend or refuse to issue a state license to a medical cannabis-related business that is eligible to, but does not participate in, the program and meets other specified conditions.
(2)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(3)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that a tax penalty amnesty program to incentivize a specific type of business to become current with its tax obligations serves a general public purpose and therefore is not a gift of public funds.
(4)This bill would incorporate additional changes to Section 19323 of the Business and Professions Code proposed by AB 26 that would become operative if this bill and AB 26 are enacted and this bill is enacted last.
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, authorizes the use of marijuana for medical purposes. exempts from specified criminal penalties the possession or cultivation of medical marijuana by patients and primary caregivers. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
Existing law imposes sales and use taxes collected and administered by the State Board of Equalization and employment taxes, as defined, collected and administered by the Employment Development Department. Equalization. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties.
This bill would require the State Board of Equalization and the Employment Development Department to administer a tax penalty amnesty programs program during the period beginning on July 1, 2017, through September 30, December 31, 2017, inclusive, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require the Department of Consumer Affairs to revoke suspend or refuse to issue a state license to a medical cannabis-related business that is eligible to, but does not participate in, those programs the program and meets other specified conditions.
(2)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(3)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that a tax penalty amnesty programs program to incentivize a specific type of business to become current with their its tax obligations serve serves a general public purpose, purpose and therefore are not gifts is not a gift of public funds.
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, authorizes the use of marijuana for medical purposes. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
Existing law imposes sales and use taxes collected and administered by the State Board of Equalization and employment taxes, as defined, collected and administered by the Employment Development Department. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties.
This bill would require the State Board of Equalization and the Employment Development Department to administer tax penalty amnesty programs during the period beginning on July 1, 2017, through September 30, 2017, inclusive, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require the Department of Consumer Affairs to revoke or refuse to issue a state license to a medical cannabis-related business that is eligible to, but does not participate in, those programs and meets other specified conditions.
(2)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(3)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that amnesty programs to incentivize a specific type of business to become current with their tax obligations serve a general public purpose, and therefore are not gifts of public funds.
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, authorizes the use of marijuana for medical purposes. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
This bill would prohibit the sale, distribution, provision, or donation of medical cannabis or medical cannabis products to a qualified patient or caregiver other than at a licensed dispensing facility or through a licensed dispensing facilitys delivery service, as defined; would prohibit mobile, vehicular, or technology platforms that enable qualified patients or primary caregivers to arrange for any delivery, as defined, with a third party; and would provide that a dispensary, as defined, that employs or uses the services of any person under 21 years of age for the sale or delivery of medical cannabis or medical cannabis products is subject to suspension or revocation of certain state or local licenses. By requiring local licensing authorities to suspend or revoke local licenses, this bill would impose a state-mandated local program.
(2)Existing
Existing law imposes sales and use taxes collected and administered by the State Board of Equalization, personal income and corporation taxes collected and administered by the Franchise Tax Board, Equalization and employment taxes, as defined, collected and administered by the Employment Development Department. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties, and, personal income and corporation tax penalties and fees due and payable for tax reporting periods or taxable years beginning before January 1, 2003. penalties.
This bill would require the State Board of Equalization, the Franchise Tax Board, Equalization and the Employment Development Department to administer tax penalty amnesty programs during the period beginning on April 1, 2016, through September 30, 2016, or during a timeframe before December 31, 2016, July 1, 2017, through September 30, 2017, inclusive, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require a licensing authority the Department of Consumer Affairs to revoke or refuse to issue a state or local license to a medical cannabis-related business that is eligible to, but does not participate in, those programs and meets other specified conditions. By requiring local licensing authorities to revoke or refuse to issue local licenses, this bill would impose a state-mandated local program.
(3)
(2)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(4)
(3)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that amnesty programs to incentivize a specific type of business to become current with their tax obligations serve a general public purpose, and therefore are not gifts of public funds.
(5)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, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.
(1)Existing law, the Compassionate Use Act of 1996, an initiative measure enacted by the approval of Proposition 215 at the November 5, 1996, statewide general election, authorizes the use of marijuana for medical purposes. Existing law, the Medical Marijuana Program, requires the State Department of Public Health to establish a voluntary program for the issuance of identification cards to qualified patients and primary caregivers under the Compassionate Use Act, and grants immunity from arrest for violation of specified provisions relating to the cultivation, possession, transportation, and sale of marijuana, if conditions of the act are met.
This bill would prohibit the sale, distribution, provision, or donation of medical cannabis or medical cannabis products to a qualified patient or caregiver other than at a licensed dispensing facility or through a licensed dispensing facilitys delivery service, as defined; would prohibit mobile, vehicular, or technology platforms that enable qualified patients or primary caregivers to arrange for any delivery, as defined, with a third party; and would provide that a dispensary, as defined, that employs or uses the services of any person under 21 years of age for the sale or delivery of medical cannabis or medical cannabis products is subject to suspension or revocation of certain state or local licenses. By requiring local licensing authorities to suspend or revoke local licenses, this bill would impose a state-mandated local program.
(2)Existing law imposes sales and use taxes collected and administered by the State Board of Equalization, personal income and corporation taxes collected and administered by the Franchise Tax Board, and employment taxes, as defined, collected and administered by the Employment Development Department. Existing law sets forth various penalties, including penalties for the nonpayment or late payment of those taxes, and the failure to file or intentional filing of incorrect returns. Existing law established a tax amnesty program, conducted in 2005, with respect to sales and use tax penalties, and, personal income and corporation tax penalties and fees due and payable for tax reporting periods or taxable years beginning before January 1, 2003.
This bill would require the State Board of Equalization, the Franchise Tax Board, and the Employment Development Department to administer tax penalty amnesty programs during the period beginning on April 1, 2016, through September 30, 2016, or during a timeframe before December 31, 2016, for medical cannabis-related businesses, as provided. The bill would define a medical cannabis-related business for these purposes as a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act or the Medical Marijuana Program. The bill would require a licensing authority to revoke or refuse to issue a state or local license to a medical cannabis-related business that is eligible to, but does not participate in, those programs and meets other specified conditions. By requiring local licensing authorities to revoke or refuse to issue local licenses, this bill would impose a state-mandated local program.
(3)This bill would make related findings and declarations. The bill would also make technical and conforming changes.
(4)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.
This bill would make certain legislative findings and declarations that amnesty programs to incentivize a specific type of business to become current with their tax obligations serve a general public purpose, and therefore are not gifts of public funds.
(5)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, if the Commission on State Mandates determines that the bill contains costs mandated by the state, reimbursement for those costs shall be made pursuant to these statutory provisions.
Existing law requires, upon a change in control or change in ownership of a legal entity that owns an interest in real property in this state, or when requested by the State Board of Equalization, that the person or legal entity acquiring ownership control, or the legal entity that has undergone a change in ownership, file a change in ownership statement with the board, as specified, listing all counties in which the legal entity owns real property. Existing law requires all information requested by the assessor or the board regarding change in ownership reporting or furnished in a change in ownership statement to be held secret, except as specifically provided.
This bill would provide that information requested or furnished in a change in ownership statement, with respect to a legal entity and its real property does not include the fact that a change in ownership statement has been filed with the board or that the board has issued a determination to the assessor relating to a change in ownership statement, and that the board and the assessor are not required to hold these facts secret. This bill would also provide that the disclosure by the board or the assessor that such a change in ownership statement has been filed, where the filing was prompted by information collected by the Franchise Tax Board from the property tax query on the taxpayers state income tax return, does not violate the confidentiality of taxpayer return information.
Existing law requires, upon a change in control or change in ownership of a legal entity that owns an interest in real property in this state, or when requested by the State Board of Equalization, that the person or legal entity acquiring ownership control, or the legal entity that has undergone a change in ownership, file a change in ownership statement with the board, as specified, listing all counties in which the legal entity owns real property. Existing law requires all information requested by the assessor or the board regarding change in ownership reporting or furnished in a change in ownership statement to be held secret, except as specifically provided.
This bill would provide that information requested or furnished in a change in ownership statement, with respect to a legal entity and its real property does not include the fact that a change in ownership statement has been filed with the board or that the board has issued a determination to the assessor relating to a change in ownership statement, and that the board and the assessor are not required to hold these facts secret. This bill would also provide that the disclosure by the board or the assessor that such a change in ownership statement has been filed, where the filing was prompted by information collected by the Franchise Tax Board from the property tax query on the taxpayers state income tax return, does not violate the confidentiality of taxpayer return information.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act exempts patients and their designated primary caregivers who possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician from specified criminal laws.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis cardholders are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth in Section 10 of this act.
SEC. 2.Section 19323 of the Business and Professions Code, as amended by Chapter 32 of the Statutes of 2016, is amended to read:19323.(a)A licensing authority shall deny an application if the applicant or the premises for which a state license is applied does not qualify for licensure under this chapter or the rules and regulations for the state license.
(b)A licensing authority may deny an application for licensure or renewal of a state license, or issue a conditional license, if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including, but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)The applicant has failed to provide information required by the licensing authority.
(4)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(5)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(6)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(7)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(8)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(9)The applicant or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
(10)Conduct that constitutes grounds for disciplinary action pursuant to this chapter.
(c)The licensing authority shall suspend or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code.
SEC. 2.5.Section 19323 of the Business and Professions Code, as amended by Chapter 32 of the Statutes of 2016, is amended to read:19323.(a)A licensing authority shall deny an application if the applicant or the premises for which a state license is applied does not qualify for licensure under this chapter or the rules and regulations for the state license.
(b)A licensing authority may deny an application for licensure or renewal of a state license, or issue a conditional license, if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including, but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)The applicant has failed to provide information required by the licensing authority.
(4)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(5)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(6)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(7)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(8)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(9)The applicant or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
(10)Conduct that constitutes grounds for disciplinary action pursuant to this chapter.
(c)The licensing authority shall suspend or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code.
(d)On and after July 1, 2018, the licensing authority shall deny an application of an applicant with 20 or more employees unless the applicant attests on the application that the applicant will implement an employee training program approved by the licensing authority within one year of licensure, pursuant to Section 19326.5.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, inclusive. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), or upon any other nonreporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty, the board may impose penalties at a rate that is double the rate of penalties described in law and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Does both of the following:
(i)Reports a gross understatement of tax.
(ii)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(2)Notwithstanding any other law, the Department of Consumer Affairs shall suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the board issues a deficiency determination upon a return filed pursuant to subdivision (a) of Section 7077.3 and the qualified taxpayer does both of the following:
(A)Reports a gross understatement of tax.
(B)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(3)Suspension or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of suspension or refusal, mails a notice to the qualified taxpayer that indicates that the license will be suspended or refused by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
7077.6.The board may refuse to issue a permit to any person, pursuant to the provisions applicable to the refusal to issue a permit as set forth in Section 6070.5, or may revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program.
SEC. 11.The Legislature finds and declares that Section 10 of this act, establishing the medical cannabis tax penalty amnesty program by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, serves a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
SEC. 12.Section 2.5 of this bill incorporates amendments to Section 19323 of the Business and Professions Code proposed by both this bill and Assembly Bill 26. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2017, (2) each bill amends Section 19323 of the Business and Professions Code, and (3) this bill is enacted after Assembly Bill 26, in which case Section 2 of this bill shall not become operative.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act exempts patients and their designated primary caregivers who possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician from specified criminal laws.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis cardholders are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth in Section 10 of this act.
SEC. 2.Section 19323 of the Business and Professions Code Code, is as amended by Chapter 32 of the Statutes of 2016, is amended to read:19323.(a)A licensing authority shall deny an application if the applicant or the premises for which a state license is applied does not qualify for licensure under this chapter or the rules and regulations for the state license.
(b)A licensing authority may deny an application for licensure or renewal of a state license, or issue a conditional license, if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including including, but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)The applicant has failed to provide information required by the licensing authority.
(4)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(5)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(6)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(7)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(8)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(9)The applicant or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
(10)Conduct that constitutes grounds for disciplinary action pursuant to this chapter.
(c)The licensing authority shall suspend or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code.
SEC. 2.5.Section 19323 of the Business and Professions Code, as amended by Chapter 32 of the Statutes of 2016, is amended to read:19323.(a)A licensing authority shall deny an application if the applicant or the premises for which a state license is applied does not qualify for licensure under this chapter or the rules and regulations for the state license.
(b)A licensing authority may deny an application for licensure or renewal of a state license, or issue a conditional license, if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including including, but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)The applicant has failed to provide information required by the licensing authority.
(4)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(5)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(6)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(7)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(8)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(9)The applicant or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
(10)Conduct that constitutes grounds for disciplinary action pursuant to this chapter.
(c)The licensing authority shall suspend or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code.
(d)On and after July 1, 2018, the licensing authority shall deny an application of an applicant with 20 or more employees unless the applicant attests on the application that the applicant will implement an employee training program approved by the licensing authority within one year of licensure, pursuant to Section 19326.5.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, inclusive. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), or upon any other nonreporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty, the board may impose penalties at a rate that is double the rate of penalties described in law and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Does both of the following:
(i)Reports a gross understatement of tax.
(ii)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(2)Notwithstanding any other law, the Department of Consumer Affairs shall suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the board issues a deficiency determination upon a return filed pursuant to subdivision (a) of Section 7077.3 and the qualified taxpayer does both of the following:
(A)Reports a gross understatement of tax.
(B)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(3)Suspension or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of suspension or refusal, mails a notice to the qualified taxpayer that indicates that the license will be suspended or refused by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
7077.6.The board may refuse to issue a permit to any person, pursuant to the provisions applicable to the refusal to issue a permit as set forth in Section 6070.5, or may revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program.
SEC. 11.The Legislature finds and declares that Section 10 of this act, establishing the medical cannabis tax penalty amnesty program by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, serves a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore does not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
SEC. 12.Section 2.5 of this bill incorporates amendments to Section 19323 of the Business and Professions Code proposed by both this bill and Assembly Bill 26. It shall only become operative if (1) both bills are enacted and become effective on or before January 1, 2017, (2) each bill amends Section 19323 of the Business and Professions Code, and (3) this bill is enacted after Assembly Bill 26, in which case Section 2 of this bill shall not become operative.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act exempts patients and their designated primary caregivers who possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician from specified criminal laws.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis patients cardholders are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. At a minimum, this prohibition will remain in effect for the rest of the federal fiscal year that ends September 30, 2015. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth below. in Section 10 of this act.
SEC. 2.Section 19323 of the Business and Professions Code is amended to read:19323.(a)The licensing authority shall deny an application if either the applicant or the premises for which a state license is applied do not qualify for licensure under this chapter.
(b)The licensing authority may deny the application for licensure or renewal of a state license if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)A local agency has notified the licensing authority that a licensee or applicant within its jurisdiction is in violation of state rules and regulation relating to commercial cannabis activities, and the licensing authority, through an investigation, has determined that the violation is grounds for termination or revocation of the license. The licensing authority shall have the authority to collect reasonable costs, as determined by the licensing authority, for investigation from the licensee or applicant.
(4)The applicant has failed to provide information required by the licensing authority.
(5)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(6)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(7)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(8)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial medical cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(9)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(c)The licensing authority shall revoke or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code and Section 18744 of the Unemployment Insurance Code.
SEC. 2.Section 19323 of the Business and Professions Code is amended to read:19323.(a)A licensing authority shall deny an application if the applicant or the premises for which a state license is applied does not qualify for licensure under this chapter or the rules and regulations for the state license.
(b)A licensing authority may deny an application for licensure or renewal of a state license, or issue a conditional license, if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)The applicant has failed to provide information required by the licensing authority.
(4)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(5)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(6)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(7)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(8)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(9)The applicant or any of its officers, directors, owners, employees, or authorized agents have failed to comply with any operating procedure required pursuant to subdivision (b) of Section 19322.
(10)Conduct that constitutes grounds for disciplinary action pursuant to this chapter.
(c)The licensing authority shall suspend or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a three-month six-month period beginning July 1, 2017, through September 30, December 31, 2017, inclusive. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), or upon any other nonreporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty, the board may impose penalties, penalties at a rate that is double the rate of penalties described in law and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall revoke suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Does both of the following:
(C)
(i)Reports a gross understatement of tax.
(ii)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(2)Notwithstanding any other law, the Department of Consumer Affairs shall suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the board issues a deficiency determination upon a return filed pursuant to subdivision (a) of Section 7077.3 and the qualified taxpayer does both of the following:
(A)Reports a gross understatement of tax.
(B)Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
(2)Revocation
(3)Suspension or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of revocation suspension or refusal, mails a notice to the qualified taxpayer that indicates that the license will be suspended or refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
7077.6.The board shall may refuse to issue a permit to any person person, pursuant to the provisions applicable to the refusal to issue a permit as set forth in Section 6070.5, or shall may revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Employment Development Department.
SEC. 11.Division 11 (commencing with Section 18740) is added to the Unemployment Insurance Code, to read:11.Medical Cannabis Tax Amnesty18740.The department shall develop and administer a tax penalty amnesty program for qualified employers.
18740.5.For purposes of this division, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 18741.
(b)Department means the Employment Development Department.
(c)Employment taxes or taxes means the unemployment insurance tax and employment training tax imposed under Part 1 (commencing with Section 100) of Division 1, state disability insurance tax imposed under Part 2 (commencing with Section 2601) of Division 1, and personal income tax withholding imposed under Division 6 (commencing with Section 13000).
(d)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(e)Person has the meaning set forth in Section 6005 of the Revenue and Taxation Code.
(f)Qualified employer means an employer or employing unit that is a medical cannabis-related business subject to Part 1 (commencing with Section 100) of Division 1, Part 2 (commencing with Section 2601) of Division 1, or Division 6 (commencing with Section 13000).
18741.The tax penalty amnesty program shall be conducted for a three-month period beginning July 1, 2017, through September 30, 2017, inclusive. The program shall apply only to amounts unpaid for the periods beginning before January 1, 2015.
18742.(a)For any qualified employer that meets the requirements of Section 18743, both of the following shall apply:
(1)The department shall waive all penalties imposed by this code, for the tax reporting periods for which tax penalty amnesty is requested, which are owed as a result of the nonpayment or underpayment of employment tax liabilities or failure to file reports.
(2)No criminal action shall be brought against the qualified employer, for the tax reporting periods for which tax penalty amnesty is requested, for the nonreporting or underreporting of tax liabilities.
(b)This section does not apply to violations of this code for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified employer is on notice of a criminal investigation by a complaint having been filed against the qualified employer or by written notice having been mailed to the qualified employer that the qualified employer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified employer makes a request for tax penalty amnesty pursuant to Section 18743.
18743.(a)This division applies to any qualified employer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files quarterly contribution returns and reports reporting the nonreported or underreported wages and taxes for the calendar quarter that ended December 31, 2014, and prior calendar quarters, for which amnesty is being applied.
(2)Pays in full all amounts due for all periods for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The department may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified employer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the department determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the department issues a deficiency assessment upon a return filed pursuant to subdivision (a), the department may impose penalties and criminal action may be brought under this division only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 18742.
(d)If the department issues a deficiency assessment under the conditions described in subdivision (c), the department may issue that deficiency assessment within 10 years from the last day of the calendar month following the quarterly period for which the amount is proposed to be assessed.
(e)The application required under subdivision (a) shall be in the form and manner specified by the department, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this division, be deemed to constitute an acceptable amnesty application under this division. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this division.
18744.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall revoke or refuse to issue, reinstate, or renew a state license of a qualified employer that is eligible to participate in the tax penalty amnesty program under this division but does not participate in the amnesty program, and that does either of the following:
(A)Fails to register with the department.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of revocation or refusal, mails a notice to the qualified employer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified employers return filed pursuant to this code.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
18746.The department shall issue forms and instructions and take other actions needed to implement this division.
18747.The department shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The department shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this division with similar programs administered by the State Board of Equalization.
SEC. 12.SEC. 11.The Legislature finds and declares that Sections 10 and 11 Section 10 of this act, establishing the medical cannabis-related business cannabis tax penalty programs amnesty program by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code and adding Division 11 (commencing with Section 18740) to the Unemployment Insurance Code, serve Code, serves a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore do does not constitute gifts a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act exempts patients and their designated primary caregivers who possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician from specified criminal laws.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis patients are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. At a minimum, this prohibition will remain in effect for the rest of the federal fiscal year that ends September 30, 2015. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth below.
SEC. 2.Section 19323 of the Business and Professions Code is amended to read:19323.(a)The licensing authority shall deny an application if either the applicant or the premises for which a state license is applied do not qualify for licensure under this chapter.
(b)The licensing authority may deny the application for licensure or renewal of a state license if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)A local agency has notified the licensing authority that a licensee or applicant within its jurisdiction is in violation of state rules and regulation relating to commercial cannabis activities, and the licensing authority, through an investigation, has determined that the violation is grounds for termination or revocation of the license. The licensing authority shall have the authority to collect reasonable costs, as determined by the licensing authority, for investigation from the licensee or applicant.
(4)The applicant has failed to provide information required by the licensing authority.
(5)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(6)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(7)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(8)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial medical cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(9)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(c)The licensing authority shall revoke or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code and Section 18744 of the Unemployment Insurance Code.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a six-month three-month period beginning July 1, 2017, through September 31, 30, 2017, inclusive. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), the board may impose penalties, and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall revoke or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
7077.6.The board shall refuse to issue a permit to any person or shall revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Employment Development Department.
SEC. 11.Division 11 (commencing with Section 18740) is added to the Unemployment Insurance Code, to read:11.Medical Cannabis Tax Amnesty18740.The department shall develop and administer a tax penalty amnesty program for qualified employers.
18740.5.For purposes of this division, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 18741.
(b)Department means the Employment Development Department.
(c)Employment taxes or taxes means the unemployment insurance tax and employment training tax imposed under Part 1 (commencing with Section 100) of Division 1, state disability insurance tax imposed under Part 2 (commencing with Section 2601) of Division 1, and personal income tax withholding imposed under Division 6 (commencing with Section 13000).
(d)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(e)Person has the meaning set forth in Section 6005 of the Revenue and Taxation Code.
(f)Qualified employer means an employer or employing unit that is a medical cannabis-related business subject to Part 1 (commencing with Section 100) of Division 1, Part 2 (commencing with Section 2601) of Division 1, or Division 6 (commencing with Section 13000).
18741.The tax penalty amnesty program shall be conducted for a six-month three-month period beginning July 1, 2017, through September 30, 2017, inclusive. The program shall apply only to amounts unpaid for the periods beginning before January 1, 2015.
18742.(a)For any qualified employer that meets the requirements of Section 18743, both of the following shall apply:
(1)The department shall waive all penalties imposed by this code, for the tax reporting periods for which tax penalty amnesty is requested, which are owed as a result of the nonpayment or underpayment of employment tax liabilities or failure to file reports.
(2)No criminal action shall be brought against the qualified employer, for the tax reporting periods for which tax penalty amnesty is requested, for the nonreporting or underreporting of tax liabilities.
(b)This section does not apply to violations of this code for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified employer is on notice of a criminal investigation by a complaint having been filed against the qualified employer or by written notice having been mailed to the qualified employer that the qualified employer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified employer makes a request for tax penalty amnesty pursuant to Section 18743.
18743.(a)This division applies to any qualified employer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files quarterly contribution returns and reports reporting the nonreported or underreported wages and taxes for the calendar quarter that ended December 31, 2013, 2014, and prior calendar quarters, for which amnesty is being applied.
(2)Pays in full all amounts due for all periods for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The department may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified employer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the department determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the department issues a deficiency assessment upon a return filed pursuant to subdivision (a), the department may impose penalties and criminal action may be brought under this division only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 18742.
(d)If the department issues a deficiency assessment under the conditions described in subdivision (c), the department may issue that deficiency assessment within 10 years from the last day of the calendar month following the quarterly period for which the amount is proposed to be assessed.
(e)The application required under subdivision (a) shall be in the form and manner specified by the department, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this division, be deemed to constitute an acceptable amnesty application under this division. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this division.
18744.(a)(1)Notwithstanding any other law, the Department of Consumer Affairs shall revoke or refuse to issue, reinstate, or renew a state license of a qualified employer that is eligible to participate in the tax penalty amnesty program under this division but does not participate in the amnesty program, and that does either of the following:
(A)Fails to register with the department.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state license pursuant to paragraph (1) shall not be effective unless the Department of Consumer Affairs, at least 60 days before the date of revocation or refusal, mails a notice to the qualified employer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified employers return filed pursuant to this code.
(2)State license includes a license issued for any activity of a medical cannabis-related business.
18746.The department shall issue forms and instructions and take other actions needed to implement this division.
18747.The department shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The department shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this division with similar programs administered by the State Board of Equalization.
SEC. 12.The Legislature finds and declares that Sections 10 and 11 of this act, establishing medical cannabis-related business tax penalty programs by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code and adding Division 11 (commencing with Section 18740) to the Unemployment Insurance Code, serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act authorizes exempts patients and their designated primary caregivers to who possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician. physician from specified criminal laws.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis patients are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. At a minimum, this prohibition will remain in effect for the rest of the federal fiscal year that ends September 30, 2015. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left medical cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth below.
SEC. 2.Section 11362.6 is added to the Health and Safety Code, immediately following Section 11362.5, to read:11362.6.(a)Any dispensary that employs or uses the services of any person under 21 years of age for the sale or delivery of medical cannabis or medical cannabis products shall be subject to suspension or revocation of the dispensarys state or local medical cannabis license or drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
(b)A person shall not sell, distribute, provide, or donate medical cannabis or medical cannabis products to a qualified patient or caregiver other than at a licensed dispensing facility or through a licensed dispensing facilitys delivery service.
(c)All mobile, vehicular, or technology platforms that enable qualified patients or primary caregivers to arrange for any delivery with a third party are prohibited.
(d)For purposes of this section, the following terms have the following meanings:
(1)Delivery means the commercial transfer of medical cannabis or medical cannabis products from a dispensary to a primary caregiver or qualified patient.
(2)Delivery service means a dispensary that makes a delivery.
(3)Dispensary means a physical retail establishment that operates from a fixed location. Dispensary includes mobile deliveries originating from a fixed location that makes retail sales of medical cannabis or medical cannabis products.
(4)Primary caregiver has the meaning provided in Section 11362.7
(5)Qualified patient has the meaning provided in Section 11362.7.
SEC. 2.Section 19323 of the Business and Professions Code is amended to read:19323.(a)The licensing authority shall deny an application if either the applicant or the premises for which a state license is applied do not qualify for licensure under this chapter.
(b)The licensing authority may deny the application for licensure or renewal of a state license if any of the following conditions apply:
(1)Failure to comply with the provisions of this chapter or any rule or regulation adopted pursuant to this chapter, including but not limited to, any requirement imposed to protect natural resources, instream flow, and water quality pursuant to subdivision (a) of Section 19332.
(2)Conduct that constitutes grounds for denial of licensure pursuant to Chapter 2 (commencing with Section 480) of Division 1.5.
(3)A local agency has notified the licensing authority that a licensee or applicant within its jurisdiction is in violation of state rules and regulation relating to commercial cannabis activities, and the licensing authority, through an investigation, has determined that the violation is grounds for termination or revocation of the license. The licensing authority shall have the authority to collect reasonable costs, as determined by the licensing authority, for investigation from the licensee or applicant.
(4)The applicant has failed to provide information required by the licensing authority.
(5)The applicant or licensee has been convicted of an offense that is substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, except that if the licensing authority determines that the applicant or licensee is otherwise suitable to be issued a license and granting the license would not compromise public safety, the licensing authority shall conduct a thorough review of the nature of the crime, conviction, circumstances, and evidence of rehabilitation of the applicant, and shall evaluate the suitability of the applicant or licensee to be issued a license based on the evidence found through the review. In determining which offenses are substantially related to the qualifications, functions, or duties of the business or profession for which the application is made, the licensing authority shall include, but not be limited to, the following:
(A)A felony conviction for the illegal possession for sale, sale, manufacture, transportation, or cultivation of a controlled substance.
(B)A violent felony conviction, as specified in subdivision (c) of Section 667.5 of the Penal Code.
(C)A serious felony conviction, as specified in subdivision (c) of Section 1192.7 of the Penal Code.
(D)A felony conviction involving fraud, deceit, or embezzlement.
(6)The applicant, or any of its officers, directors, or owners, is a licensed physician making patient recommendations for medical cannabis pursuant to Section 11362.7 of the Health and Safety Code.
(7)The applicant or any of its officers, directors, or owners has been subject to fines or penalties for cultivation or production of a controlled substance on public or private lands pursuant to Section 12025 or 12025.1 of the Fish and Game Code.
(8)The applicant, or any of its officers, directors, or owners, has been sanctioned by a licensing authority or a city, county, or city and county for unlicensed commercial medical cannabis activities or has had a license revoked under this chapter in the three years immediately preceding the date the application is filed with the licensing authority.
(9)Failure to obtain and maintain a valid sellers permit required pursuant to Part 1 (commencing with Section 6001) of Division 2 of the Revenue and Taxation Code.
(c)The licensing authority shall revoke or refuse to issue, reinstate, or renew a state license pursuant to Section 7077.4 of the Revenue and Taxation Code and Section 18744 of the Unemployment Insurance Code.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 1, 2016. July 1, 2017, through September 31, 2017, inclusive. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2014. 2015.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), the board may impose penalties, and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, a licensing authority the Department of Consumer Affairs shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, Department of Consumer Affairs, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State or local license includes a license issued for any activity of a medical cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code. business.
7077.6.The board shall refuse to issue a permit to any person or shall revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board and the Employment Development Department.
SEC. 11.Chapter 9.2 (commencing with Section 19740) is added to Part 10.2 of Division 2 of the Revenue and Taxation Code, to read:9.2.Medical Cannabis Tax Amnesty19740.The Franchise Tax Board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
19740.5.For the purposes of this chapter, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 19741.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a taxpayer with unreported income from a medical cannabis-related business subject to Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001).
19741.The tax penalty amnesty program shall be conducted during a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 31, 2016. The program shall apply to tax liabilities for taxable years beginning before January 1, 2014.
19742.(a)For any qualified taxpayer that meets all of the requirements of Section 19743, both of the following apply:
(1)The Franchise Tax Board shall waive all unpaid penalties and fees imposed by this part for each taxable year for which tax penalty amnesty is allowed, but only to the extent of the amount of any penalty or fee that is owed as a result of previous nonreporting or underreporting of tax liabilities or nonpayment of any taxes previously assessed.
(2)No criminal action shall be brought against the qualified taxpayer for each taxable year for which tax penalty amnesty is allowed for the nonreporting or underreporting of tax liabilities or the nonpayment of any taxes previously assessed or proposed to be assessed.
(b)This chapter does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted with respect to any penalty or fee paid with respect to a taxable year prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 19743.
(d)Notwithstanding Chapter 6 (commencing with Section 19301), a qualified taxpayer shall not file a claim for refund or credit for any amounts paid in connection with the tax penalty amnesty program under this chapter.
19743.(a)This chapter applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns for all years for which the qualified taxpayer has not previously filed a tax return and files completed amended returns for all years for which the qualified taxpayer underreported the qualified taxpayers income.
(2)Pays in full any taxes and interest due for each taxable year described in paragraph (1), as applicable, for which amnesty is requested, or applies for an installment payment agreement under subdivision (b). For qualified taxpayers that have not paid in full any taxes previously proposed to be assessed, pays in full the taxes and interest due for that portion of the proposed assessment for each taxable year for which amnesty is requested or applies for an installment payment agreement under subdivision (b).
(b)(1)For purposes of complying with the full payment provisions of paragraph (2) of subdivision (a), the Franchise Tax Board may enter into an installment payment agreement, which shall include interest on the outstanding amount due at the rate prescribed in Section 19521.
(2)Failure by the qualified taxpayer to fully comply with the terms of an installment payment agreement under this subdivision shall render the waiver of penalties and fees under Section 19742 null and void, unless the Franchise Tax Board determines that the failure was due to reasonable cause and not due to willful neglect.
(3)In the case of any failure described under paragraph (2), the total amount of tax, interest, fees, and all penalties shall become immediately due and payable.
(c)The application required under subdivision (a) shall be in the form and manner specified by the Franchise Tax Board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any taxable year otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the prior sentence, the application of a refund from one taxable year to offset a tax liability from another taxable year otherwise eligible for amnesty shall not, without the filing of an amnesty application, be deemed to constitute an acceptable amnesty application under this part.
(d)The Legislature specifically intends that the Franchise Tax Board, in administering the amnesty application requirement under this part, make the amnesty application process as streamlined as possible to ensure participation in the amnesty program will be available to as many qualified taxpayers as possible without otherwise compromising the Franchise Tax Boards ability to enforce and collect the taxes imposed under Part 10 (commencing with Section 17001) and Part 11 (commencing with Section 23001).
(e)Upon the conclusion of the amnesty period, the Franchise Tax Board may propose a deficiency upon any return filed pursuant to subdivision (a), impose penalties and fees, or initiate criminal action under this part with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers previously granted under Section 19742.
(f)All revenues derived pursuant to subdivision (c) shall be subject to Sections 19602 and 19604.
19744.(a)(1)Notwithstanding any other law, a licensing authority shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this chapter but does not participate in the amnesty program, and that does either of the following:
(A)Fails to file returns with the Franchise Tax Board.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Section 18633 or 18633.5, Article 1 (commencing with Section 18501) or Article 2 (commencing with Section 18601) of Chapter 2, or Article 3 (commencing with Section 23771) of Chapter 4 of Part 11.
(2)State or local license includes a license issued for any activity of a cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
19746.(a)The Franchise Tax Board may issue forms, instructions, notices, rules, or guidelines, and take any other necessary actions needed to implement this chapter, specifically including any forms, instructions, notices, rules, or guidelines that specify the form and manner of any acceptable form of amnesty application described in Section 19743.
(b)Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this chapter.
19747.(a)The Franchise Tax Board shall conduct a public outreach program and adequately publicize the tax penalty amnesty program for qualified taxpayers with income from medical cannabis-related businesses so as to maximize public awareness and make qualified taxpayers aware of the program. The Franchise Tax Board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this chapter with similar programs administered by the State Board of Equalization and the Employment Development Department.
SEC. 12.SEC. 11.Division 11 (commencing with Section 18740) is added to the Unemployment Insurance Code, to read:11.Medical Cannabis Tax Amnesty18740.The department shall develop and administer a tax penalty amnesty program for qualified employers.
18740.5.For purposes of this division, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 18741.
(b)Department means the Employment Development Department.
(c)Employment taxes or taxes means the unemployment insurance tax and employment training tax imposed under Part 1 (commencing with Section 100) of Division 1, state disability insurance tax imposed under Part 2 (commencing with Section 2601) of Division 1, and personal income tax withholding imposed under Division 6 (commencing with Section 13000).
(d)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(e)Person has the meaning set forth in Section 6005 of the Revenue and Taxation Code.
(f)Qualified employer means an employer or employing unit that is a medical cannabis-related business subject to Part 1 (commencing with Section 100) of Division 1, Part 2 (commencing with Section 2601) of Division 1, or Division 6 (commencing with Section 13000).
18741.The tax penalty amnesty program shall be conducted for a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 31, 2016. July 1, 2017, through September 30, 2017, inclusive. The program shall apply only to amounts unpaid for the periods beginning before January 1, 2014. 2015.
18742.(a)For any qualified employer that meets the requirements of Section 18743, both of the following shall apply:
(1)The department shall waive all penalties imposed by this code, for the tax reporting periods for which tax penalty amnesty is requested, which are owed as a result of the nonpayment or underpayment of employment tax liabilities or failure to file reports.
(2)No criminal action shall be brought against the qualified employer, for the tax reporting periods for which tax penalty amnesty is requested, for the nonreporting or underreporting of tax liabilities.
(b)This section does not apply to violations of this code for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified employer is on notice of a criminal investigation by a complaint having been filed against the qualified employer or by written notice having been mailed to the qualified employer that the qualified employer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified employer makes a request for tax penalty amnesty pursuant to Section 18743.
18743.(a)This division applies to any qualified employer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files quarterly contribution returns and reports reporting the nonreported or underreported wages and taxes for the calendar quarter that ended December 31, 2013, and prior calendar quarters, for which amnesty is being applied.
(2)Pays in full all amounts due for all periods for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The department may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified employer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the department determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the department issues a deficiency assessment upon a return filed pursuant to subdivision (a), the department may impose penalties and criminal action may be brought under this division only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 18742.
(d)If the department issues a deficiency assessment under the conditions described in subdivision (c), the department may issue that deficiency assessment within 10 years from the last day of the calendar month following the quarterly period for which the amount is proposed to be assessed.
(e)The application required under subdivision (a) shall be in the form and manner specified by the department, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this division, be deemed to constitute an acceptable amnesty application under this division. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this division.
18744.(a)(1)Notwithstanding any other law, a licensing authority the Department of Consumer Affairs shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified employer that is eligible to participate in the tax penalty amnesty program under this division but does not participate in the amnesty program, and that does either of the following:
(A)Fails to register with the department.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, Department of Consumer Affairs, at least 60 days before the date of revocation or refusal, mails a notice to the qualified employer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified employers return filed pursuant to this code.
(2)State or local license includes a license issued for any activity of a medical cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code. business.
18746.The department shall issue forms and instructions and take other actions needed to implement this division.
18747.The department shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The department shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this division with similar programs administered by the State Board of Equalization and the Franchise Tax Board. Equalization.
SEC. 13.SEC. 12.The Legislature finds and declares that Sections 10, 11, and 12 10 and 11 of this act, establishing medical cannabis-related business tax penalty programs by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of, and Chapter 9.2 (commencing with Section 19740) to Part 10.2 of Division 2 of, of the Revenue and Taxation Code, Code and adding Division 11 (commencing with Section 18740) to the Unemployment Insurance Code Code, serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations, obligations and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
SEC. 14.If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
The Legislature finds and declares all of the following:
(a)The voters of the State of California enacted the Compassionate Use Act of 1996, which became effective on November 6, 1996, as Section 11362.5 of the Health and Safety Code. The act authorizes patients and their designated primary caregivers to possess and cultivate cannabis for personal medical use upon recommendation or approval of a physician.
(b)In 2004, the Legislature and Governor refined the Compassionate Use Act through SB 420, which added Sections 11362.7 to 11362.83, inclusive, to the Health and Safety Code, allows the formation of medical cultivation collectives or cooperatives, and provides for a voluntary state identification card system for medical cannabis patients. SB 420 also limits the amount of medical cannabis patients are allowed to possess and cultivate.
(c)However, the sale of any cannabis still remains illegal under federal law. At the federal level, marijuana remains classified as a Schedule I substance under the Controlled Substances Act. Schedule I substances are defined as drugs with no currently accepted medical use and a high potential for abuse.
(d)In August 2013, the United States Department of Justice issued the Cole Memo to federal prosecutors, which established priorities for federal prosecution of cannabis-related activities under the Controlled Substances Act. The memo indicated that states with a strong regulatory framework for legalized recreational or medical cannabis that supports those priorities would make federal involvement in local jurisdictions less likely.
(e)In February 2014, the United States Department of the Treasurys Financial Crimes Enforcement Network (FinCEN) issued guidance to financial institutions setting forth FinCENs Bank Secrecy Act expectations for financial institutions choosing to work with cannabis-related businesses.
(f)A federal spending bill passed in late 2014 prohibits the use of United States Department of Justice funds to prevent states, including California, that authorize the use, distribution, possession, or cultivation of cannabis for medical use from implementing laws related to these activities. At a minimum, this prohibition will remain in effect for the rest of the federal fiscal year that ends September 30, 2015. Various other federal legislative proposals to loosen federal restrictions on the cultivation, possession, and sale of cannabis in states where it is legal are also pending.
(g)Despite this identified federal guidance, the uncertainty created by state and federal differences has left cannabis-related businesses with the fear that compliance with state tax laws could lead to federal prosecution. Thus, many of these businesses have been noncompliant since their inception, and would owe massive penalties and interest if they were to come into compliance.
(h)It is the intent of the Legislature to further the public purposes of preventing undue hardship on cannabis-related businesses and providing a strong incentive, the relief of penalties, for those businesses to come forward and pay the taxes and interest that they owe. In furtherance of this intent, the Legislature hereby enacts the Medical Cannabis Tax Amnesty Act as set forth below.
SEC. 2.Section 11362.6 is added to the Health and Safety Code, immediately following Section 11362.5, to read:11362.6.(a)Any dispensary that employs or uses the services of any person under 21 years of age for the sale or delivery of medical cannabis or medical cannabis products shall be subject to suspension or revocation of the dispensarys state or local medical cannabis license or drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
(b)A person shall not sell, distribute, provide, or donate medical cannabis or medical cannabis products to a qualified patient or caregiver other than at a licensed dispensing facility or through a licensed dispensing facilitys delivery service.
(c)All mobile, vehicular, or technology platforms that enable qualified patients or primary caregivers to arrange for any delivery with a third party are prohibited.
(d)For purposes of this section, the following terms have the following meanings:
(1)Delivery means the commercial transfer of medical cannabis or medical cannabis products from a dispensary to a primary caregiver or qualified patient.
(2)Delivery service means a dispensary that makes a delivery.
(3)Dispensary means a physical retail establishment that operates from a fixed location. Dispensary includes mobile deliveries originating from a fixed location that makes retail sales of medical cannabis or medical cannabis products.
(4)Primary caregiver has the meaning provided in Section 11362.7
(5)Qualified patient has the meaning provided in Section 11362.7.
SEC. 3.Section 7076 of the Revenue and Taxation Code, as added by Section 1 of Chapter 87 of the Statutes of 2003, is amended and renumbered to read:7076.7079.(a)The State Board of Equalization shall determine which taxpayers accounts are eligible for the managed audit program in a manner that is consistent with the efficient use of its auditing resources and the maximum effectiveness of the program.
(b)A taxpayer is not required to participate in the managed audit program.
SEC. 4.Section 7076.1 of the Revenue and Taxation Code is amended and renumbered to read:7076.1.7079.1.A taxpayers account is eligible for the managed audit program only if the taxpayer meets all of the following criteria:
(a)The taxpayers business involves few or no statutory exemptions.
(b)The taxpayers business involves a single or small number of clearly defined taxability issues.
(c)The taxpayer is taxed pursuant to this part and agrees to participate in the managed audit program.
(d)The taxpayer has the resources to comply with the managed audit instructions provided by the board.
SEC. 5.Section 7076.2 of the Revenue and Taxation Code is amended and renumbered to read:7076.2.7079.2.(a)If the board selects a taxpayers account for a managed audit, all of the following apply:
(1)The board shall identify all of the following:
(A)The audit period covered by the managed audit.
(B)The types of transactions covered by the managed audit.
(C)The specific procedures that the taxpayer is to follow in determining any liability.
(D)The records to be reviewed by the taxpayer.
(E)The manner in which the types of transactions are to be scheduled for review.
(F)The time period for completion of the managed audit.
(G)The time period for the payment of the liability and interest.
(H)Any other criteria that the board may require for completion of the managed audit.
(2)The taxpayer shall:
(A)Examine its books, records, and equipment to determine if it has any unreported tax liability for the audit period.
(B)Make available to the board for verification all computations, books, records, and equipment examined pursuant to subparagraph (A).
(b)The information provided by the taxpayer pursuant to paragraph (2) of subdivision (a) is the same information that is required for the completion of any other audit that the board may conduct.
SEC. 6.Section 7076.3 of the Revenue and Taxation Code is amended and renumbered to read:7076.3.7079.3.Nothing in this article limits the boards authority to examine the books, papers, records, and equipment of a taxpayer under Section 7054.
SEC. 7.Section 7076.4 of the Revenue and Taxation Code is amended and renumbered to read:7076.4.7079.4.Upon completion of the managed audit and verification by the board, interest on any unpaid liability shall be computed at one-half the rate that would otherwise be imposed for liabilities covered by the audit period. Payment of the liabilities and interest shall be made within the time period specified by the board. If the requirements for the managed audit are not satisfied, the board may proceed to examine the records of the taxpayer in a manner to be determined by the board under law.
SEC. 8.Section 7077 of the Revenue and Taxation Code is amended and renumbered to read:7077.7076.3.The board shall adequately publicize the tax penalty amnesty program so as to maximize public awareness of the participation in the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board.
SEC. 9.Section 7078 of the Revenue and Taxation Code is amended and renumbered to read:7078.7076.5.Subdivision (b) of Section 19736, to the extent feasible and practical, shall also apply to the board.
SEC. 10.Article 2.1 (commencing with Section 7077) is added to Chapter 8 of Part 1 of Division 2 of the Revenue and Taxation Code, to read:2.1.Medical Cannabis Tax Amnesty7077.The board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
7077.05.For the purposes of this article, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 7077.1.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a seller that is a medical cannabis-related business.
7077.1.The tax penalty amnesty program shall be conducted for a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 1, 2016. The program shall apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2014.
7077.2.(a)For any qualified taxpayer that meets the requirements of Section 7077.3, all of the following shall apply:
(1)The board shall waive all penalties imposed by this part, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the nonreporting or underreporting of tax liabilities.
(2)No criminal action shall be brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the nonreporting or underreporting of tax liabilities.
(3)Paragraphs (1) and (2) do not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
(b)This section does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 7077.3.
7077.3.(a)This article applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
(2)Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The board may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the board issues a notice of determination upon a return filed pursuant to subdivision (a), the board may impose penalties, and criminal action may be brought under this part only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 7077.2.
(d)The application required under subdivision (a) shall be in the form and manner specified by the board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this part.
7077.4.(a)(1)Notwithstanding any other law, a licensing authority shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program, and that does any of the following:
(A)Fails to register with the board.
(B)Has a sellers permit revoked pursuant to Section 7077.6.
(C)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Article 1 (commencing with Section 6451) of Chapter 5.
(2)State or local license includes a license issued for any activity of a cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
7077.6.The board shall refuse to issue a permit to any person or shall revoke a sellers permit issued under this part for any person that is both of the following:
(a)Eligible to participate in the tax penalty amnesty program under this article but does not participate in the amnesty program.
(b)Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
7077.7.The board shall issue forms and instructions and take other actions needed to implement this article.
7077.8.The board shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the Franchise Tax Board and the Employment Development Department.
SEC. 11.Chapter 9.2 (commencing with Section 19740) is added to Part 10.2 of Division 2 of the Revenue and Taxation Code, to read:9.2.Medical Cannabis Tax Amnesty19740.The Franchise Tax Board shall develop and administer a tax penalty amnesty program for qualified taxpayers.
19740.5.For the purposes of this chapter, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 19741.
(b)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(c)Qualified taxpayer means a taxpayer with unreported income from a medical cannabis-related business subject to Part 10 (commencing with Section 17001) or Part 11 (commencing with Section 23001).
19741.The tax penalty amnesty program shall be conducted during a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 31, 2016. The program shall apply to tax liabilities for taxable years beginning before January 1, 2014.
19742.(a)For any qualified taxpayer that meets all of the requirements of Section 19743, both of the following apply:
(1)The Franchise Tax Board shall waive all unpaid penalties and fees imposed by this part for each taxable year for which tax penalty amnesty is allowed, but only to the extent of the amount of any penalty or fee that is owed as a result of previous nonreporting or underreporting of tax liabilities or nonpayment of any taxes previously assessed.
(2)No criminal action shall be brought against the qualified taxpayer for each taxable year for which tax penalty amnesty is allowed for the nonreporting or underreporting of tax liabilities or the nonpayment of any taxes previously assessed or proposed to be assessed.
(b)This chapter does not apply to violations of this part for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified taxpayer is on notice of a criminal investigation by a complaint having been filed against the qualified taxpayer or by written notice having been mailed to the qualified taxpayer that the qualified taxpayer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted with respect to any penalty or fee paid with respect to a taxable year prior to the time the qualified taxpayer makes a request for tax penalty amnesty pursuant to Section 19743.
(d)Notwithstanding Chapter 6 (commencing with Section 19301), a qualified taxpayer shall not file a claim for refund or credit for any amounts paid in connection with the tax penalty amnesty program under this chapter.
19743.(a)This chapter applies to any qualified taxpayer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files completed tax returns for all years for which the qualified taxpayer has not previously filed a tax return and files completed amended returns for all years for which the qualified taxpayer underreported the qualified taxpayers income.
(2)Pays in full any taxes and interest due for each taxable year described in paragraph (1), as applicable, for which amnesty is requested, or applies for an installment payment agreement under subdivision (b). For qualified taxpayers that have not paid in full any taxes previously proposed to be assessed, pays in full the taxes and interest due for that portion of the proposed assessment for each taxable year for which amnesty is requested or applies for an installment payment agreement under subdivision (b).
(b)(1)For purposes of complying with the full payment provisions of paragraph (2) of subdivision (a), the Franchise Tax Board may enter into an installment payment agreement, which shall include interest on the outstanding amount due at the rate prescribed in Section 19521.
(2)Failure by the qualified taxpayer to fully comply with the terms of an installment payment agreement under this subdivision shall render the waiver of penalties and fees under Section 19742 null and void, unless the Franchise Tax Board determines that the failure was due to reasonable cause and not due to willful neglect.
(3)In the case of any failure described under paragraph (2), the total amount of tax, interest, fees, and all penalties shall become immediately due and payable.
(c)The application required under subdivision (a) shall be in the form and manner specified by the Franchise Tax Board, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any taxable year otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application under this part. For purposes of the prior sentence, the application of a refund from one taxable year to offset a tax liability from another taxable year otherwise eligible for amnesty shall not, without the filing of an amnesty application, be deemed to constitute an acceptable amnesty application under this part.
(d)The Legislature specifically intends that the Franchise Tax Board, in administering the amnesty application requirement under this part, make the amnesty application process as streamlined as possible to ensure participation in the amnesty program will be available to as many qualified taxpayers as possible without otherwise compromising the Franchise Tax Boards ability to enforce and collect the taxes imposed under Part 10 (commencing with Section 17001) and Part 11 (commencing with Section 23001).
(e)Upon the conclusion of the amnesty period, the Franchise Tax Board may propose a deficiency upon any return filed pursuant to subdivision (a), impose penalties and fees, or initiate criminal action under this part with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers previously granted under Section 19742.
(f)All revenues derived pursuant to subdivision (c) shall be subject to Sections 19602 and 19604.
19744.(a)(1)Notwithstanding any other law, a licensing authority shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified taxpayer that is eligible to participate in the tax penalty amnesty program under this chapter but does not participate in the amnesty program, and that does either of the following:
(A)Fails to file returns with the Franchise Tax Board.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayers return filed pursuant to Section 18633 or 18633.5, Article 1 (commencing with Section 18501) or Article 2 (commencing with Section 18601) of Chapter 2, or Article 3 (commencing with Section 23771) of Chapter 4 of Part 11.
(2)State or local license includes a license issued for any activity of a cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
19746.(a)The Franchise Tax Board may issue forms, instructions, notices, rules, or guidelines, and take any other necessary actions needed to implement this chapter, specifically including any forms, instructions, notices, rules, or guidelines that specify the form and manner of any acceptable form of amnesty application described in Section 19743.
(b)Chapter 3.5 (commencing with Section 11340) of Part 1 of Division 3 of Title 2 of the Government Code does not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the Franchise Tax Board pursuant to this chapter.
19747.(a)The Franchise Tax Board shall conduct a public outreach program and adequately publicize the tax penalty amnesty program for qualified taxpayers with income from medical cannabis-related businesses so as to maximize public awareness and make qualified taxpayers aware of the program. The Franchise Tax Board shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this chapter with similar programs administered by the State Board of Equalization and the Employment Development Department.
SEC. 12.Division 11 (commencing with Section 18740) is added to the Unemployment Insurance Code, to read:11.Medical Cannabis Tax Amnesty18740.The department shall develop and administer a tax penalty amnesty program for qualified employers.
18740.5.For purposes of this division, the following terms have the following meanings:
(a)Amnesty period means the period during which the tax penalty amnesty program is conducted, as described in Section 18741.
(b)Department means the Employment Development Department.
(c)Employment taxes or taxes means the unemployment insurance tax and employment training tax imposed under Part 1 (commencing with Section 100) of Division 1, state disability insurance tax imposed under Part 2 (commencing with Section 2601) of Division 1, and personal income tax withholding imposed under Division 6 (commencing with Section 13000).
(d)Medical cannabis-related business means a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 (Section 11362.5 of the Health and Safety Code) or Article 2.5 (commencing with Section 11362.7) of Chapter 6 of Division 10 of the Health and Safety Code, commonly referred to as the Medical Marijuana Program.
(e)Person has the meaning set forth in Section 6005 of the Revenue and Taxation Code.
(f)Qualified employer means an employer or employing unit that is a medical cannabis-related business subject to Part 1 (commencing with Section 100) of Division 1, Part 2 (commencing with Section 2601) of Division 1, or Division 6 (commencing with Section 13000).
18741.The tax penalty amnesty program shall be conducted for a six-month period beginning April 1, 2016, through September 30, 2016, inclusive, or during a timeframe ending no later than December 31, 2016. The program shall apply only to amounts unpaid for the periods beginning before January 1, 2014.
18742.(a)For any qualified employer that meets the requirements of Section 18743, both of the following shall apply:
(1)The department shall waive all penalties imposed by this code, for the tax reporting periods for which tax penalty amnesty is requested, which are owed as a result of the nonpayment or underpayment of employment tax liabilities or failure to file reports.
(2)No criminal action shall be brought against the qualified employer, for the tax reporting periods for which tax penalty amnesty is requested, for the nonreporting or underreporting of tax liabilities.
(b)This section does not apply to violations of this code for which, as of the first day of the amnesty period, either of the following applies:
(1)The qualified employer is on notice of a criminal investigation by a complaint having been filed against the qualified employer or by written notice having been mailed to the qualified employer that the qualified employer is under criminal investigation.
(2)A court proceeding has already been initiated.
(c)No refund or credit shall be granted of any penalty paid prior to the time the qualified employer makes a request for tax penalty amnesty pursuant to Section 18743.
18743.(a)This division applies to any qualified employer that during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
(1)Files quarterly contribution returns and reports reporting the nonreported or underreported wages and taxes for the calendar quarter that ended December 31, 2013, and prior calendar quarters, for which amnesty is being applied.
(2)Pays in full all amounts due for all periods for which amnesty is requested, or applies for an installment agreement under subdivision (b).
(b)The department may enter into an installment payment agreement pursuant to paragraph (2) of subdivision (a), which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified employer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the department determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
(c)If, subsequent to the amnesty period, the department issues a deficiency assessment upon a return filed pursuant to subdivision (a), the department may impose penalties and criminal action may be brought under this division only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted under Section 18742.
(d)If the department issues a deficiency assessment under the conditions described in subdivision (c), the department may issue that deficiency assessment within 10 years from the last day of the calendar month following the quarterly period for which the amount is proposed to be assessed.
(e)The application required under subdivision (a) shall be in the form and manner specified by the department, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this division, be deemed to constitute an acceptable amnesty application under this division. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application under this division.
18744.(a)(1)Notwithstanding any other law, a licensing authority shall revoke or refuse to issue, reinstate, or renew a state or local license of a qualified employer that is eligible to participate in the tax penalty amnesty program under this division but does not participate in the amnesty program, and that does either of the following:
(A)Fails to register with the department.
(B)Reports a gross understatement of tax.
(2)Revocation or refusal to issue, reinstate, or renew a state or local license pursuant to paragraph (1) shall not be effective unless the licensing agency, at least 60 days before the date of revocation or refusal, mails a notice to the qualified employer that indicates that the license will be refused or revoked by that date.
(b)For purposes of this section, the following terms have the following meanings:
(1)Gross understatement of tax is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified employers return filed pursuant to this code.
(2)State or local license includes a license issued for any activity of a cannabis-related business or a drivers license issued pursuant to Division 6 (commencing with Section 12500) of the Vehicle Code.
18746.The department shall issue forms and instructions and take other actions needed to implement this division.
18747.The department shall adequately publicize the tax penalty amnesty program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the program. The department shall coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this division with similar programs administered by the State Board of Equalization and the Franchise Tax Board.
SEC. 13.The Legislature finds and declares that Sections 10, 11, and 12 of this act, establishing cannabis-related business tax penalty programs by adding Article 2.1 (commencing with Section 7077) to Chapter 8 of Part 1 of Division 2 of, and Chapter 9.2 (commencing with Section 19740) to Part 10.2 of Division 2 of, the Revenue and Taxation Code, and adding Division 11 (commencing with Section 18740) to the Unemployment Insurance Code serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations, and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
SEC. 14.If the Commission on State Mandates determines that this act contains costs mandated by the state, reimbursement to local agencies and school districts for those costs shall be made pursuant to Part 7 (commencing with Section 17500) of Division 4 of Title 2 of the Government Code.
SECTION 1.The Legislature finds and declares all of the following:
(a)Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance that property tax laws are equitably applied and that the property tax burden is fairly distributed. To this end, existing law requires the assessment roll, which lists the assessed value for every property, to be open to public inspection. Existing law further requires a quarterly list of all recorded property transfers occurring in the prior two years to be open to public inspection in each county.
(b)The right to privacy is a personal and fundamental right protected by Section 1 of Article I of the California Constitution and by the 14th Amendment to the United States Constitution. All individuals have a right to privacy in information pertaining to them. It is the Legislatures intent that detailed information requested by the county assessor or the Board of Equalization and furnished in the change in ownership statement shall continue to be held in secret by the assessor and the Board. However, the Legislature does not intend for the board or the assessor to hold secret the fact that (1) an individual or legal entity has filed a change in ownership statement with the board pursuant to Section 480.1 with respect to a change in control as defined in subdivision (c) of Section 64, or pursuant to Section 480.2 with respect to a change in ownership as defined in subdivision (d) of Section 64 or that (2) the board has issued a determination to the assessor relating to the statement filed with the board that a change in control or change in ownership has occurred. These facts should not be considered to be confidential information furnished in the change in ownership statement and should not required to be held secret by the assessor and the board.
(c)The public interest is not served by holding secret factual information concerning legal entity changes in ownership that become public when assessment roll updates reflect assessed value changes. Furthermore, the public interest is not served when available information concerning legal entity changes in ownership is not made public, similar to other transfers in property interests, merely because the transaction did not require the recordation of any documents.
(d)This act balances the taxing authoritys responsibility to safeguard confidential taxpayer information with the publics right to timely information.
(e)That local county assessors require the states assistance to administer current change in ownership law as it relates to the transfers of ownership interests in legal entities. The law requires the Franchise Tax to include a question on state income tax returns to assist the State Board of Equalization and the county assessor in the determination of when legal entity owned property undergoes a change of ownership for property tax purposes. The Franchise Tax Board collects these responses for the purpose of transmitting the information to the State Board of Equalization. The use of the state income tax return is a practical and cost effective method to annually communicate with legal entities operating in this state. In some instances, a legal entity change in ownership statement filed with the State Board of Equalization will have been prompted by the legal entitys response to this question.
(f)That the disclosure by the State Board of Equalization or assessor that a statement has been filed with the State Board of Equalization in the case where the filing was prompted by a legal entitys response to the property tax query on a state income tax return should not be deemed to violate the confidentiality of taxpayer return information. The provisions of this act allowing the disclosure of limited facts serves a public policy that overrides the confidentiality of return information collected by the Franchise Tax Board.
SEC. 2.Section 481 of the Revenue and Taxation Code is amended to read:481.(a)All information requested by the assessor or the board pursuant to this article or furnished in the change in ownership statement shall be held secret by the assessor and the board. All information furnished in either the preliminary change in ownership statement or the change in ownership statement shall be held secret by those authorized by law to receive or have access to this information. These statements are not public documents and are not open to inspection, except as provided in Section 408.
(b)(1)Information requested or furnished in a change in ownership statement for a change in control or a change in ownership as defined in subdivision (c) or (d) of Section 64 does not include the fact that a change in ownership statement has been filed with the board or that the board has issued a determination to the assessor relating to a change in ownership statement filed with the board. The board and the assessor are not required to hold these facts secret.
(2)Notwithstanding any other law, the disclosure by the board or assessor that a change in ownership statement has been filed in the case where the filing was prompted by information collected by the Franchise Tax Board from the property tax query on the taxpayers state income tax return as required by Section 64 shall not be deemed to violate the confidentiality of taxpayer return information.
The Legislature finds and declares all of the following:
(a)Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance that property tax laws are equitably applied and that the property tax burden is fairly distributed. To this end, existing law requires the assessment roll, which lists the assessed value for every property, to be open to public inspection. Existing law further requires a quarterly list of all recorded property transfers occurring in the prior two years to be open to public inspection in each county.
(b)The right to privacy is a personal and fundamental right protected by Section 1 of Article I of the California Constitution and by the 14th Amendment to the United States Constitution. All individuals have a right to privacy in information pertaining to them. It is the Legislatures intent that detailed information requested by the county assessor or the Board of Equalization and furnished in the change in ownership statement shall continue to be held in secret by the assessor and the Board. However, the Legislature does not intend for the board or the assessor to hold secret the fact that (1) an individual or legal entity has filed a change in ownership statement with the board pursuant to Section 480.1 with respect to a change in control as defined in subdivision (c) of Section 64, or pursuant to Section 480.2 with respect to a change in ownership as defined in subdivision (d) of Section 64 or that (2) the board has issued a determination to the assessor relating to the statement filed with the board that a change in control or change in ownership has occurred. These facts should not be considered to be confidential information furnished in the change in ownership statement and should not required to be held secret by the assessor and the board.
(c)The public interest is not served by holding secret factual information concerning legal entity changes in ownership that become public when assessment roll updates reflect assessed value changes. Furthermore, the public interest is not served when available information concerning legal entity changes in ownership is not made public, similar to other transfers in property interests, merely because the transaction did not require the recordation of any documents.
(d)This act balances the taxing authoritys responsibility to safeguard confidential taxpayer information with the publics right to timely information.
(e)That local county assessors require the states assistance to administer current change in ownership law as it relates to the transfers of ownership interests in legal entities. The law requires the Franchise Tax to include a question on state income tax returns to assist the State Board of Equalization and the county assessor in the determination of when legal entity owned property undergoes a change of ownership for property tax purposes. The Franchise Tax Board collects these responses for the purpose of transmitting the information to the State Board of Equalization. The use of the state income tax return is a practical and cost effective method to annually communicate with legal entities operating in this state. In some instances, a legal entity change in ownership statement filed with the State Board of Equalization will have been prompted by the legal entitys response to this question.
(f)That the disclosure by the State Board of Equalization or assessor that a statement has been filed with the State Board of Equalization in the case where the filing was prompted by a legal entitys response to the property tax query on a state income tax return should not be deemed to violate the confidentiality of taxpayer return information. The provisions of this act allowing the disclosure of limited facts serves a public policy that overrides the confidentiality of return information collected by the Franchise Tax Board.
SEC. 2.Section 481 of the Revenue and Taxation Code is amended to read:481.(a)All information requested by the assessor or the board pursuant to this article or furnished in the change in ownership statement shall be held secret by the assessor and the board. All information furnished in either the preliminary change in ownership statement or the change in ownership statement shall be held secret by those authorized by law to receive or have access to this information. These statements are not public documents and are not open to inspection, except as provided in Section 408.
(b)(1)Information requested or furnished in a change in ownership statement for a change in control or a change in ownership as defined in subdivision (c) or (d) of Section 64 does not include the fact that a change in ownership statement has been filed with the board or that the board has issued a determination to the assessor relating to a change in ownership statement filed with the board. The board and the assessor are not required to hold these facts secret.
(2)Notwithstanding any other law, the disclosure by the board or assessor that a change in ownership statement has been filed in the case where the filing was prompted by information collected by the Franchise Tax Board from the property tax query on the taxpayers state income tax return as required by Section 64 shall not be deemed to violate the confidentiality of taxpayer return information.
|
Date
|
Status
|
|---|---|
| Aug 19, 2016 | Read third time and amended. Ordered to second reading. |
| May 25, 2016 | Withdrawn from committee. |
| Jun 2, 2016 | Re-referred to Coms. on B., P. & E.D. and GOV. & F. |
| Jun 14, 2016 | From committee: Amend, and do pass as amended and re-refer to Com. on GOV. & F. (Ayes 8. Noes 1.) (June 13). |
| Jun 15, 2016 | Read second time and amended. Re-referred to Com. on GOV. & F. |
| Jun 22, 2016 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 5. Noes 1.) (June 22). Re-referred to Com. on APPR. |
| Aug 1, 2016 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Aug 2, 2016 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on APPR. |
| Aug 8, 2016 | Referred to APPR. suspense file. |
| Aug 11, 2016 | From committee: Do pass. (Ayes 5. Noes 2.) (August 11). |
| Aug 15, 2016 | Read second time. Ordered to third reading. |
| May 25, 2016 | Re-referred to Com. on RLS. |
| Aug 22, 2016 | Read second time. Ordered to third reading. |
| Aug 23, 2016 | Read third time. Passed. Ordered to the Assembly. |
| Aug 23, 2016 | Read third time. Passed. Ordered to the Assembly. (Ayes 32. Noes 7. Page 5289.). |
| Aug 24, 2016 | In Assembly. Concurrence in Senate amendments pending. May be considered on or after August 26 pursuant to Assembly Rule 77. |
| Aug 24, 2016 | Re-referred to Com. on REV. & TAX. pursuant to Assembly Rule 77.2. |
| Aug 29, 2016 | From committee: That the Senate amendments be concurred in. (Ayes 5. Noes 2.) (August 29). |
| Aug 30, 2016 | Senate amendments concurred in. To Engrossing and Enrolling. |
| Aug 30, 2016 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 56. Noes 16. Page 6463.). |
| Sep 8, 2016 | Enrolled and presented to the Governor at 4 p.m. |
| May 28, 2015 | Read third time. Passed. Ordered to the Senate. (Ayes 47. Noes 29.) |
| Feb 25, 2015 | From printer. May be heard in committee March 27. |
| Mar 9, 2015 | Referred to Com. on REV. & TAX. |
| Apr 13, 2015 | In committee: Hearing postponed by committee. |
| May 11, 2015 | Joint Rule 62(a), file notice suspended. |
| May 11, 2015 | Joint Rule 62(a), file notice suspended. (Page 1369.) |
| May 14, 2015 | From committee: Do pass. (Ayes 5. Noes 3.) (May 14). |
| May 18, 2015 | Read second time. Ordered to third reading. |
| May 28, 2015 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 28, 2015 | Read third time. Passed. Ordered to the Senate. (Ayes 47. Noes 29. Page 1625.) |
| Feb 24, 2015 | Read first time. To print. |
| Jun 11, 2015 | Referred to Com. on GOV. & F. |
| Jul 8, 2015 | From committee: Do pass. (Ayes 4. Noes 3.) (July 8). |
| Jul 9, 2015 | Read second time. Ordered to third reading. |
| Sep 4, 2015 | Read third time and amended. Ordered to second reading. |
| Sep 8, 2015 | Re-referred to Com. on RLS. pursuant to Senate Rule 29.10 (c) . |
| Sep 8, 2015 | Re-referred to Com. on RLS. pursuant to Senate Rule 29.10(c) . |
| Sep 8, 2015 | Read second time. Ordered to third reading. |
| Jan 28, 2016 | Re-referred to Coms. on HEALTH and GOV. & F. |
| May 24, 2016 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on HEALTH. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 30, 2016 | AB 567 GIPSON Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Aug 29, 2016 | With recommendation: That Senate amendments be concurred in. | Assembly Standing Committee on Revenue and Taxation |
Passed |
|
| Aug 23, 2016 | Assembly 3rd Reading AB567 Gipson By McGuire | Senate Floor |
Passed |
|
| Aug 11, 2016 | Do pass | Senate Standing Committee on Appropriations |
Passed |
|
| Aug 8, 2016 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jun 22, 2016 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
|
| Jun 13, 2016 | Do pass as amended, but first amend, and re-refer to the Committee on [Governance and Finance] | Senate Standing Committee on Business, Professions and Economic Development |
Passed |
|
| Jul 8, 2015 | Do pass | Senate Standing Committee on Governance and Finance |
Passed |
|
| May 28, 2015 | AB 567 GIPSON Assembly Third Reading | Assembly Floor |
Passed |
|
| May 14, 2015 | Do pass. | Assembly Standing Committee on Revenue and Taxation |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Air Logistics Corporation | ** Against | Aug 23, 2016 |
| American Federation of State, County and Municipal Employees | ** Support | Aug 23, 2016 |
| Associated Builders and Contractors - San Diego Chapter | ** Against | Aug 23, 2016 |
| board of equalization | ** Support | Aug 23, 2016 |
| Board of Equalization Chairman Jerome Horton | ** Support | Aug 23, 2016 |
| Building Owners and Managers Association of California | ** Against | Aug 23, 2016 |
| California Association of Boutique and Breakfast Inns | ** Against | Aug 23, 2016 |
| California Business Properties Association | ** Against | Aug 23, 2016 |
| California Cannabis Industry Association | * Support | Aug 29, 2016 |
| California Chamber Of Commerce | ** Against | Aug 23, 2016 |
| California Hotel and Lodging Association | ** Against | Aug 23, 2016 |
| California Manufacturers And Technology Association | ** Against | Aug 23, 2016 |
| California Tank Lines, Inc. | ** Against | Aug 23, 2016 |
| California Tax Reform Association | ** Support | Aug 23, 2016 |
| California Taxpayers' Association | ** Against | Aug 23, 2016 |
| Chemical Transfer Company | ** Against | Aug 23, 2016 |
| Council on State Taxation | ** Against | Aug 23, 2016 |
| International Council of Shopping Centers | ** Against | Aug 23, 2016 |
| Kern County Taxpayers Association | ** Against | Aug 23, 2016 |
| Los Angeles Assessor Jeffrey Prang | ** Support | Aug 23, 2016 |
| National Federation Of Independent Business | ** Against | Aug 23, 2016 |
| Page L | ** Support | May 28, 2015 |
| Silicon Valley Leadership Group | ** Against | Aug 23, 2016 |
| TechAmerica | ** Against | Aug 23, 2016 |
| Technet | ** Against | Aug 23, 2016 |
| West Coast Recycling, LLC. | ** Against | Aug 23, 2016 |
GOVERNOR'S VETO
GV Bill Id:AB 567
Author:(Gipson)
As Enrolled Ver:September 8, 2016
2/3 vote
ASSEMBLY: |
| (May 28, 2015) | SENATE: | 32-7 | (August 23, 2016) |
(vote not relevant)
COMMITTEE VOTE: | 5-2 | (August 29, 2016) | RECOMMENDATION: | concur |
(Rev. & Tax.)
ASSEMBLY: | 56-16 | (August 30, 2016) |
Original Committee Reference: REV. & TAX.
SUMMARY: Requires the State Board of Equalization (BOE) to administer a six-month tax penalty amnesty program for medical cannabis-related businesses.
The Senate amendments delete the Assembly version of this bill, and instead:
- Find and declare that enacting the Medical Cannabis Tax Amnesty Act would further the public purpose of preventing undue hardship on medical cannabis-related businesses, and relief of penalties would provide a strong incentive for those businesses to come forward and pay the taxes and interest that they owe, but did not pay, in fear that compliance with state tax laws would lead to federal prosecution.
- Define "qualified taxpayer" to mean a seller that is a medical cannabis-related business.
- Define "medical cannabis-related business" to mean a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients, as specified.
- Define "amnesty period" to mean the period during which the tax penalty amnesty program is conducted, as specified.
- Require the BOE to develop and administer a tax penalty amnesty program for qualified taxpayers, to be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, inclusive, and applicable to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Require the BOE to waive all penalties imposed under the Sales and Use Tax (SUT) Law for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the non-reporting or underreporting of tax liabilities.
- Prohibit criminal action from being brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the non-reporting or underreporting of tax liabilities.
- Specify that protection from penalties and criminal action do not apply if one of the following has occurred:
- A notice of determination has previously been issued for the nonpayment of taxes;
- The qualified taxpayer is on notice of a criminal investigation, as specified; or,
- A court proceeding has already been initiated against the qualified taxpayer.
- Provide that no refund or credit will be granted for any penalty paid prior to the qualified taxpayer's request for tax penalty amnesty.
- Specify that the qualified taxpayer must file an application, in the form and manner specified by the BOE, for tax penalty amnesty during the amnesty period to benefit from the program, and do all of the following within 60 days after the conclusion of the amnesty period:
- File completed tax returns reporting the non-reported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied; and,
- Pay in full the taxes and interest due for each period for which amnesty is requested, or apply for an installment payment agreement.
- Authorize the BOE to enter into an installment payment agreement, which includes interest on the outstanding amount due at the rate prescribed by law, with the qualified taxpayer.
- Provide that failure by the qualified taxpayer to fully comply with the terms of the installment payment agreement renders any waiver of penalties null and void, making the total amount of tax, interest, and all penalties immediately due and payable, unless the BOE determines that the failure was due to reasonable causes.
- Allow the BOE to impose penalties at double the rate of penalties described in law and for criminal action to be brought against a qualified taxpayer, if, subsequent to the amnesty period, the BOE issues a notice of determination upon the following:
- A return filed pursuant to the tax penalty amnesty program; or,
- Any other non-reporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty.
However, double penalties or criminal action may be brought only with respect to the difference between the amount shown on the tax return and the correct amount of tax due, and do not invalidate any tax penalty waivers previously granted.
- Require the Department of Consumer Affairs (DCA) to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to, but does not participate in, the tax penalty amnesty program, provided the qualified taxpayer does any of the following:
- Fails to register with the BOE;
- Has a seller's permit revoked by the BOE, as specified; or,
- Does both of the following:
- Reports a gross understatement of tax; and,
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested, or fails to fully comply with the terms of an installment payment agreement entered into with the BOE.
- Require DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the BOE issues a deficiency determination upon a return filed pursuant to the tax penalty amnesty program, provided the qualified taxpayer does both of the following:
- Reports a gross understatement of tax; and,
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested, or fails to fully comply with the terms of an installment payment agreement entered into with the BOE.
- Provide that suspension of or refusal to issue, reinstate, or renew a state license is not effective unless DCA mails a notice to the qualified taxpayer indicating that his or her license will be suspended or refused, at least 60 days prior to the action's effective date.
- Define "gross understatement of tax" to mean a deficiency that is in excess of 25% of the amount of tax reported on a qualified taxpayer's return filed pursuant to the Revenue and Taxation Code (R&TC), Chapter 5, Article 1.
- Define "state license" to include a license issued for any activity of a medical cannabis-related business.
- Authorize the BOE to refuse to issue a seller's permit, pursuant to R&TC Section 6070.5, or revoke a seller's permit issued for any person that is both of the following:
- Eligible to, but does not participate in, the tax penalty amnesty program; and,
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
- Require the BOE to issue forms and instructions and take other actions needed to implement the tax penalty amnesty program, and adequately publicize the program to maximize awareness and participation.
- Find and declare that medical cannabis tax penalty amnesty program serves a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore does not constitute a gift of public funds.
- Make technical and conforming changes.
- Add chaptering out language with AB 26 (Jones-Sawyer) of 2015-16.
EXISTING LAW:
- Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state. There is a complimentary use tax, imposed on the purchaser, on the storage, use, or other consumption of TPP purchased out-of-state and brought into California.
- Requires every person engaged in the business of selling TPP subject to sales tax to apply to the BOE for a seller's permit.
- Provides that a person engaged in business as a seller without a seller's permit is guilty of a misdemeanor.
- Sets forth interest and penalties for the nonpayment or late payment of tax, and the failure to file or intentional filing of incorrect returns. For example:
- Interest is assessed at the modified adjusted rate per month from the date the tax became due and payable to the state until the date of payment.
- For late payments generally, a penalty of 10% of the amount of all unpaid taxes is added to any tax not paid in whole or in part within the time required by law.
- Any person who fails to file a timely return is required to pay a penalty of 10% of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- A penalty of 10% of the amount of tax specified in a determination is added to deficiency determinations if any part of the deficiency is due to negligence or intentional disregard of the law.
- A penalty of 25% of the amount of tax specified in a determination is added in the case of a determination for failure to file a return, if that failure is due to fraud or intent to evade the law.
- A penalty of 50% of the amount of tax determined to be due for the period during which the person engaged in business in this state as a seller without a valid permit, if the person knowingly fails to obtain a valid permit for the purpose of evading payment of taxes.
- Provides different statutes of limitations controlling when deficiency determinations can be issued, as follows:
- In general, three years from the date the return is due or filed, whichever is later;
- In the event no return has been filed, eight years from the date the return was due; or,
- In the event of fraud or intent to evade payment, indefinite statute of limitations.
- Authorizes the BOE to administer a voluntary disclosure program for in-state purchasers who fail to report use tax on purchases of TPP from a retailer outside of this state, and for out-of-state businesses that fail to report use tax on sales to consumers in this state. If the taxpayer files all returns and pays all of the tax and interest due, the BOE limits the time it can assess use tax to the prior three years and waives penalties otherwise owed.
AS PASSED BY THE ASSEMBLY, this bill allowed the BOE, as well as county assessors, to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE or that the BOE has issued a determination to the assessor relating to that statement.
FISCAL EFFECT:
- According to the Senate Appropriations Committee:
- The BOE would incur administrative costs in the low millions of dollars annually, resulting from taxpayer notification, amnesty application processing, return processing, computer programming, and public inquiry responses.
- DCA would incur first-year costs of $102,000 and $94,000 thereafter (special funds) to process applications and verify with the BOE that businesses are in compliance with this bill's requirements.
- The BOE estimates that this bill would lead to increased one-time state and local revenue in the range of $27.4 million (50% take-up rate) to $54.7 million (100% take-up rate), depending on the participation rate of cannabis-related businesses.
COMMENTS:
- Overview of Federal Law: Federal law prohibits the manufacture, possession, sale, or distribution of marijuana. Congress enacted the Controlled Substances Act (CSA) as part of the Comprehensive Drug Abuse Prevention and Control Act of 1970. The CSA sets forth five "schedules" of specified drugs and other substances designated "controlled substances." For a drug or other substance to be designated as a "Schedule I" controlled substance, it must be found that the substance "has a high potential for abuse", and has "no currently accepted medical use in treatment in the United States". Federal law lists marijuana as a Schedule I controlled substance, deemed to have no accepted medical use.
- The Cole Memo: On August 29, 2013, the United States (U.S.) Department of Justice issued guidance to federal prosecutors regarding cannabis enforcement under the CSA (referred to as the "Cole Memo"). The Cole Memo reiterated the Department's commitment to enforcing the CSA consistent with Congress' determination that cannabis is a dangerous drug that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. In furtherance of these objectives, the Cole Memo instructed Department attorneys and law enforcement officials to focus on enforcement priorities that protect minors, public safety, public health, and the environment from the impact of marijuana. While the Cole Memo's guidance was issued in response to recent marijuana legalization initiatives in other states, it applies to all Departmental marijuana enforcement nationwide.
- Public Law 113-235: Operative December 16, 2014, Public Law 113-235 prohibits the U.S. Department of Justice (DOJ) from using funds to prevent specified states, including California, from implementing laws that authorize the use, distribution, possession, or cultivation of medical marijuana. This prohibition was extended into the next federal fiscal year by subsequent legislation, but is again set to expire on September 30, 2016 at the end of the current fiscal year.
On August 16, 2016, the 9th U.S. Circuit Court of Appeals ruled that the law prohibiting the DOJ from using funds to prevent states from implementing their medical marijuana laws also prohibits the DOJ from prosecuting individuals who violate federal marijuana laws, so long as they are in full compliance with state laws. The Court specified that defendants are entitled to evidentiary hearings to determine whether their conduct was completely authorized by state law if the DOJ wished to continue prosecutions. As such, the federal government's long-term enforcement landscape remains uncertain and medical marijuana businesses may still be subject to federal prosecution.
- Overview of State Law: The California Uniform Controlled Substances Act prohibits, except as authorized, the possession, cultivation, transportation, and sale of marijuana and marijuana derivatives. Under Proposition 215, however, existing law does authorize a patient (or the patient's primary caregiver) to cultivate or possess marijuana for the patient's medical use when recommended by a physician, as specified.
- SB 420: SB 420 (Vasconcellos), Chapter 875, Statutes of 2003, established statewide guidelines for Proposition 215 enforcement. Specifically, SB 420 called for the establishment of a voluntary program for the issuance of identification cards to qualified patients. SB 420 further specified that no patient or primary caregiver in possession of a valid identification card shall be subject to arrest for possession, transportation, delivery, or cultivation of medical marijuana, as specified.
- BOE Special Notice: In 2007, the BOE mailed a special notice to California sellers of medical marijuana to clarify the application of tax to medical marijuana sales and the requirement that they must hold a seller's permit. The notice informed sellers that "[i]f you do not obtain a seller's permit or fail to report and pay the taxes due, you will be subject to interest and penalty charges." The notice also provided the following information for sellers wishing to maintain anonymity:
The application for a seller's permit asks for information regarding the products you sell, the name and addresses of your suppliers, and the products you purchase. If you decline to provide this information for any reason including concerns about confidentiality and self-incrimination, a permit will still be issued to allow you to report and pay the taxes due on your sales.
- Medical Marijuana Regulation and Safety Act (MMRSA): In 2015, the Legislature enacted the MMRSA through a package of bills establishing a comprehensive licensing and regulatory framework for medical marijuana. Specifically, the MMRSA consists of three bills: i) SB 643 (McGuire), Chapter 719, Statutes of 2015; ii) AB 243 (Wood), Chapter 688, Statutes of 2015; and, iii) AB 266 (Bonta), Chapter 689, Statutes of 2015.
Among its provisions, the MMRSA established the Bureau of Medical Marijuana Regulation within DCA to oversee and enforce the state's medical marijuana regulations, in collaboration with the California Department of Public Health and the California Department of Food and Agriculture (CDFA). Additionally, the law established categories of licenses for various medical marijuana activities, such as cultivation, manufacturing, distribution, transportation, and sale. AB 266 also added R&TC Section 31020 to require the BOE, in consultation with the CDFA, to adopt a system to report commercial cannabis and cannabis product movement throughout the distribution chain (i.e., "track and trace"). The adopted system must employ secure packaging and provide information to the BOE. Section 31020 also requires the system to capture, at a minimum, all of the following:
- The amount of tax due by the designated entity;
- The name, address, and license number of the designated entity that remitted the tax;
- The name, address, and license number of the succeeding entity receiving the product;
- The transaction date; and,
- Any other information the BOE deems necessary for the taxation and regulation of marijuana and marijuana products.
- Purpose of this Bill: The BOE estimates that there are about 1,623 dispensaries selling medical marijuana in California, but that 66% of dispensaries are noncompliant with sales tax law. According to the author, many medical marijuana businesses have failed to comply with state tax laws because of misunderstanding or fear of becoming a target for federal investigation. This bill provides an incentive, in the form of a penalty waiver and shield from state criminal action, for those dispensaries that have failed to remit sales tax in the past to step out of the shadows and pay any outstanding tax and interest.
- Out of the Shadows: The MMRSA provides a comprehensive licensing and regulatory framework for medical marijuana in California. With regard to the SUT, the MMRSA provides that failure to obtain and maintain a valid seller's permit is a condition for which DCA may deny a medical marijuana business's application for licensure, and also establishes a "track and trace" system to help the BOE collect tax. As a result, activity by medical cannabis-related businesses that operated without obtaining a seller's permit or remitting sales tax may be highlighted for BOE enforcement as new MMRSA rules are implemented. This bill would grant non-compliant businesses at risk of being discovered an opportunity to come forward and pay any outstanding sales tax liability without penalty.
Despite the recent evolution of state policy, federal law still prohibits the sale of marijuana for any purpose, and recent measures that soften federal enforcement against medical marijuana businesses are still temporary in nature and do not provide full immunity from prosecution. Although the BOE does not generally require medical marijuana sellers to identify their business type when registering for a seller's permit, businesses that participate in the tax penalty amnesty program will not be able to remain anonymous. According to the BOE staff analysis of this bill, sellers that participate in the amnesty program will be separately identified in the BOE's records as medical cannabis-related program participants. A separate identification would allow the BOE, if requested, to readily share non-confidential information about each dispensary with local law enforcement or the U. S. Attorney. Regardless of the tax incentive provided by this bill, dispensaries that did not register for a seller's permit fearing detection by the federal government may be even less inclined to come forward in light of the amnesty program.
- Scope of this Bill: As noted by the BOE staff analysis of this bill, dispensaries may sell more than medical marijuana products. For example, dispensaries may sell t-shirts, stickers, pipes, and other TPP subject to the SUT. The amnesty program provided by this bill applies to the seller, not to the products sold. As a result, this bill would waive a dispensary's penalties on taxable sales for TPP other than medical marijuana products. A non-dispensary retailer with a tax liability for sales of similar products would not benefit from amnesty.
- Is Tax Amnesty Fair? Tax amnesty programs allow taxpayers to voluntarily remit unpaid or underpaid taxes without incurring the full liability of penalties that they would otherwise have to pay. Under ordinary collection processes, these taxpayers not only owe the original tax, but also interest on the unpaid amount and various penalties and fees, and may be subject to criminal prosecution. As such, the goals of tax amnesty programs must be balanced against principles of general fairness towards law-abiding taxpayers. Businesses that pay their taxes in a timely manner may operate at a competitive disadvantage compared to businesses that do not pay their taxes, as they have reduced cash flow to reinvest in business operations – in a way, providing non-compliant businesses the ability to become current on their tax liabilities without penalty grants them a loan from the government at an interest rate that may be lower than what is otherwise available to law-abiding businesses in traditional credit markets. Tax amnesty programs also often divert staff and resources from existing departments that provide assistance to law-abiding taxpayers.
According to ArcView Media Research, the medical marijuana industry is rapidly growing, with sales in California totaling $2.7 billion in 2015 and accounting for nearly half of all legal marijuana sales in the country. Although medical cannabis-related businesses have operated in a murkier legal landscape than other types of businesses prior to passage of Public Law 113-235 and the MMRSA, approximately 34% of dispensaries are estimated to be compliant with the SUT despite having faced the same risks. This bill would grant a special benefit to the segment of medical cannabis-related businesses that were not aware of or chose to not comply with the SUT.
- Amnesty Penalties: Research shows that pairing tax amnesty programs with strengthened enforcement provisions may reduce future noncompliance and sentiments of unfairness amongst taxpayers who do not benefit from amnesty. Although this bill contains some enhanced enforcement provisions, it is unclear how they may be applied. This bill allows the BOE to impose double the rate of penalties if a notice of determination is issued to a taxpayer that was eligible for, but did not participate in, amnesty. However, the BOE maintains discretion to decide whether double penalties are justified and imposed in specific cases.
Additionally, this bill requires DCA to suspend or refuse to issue, reinstate, or renew a state dispensary license of a qualified taxpayer that is eligible for, but does not participate in, the amnesty program, and does any of the following:
- Fails to register with the BOE;
- Has its seller's permit revoked; or,
- Both reports a gross understatement of tax and fails to pay in full the taxes and interest due for each requested amnesty period.
However, a qualified taxpayer that does not participate in the program would not have requested amnesty, leaving open the possibility that a tax-delinquent dispensary would not have its license suspended or refused by the DCA, so long as it held a valid seller's permit. Although the BOE would likely revoke a taxpayer's seller's permit in such an instance, the BOE again maintains discretion to decide whether revocation is justified in specific cases. Since the DCA is still in the process of developing regulations regarding state licensure, it is also unclear for how long of a period a qualified taxpayer's state license may be suspended or refused.
- Substantial amendments: This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. This bill, as amended in the Senate is inconsistent with Assembly actions.
I am returning Assembly Bill 567 without my signature.
This bill requires the Board of Equalization to develop and administer a tax amnesty program for medical cannabis businesses.
While increasing tax compliance among medical marijuana businesses is important, it is premature to create a tax amnesty before the regulations that link enforcement to licenses are promulgated.
Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0005150
CONCURRENCE IN SENATE AMENDMENTS
CSA2 Bill Id:AB 567
Author:(Gipson)
As Amended Ver:August 19, 2016
Majority vote
ASSEMBLY: |
| (May 28, 2015) | SENATE: | 32-7 | (August 23. 2016) |
(vote not relevant)
COMMITTEE VOTE: | 5-2 | (August 29, 2016) | RECOMMENDATION: | concur |
(Rev. & Tax.)
Original Committee Reference: REV. & TAX.
SUMMARY: Requires the State Board of Equalization (BOE) to administer a six-month tax penalty amnesty program for medical cannabis-related businesses.
The Senate amendments delete the Assembly version of this bill, and instead:
- Find and declare that enacting the Medical Cannabis Tax Amnesty Act would further the public purpose of preventing undue hardship on medical cannabis-related businesses, and relief of penalties would provide a strong incentive for those businesses to come forward and pay the taxes and interest that they owe, but did not pay, in fear that compliance with state tax laws would lead to federal prosecution.
- Define "qualified taxpayer" to mean a seller that is a medical cannabis-related business.
- Define "medical cannabis-related business" to mean a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients, as specified.
- Define "amnesty period" to mean the period during which the tax penalty amnesty program is conducted, as specified.
- Require the BOE to develop and administer a tax penalty amnesty program for qualified taxpayers, to be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, inclusive, and applicable to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Require the BOE to waive all penalties imposed under the Sales and Use Tax (SUT) Law for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the non-reporting or underreporting of tax liabilities.
- Prohibit criminal action from being brought against the qualified taxpayer, for the tax reporting periods for which tax penalty amnesty is requested, based on the non-reporting or underreporting of tax liabilities.
- Specify that protection from penalties and criminal action do not apply if one of the following has occurred:
- A notice of determination has previously been issued for the nonpayment of taxes;
- The qualified taxpayer is on notice of a criminal investigation, as specified; or,
- A court proceeding has already been initiated against the qualified taxpayer.
- Provide that no refund or credit will be granted for any penalty paid prior to the qualified taxpayer's request for tax penalty amnesty.
- Specify that the qualified taxpayer must file an application, in the form and manner specified by the BOE, for tax penalty amnesty during the amnesty period to benefit from the program, and do all of the following within 60 days after the conclusion of the amnesty period:
- File completed tax returns reporting the non-reported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied; and,
- Pay in full the taxes and interest due for each period for which amnesty is requested, or apply for an installment payment agreement.
- Authorize the BOE to enter into an installment payment agreement, which includes interest on the outstanding amount due at the rate prescribed by law, with the qualified taxpayer.
- Provide that failure by the qualified taxpayer to fully comply with the terms of the installment payment agreement renders any waiver of penalties null and void, making the total amount of tax, interest, and all penalties immediately due and payable, unless the BOE determines that the failure was due to reasonable causes.
- Allow the BOE to impose penalties at double the rate of penalties described in law and for criminal action to be brought against a qualified taxpayer, if, subsequent to the amnesty period, the BOE issues a notice of determination upon the following:
- A return filed pursuant to the tax penalty amnesty program; or,
- Any other non-reporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty.
However, double penalties or criminal action may be brought only with respect to the difference between the amount shown on the tax return and the correct amount of tax due, and do not invalidate any tax penalty waivers previously granted.
- Require the Department of Consumer Affairs (DCA) to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to, but does not participate in, the tax penalty amnesty program, provided the qualified taxpayer does any of the following:
- Fails to register with the BOE;
- Has a seller's permit revoked by the BOE, as specified; or,
- Does both of the following:
- Reports a gross understatement of tax; and,
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested, or fails to fully comply with the terms of an installment payment agreement entered into with the BOE.
- Require DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the BOE issues a deficiency determination upon a return filed pursuant to the tax penalty amnesty program, provided the qualified taxpayer does both of the following:
- Reports a gross understatement of tax; and,
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested, or fails to fully comply with the terms of an installment payment agreement entered into with the BOE.
- Provide that suspension of or refusal to issue, reinstate, or renew a state license is not effective unless DCA mails a notice to the qualified taxpayer indicating that his or her license will be suspended or refused, at least 60 days prior to the action's effective date.
- Define "gross understatement of tax" to mean a deficiency that is in excess of 25% of the amount of tax reported on a qualified taxpayer's return filed pursuant to the Revenue and Taxation Code (R&TC), Chapter 5, Article 1.
- Define "state license" to include a license issued for any activity of a medical cannabis-related business.
- Authorize the BOE to refuse to issue a seller's permit, pursuant to R&TC Section 6070.5, or revoke a seller's permit issued for any person that is both of the following:
- Eligible to, but does not participate in, the tax penalty amnesty program; and,
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
- Require the BOE to issue forms and instructions and take other actions needed to implement the tax penalty amnesty program, and adequately publicize the program to maximize awareness and participation.
- Find and declare that medical cannabis tax penalty amnesty program serves a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore does not constitute a gift of public funds.
- Make technical and conforming changes.
- Add chaptering out language with AB 26 (Jones-Sawyer) of the current legislative session.
EXISTING LAW:
- Imposes a sales tax on retailers for the privilege of selling tangible personal property (TPP), absent a specific exemption. The tax is based upon the retailer's gross receipts from TPP sales in this state. There is a complimentary use tax, imposed on the purchaser, on the storage, use, or other consumption of TPP purchased out-of-state and brought into California.
- Requires every person engaged in the business of selling TPP subject to sales tax to apply to the BOE for a seller's permit.
- Provides that a person engaged in business as a seller without a seller's permit is guilty of a misdemeanor.
- Sets forth interest and penalties for the nonpayment or late payment of tax, and the failure to file or intentional filing of incorrect returns. For example:
- Interest is assessed at the modified adjusted rate per month from the date the tax became due and payable to the state until the date of payment.
- For late payments generally, a penalty of 10% of the amount of all unpaid taxes is added to any tax not paid in whole or in part within the time required by law.
- Any person who fails to file a timely return is required to pay a penalty of 10% of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- A penalty of 10% of the amount of tax specified in a determination is added to deficiency determinations if any part of the deficiency is due to negligence or intentional disregard of the law.
- A penalty of 25% of the amount of tax specified in a determination is added in the case of a determination for failure to file a return, if that failure is due to fraud or intent to evade the law.
- A penalty of 50% of the amount of tax determined to be due for the period during which the person engaged in business in this state as a seller without a valid permit, if the person knowingly fails to obtain a valid permit for the purpose of evading payment of taxes.
- Provides different statutes of limitations controlling when deficiency determinations can be issued, as follows:
- In general, three years from the date the return is due or filed, whichever is later;
- In the event no return has been filed, eight years from the date the return was due; or,
- In the event of fraud or intent to evade payment, indefinite statute of limitations.
- Authorizes the BOE to administer a voluntary disclosure program for in-state purchasers who fail to report use tax on purchases of TPP from a retailer outside of this state, and for out-of-state businesses that fail to report use tax on sales to consumers in this state. If the taxpayer files all returns and pays all of the tax and interest due, the BOE limits the time it can assess use tax to the prior three years and waives penalties otherwise owed.
AS PASSED BY THE ASSEMBLY, this bill allowed the BOE, as well as county assessors, to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE or that the BOE has issued a determination to the assessor relating to that statement.
FISCAL EFFECT:
- According to the Senate Appropriations Committee:
- The BOE would incur administrative costs in the low millions of dollars annually, resulting from taxpayer notification, amnesty application processing, return processing, computer programming, and public inquiry responses.
- DCA would incur first-year costs of $102,000 and $94,000 thereafter (special funds) to process applications and verify with the BOE that businesses are in compliance with this bill's requirements.
- The BOE estimates that this bill would lead to increased one-time state and local revenue in the range of $27.4 million (50% take-up rate) to $54.7 million (100% take-up rate), depending on the participation rate of cannabis-related businesses.
COMMENTS:
- Overview of Federal Law: Federal law prohibits the manufacture, possession, sale, or distribution of marijuana. Congress enacted the Controlled Substances Act (CSA) as part of the Comprehensive Drug Abuse Prevention and Control Act of 1970. The CSA sets forth five "schedules" of specified drugs and other substances designated "controlled substances." For a drug or other substance to be designated as a "Schedule I" controlled substance, it must be found that the substance "has a high potential for abuse", and has "no currently accepted medical use in treatment in the United States". Federal law lists marijuana as a Schedule I controlled substance, deemed to have no accepted medical use.
- The Cole Memo: On August 29, 2013, the United States (U.S.) Department of Justice issued guidance to federal prosecutors regarding cannabis enforcement under the CSA (referred to as the "Cole Memo"). The Cole Memo reiterated the Department's commitment to enforcing the CSA consistent with Congress' determination that cannabis is a dangerous drug that provides a significant source of revenue to large-scale criminal enterprises, gangs, and cartels. In furtherance of these objectives, the Cole Memo instructed Department attorneys and law enforcement officials to focus on enforcement priorities that protect minors, public safety, public health, and the environment from the impact of marijuana. While the Cole Memo's guidance was issued in response to recent marijuana legalization initiatives in other states, it applies to all Departmental marijuana enforcement nationwide.
- Public Law 113-235: Operative December 16, 2014, Public Law 113-235 prohibits the U.S. Department of Justice (DOJ) from using funds to prevent specified states, including California, from implementing laws that authorize the use, distribution, possession, or cultivation of medical marijuana. This prohibition was extended into the next federal fiscal year by subsequent legislation, but is again set to expire on September 30, 2016 at the end of the current fiscal year.
On August 16, 2016, the 9th U.S. Circuit Court of Appeals ruled that the law prohibiting the DOJ from using funds to prevent states from implementing their medical marijuana laws also prohibits the DOJ from prosecuting individuals who violate federal marijuana laws, so long as they are in full compliance with state laws. The Court specified that defendants are entitled to evidentiary hearings to determine whether their conduct was completely authorized by state law if the DOJ wished to continue prosecutions. As such, the federal government's long-term enforcement landscape remains uncertain and medical marijuana businesses may still be subject to federal prosecution.
- Overview of State Law: The California Uniform Controlled Substances Act prohibits, except as authorized, the possession, cultivation, transportation, and sale of marijuana and marijuana derivatives. Under Proposition 215, however, existing law does authorize a patient (or the patient's primary caregiver) to cultivate or possess marijuana for the patient's medical use when recommended by a physician, as specified.
- SB 420: SB 420 (Vasconcellos), Chapter 875, Statutes of 2003, established statewide guidelines for Proposition 215 enforcement. Specifically, SB 420 called for the establishment of a voluntary program for the issuance of identification cards to qualified patients. SB 420 further specified that no patient or primary caregiver in possession of a valid identification card shall be subject to arrest for possession, transportation, delivery, or cultivation of medical marijuana, as specified.
- BOE Special Notice: In 2007, the BOE mailed a special notice to California sellers of medical marijuana to clarify the application of tax to medical marijuana sales and the requirement that they must hold a seller's permit. The notice informed sellers that "[i]f you do not obtain a seller's permit or fail to report and pay the taxes due, you will be subject to interest and penalty charges." The notice also provided the following information for sellers wishing to maintain anonymity:
The application for a seller's permit asks for information regarding the products you sell, the name and addresses of your suppliers, and the products you purchase. If you decline to provide this information for any reason including concerns about confidentiality and self-incrimination, a permit will still be issued to allow you to report and pay the taxes due on your sales.
- Medical Marijuana Regulation and Safety Act (MMRSA): In 2015, the Legislature enacted the MMRSA through a package of bills establishing a comprehensive licensing and regulatory framework for medical marijuana. Specifically, the MMRSA consists of three bills: i) SB 643 (McGuire), Chapter 719, Statutes of 2015; ii) AB 243 (Wood), Chapter 688, Statutes of 2015; and, iii) AB 266 (Bonta), Chapter 689, Statutes of 2015.
Among its provisions, the MMRSA established the Bureau of Medical Marijuana Regulation within DCA to oversee and enforce the state's medical marijuana regulations, in collaboration with the California Department of Public Health and the California Department of Food and Agriculture (CDFA). Additionally, the law established categories of licenses for various medical marijuana activities, such as cultivation, manufacturing, distribution, transportation, and sale. AB 266 also added R&TC Section 31020 to require the BOE, in consultation with the CDFA, to adopt a system to report commercial cannabis and cannabis product movement throughout the distribution chain (i.e., "track and trace"). The adopted system must employ secure packaging and provide information to the BOE. Section 31020 also requires the system to capture, at a minimum, all of the following:
- The amount of tax due by the designated entity;
- The name, address, and license number of the designated entity that remitted the tax;
- The name, address, and license number of the succeeding entity receiving the product;
- The transaction date; and,
- Any other information the BOE deems necessary for the taxation and regulation of marijuana and marijuana products.
- Purpose of this Bill: The BOE estimates that there are about 1,623 dispensaries selling medical marijuana in California, but that 66% of dispensaries are noncompliant with sales tax law. According to the author, many medical marijuana businesses have failed to comply with state tax laws because of misunderstanding or fear of becoming a target for federal investigation. This bill provides an incentive, in the form of a penalty waiver and shield from state criminal action, for those dispensaries that have failed to remit sales tax in the past to step out of the shadows and pay any outstanding tax and interest.
- Out of the Shadows: The MMRSA provides a comprehensive licensing and regulatory framework for medical marijuana in California. With regard to the SUT, the MMRSA provides that failure to obtain and maintain a valid seller's permit is a condition for which DCA may deny a medical marijuana business's application for licensure, and also establishes a "track and trace" system to help the BOE collect tax. As a result, activity by medical cannabis-related businesses that operated without obtaining a seller's permit or remitting sales tax may be highlighted for BOE enforcement as new MMRSA rules are implemented. This bill would grant non-compliant businesses at risk of being discovered an opportunity to come forward and pay any outstanding sales tax liability without penalty.
Despite the recent evolution of state policy, federal law still prohibits the sale of marijuana for any purpose, and recent measures that soften federal enforcement against medical marijuana businesses are still temporary in nature and do not provide full immunity from prosecution. Although the BOE does not generally require medical marijuana sellers to identify their business type when registering for a seller's permit, businesses that participate in the tax penalty amnesty program will not be able to remain anonymous. According to the BOE staff analysis of this bill, sellers that participate in the amnesty program will be separately identified in the BOE's records as medical cannabis-related program participants. A separate identification would allow the BOE, if requested, to readily share non-confidential information about each dispensary with local law enforcement or the U. S. Attorney. Regardless of the tax incentive provided by this bill, dispensaries that did not register for a seller's permit fearing detection by the federal government may be even less inclined to come forward in light of the amnesty program.
- Scope of this Bill: As noted by the BOE staff analysis of this bill, dispensaries may sell more than medical marijuana products. For example, dispensaries may sell t-shirts, stickers, pipes, and other TPP subject to the SUT. The amnesty program provided by this bill applies to the seller, not to the products sold. As a result, this bill would waive a dispensary's penalties on taxable sales for TPP other than medical marijuana products. A non-dispensary retailer with a tax liability for sales of similar products would not benefit from amnesty.
- Is Tax Amnesty Fair? Tax amnesty programs allow taxpayers to voluntarily remit unpaid or underpaid taxes without incurring the full liability of penalties that they would otherwise have to pay. Under ordinary collection processes, these taxpayers not only owe the original tax, but also interest on the unpaid amount and various penalties and fees, and may be subject to criminal prosecution. As such, the goals of tax amnesty programs must be balanced against principles of general fairness towards law-abiding taxpayers. Businesses that pay their taxes in a timely manner may operate at a competitive disadvantage compared to businesses that do not pay their taxes, as they have reduced cash flow to reinvest in business operations – in a way, providing non-compliant businesses the ability to become current on their tax liabilities without penalty grants them a loan from the government at an interest rate that may be lower than what is otherwise available to law-abiding businesses in traditional credit markets. Tax amnesty programs also often divert staff and resources from existing departments that provide assistance to law-abiding taxpayers.
According to ArcView Media Research, the medical marijuana industry is rapidly growing, with sales in California totaling $2.7 billion in 2015 and accounting for nearly half of all legal marijuana sales in the country. Although medical cannabis-related businesses have operated in a murkier legal landscape than other types of businesses prior to passage of Public Law 113-235 and the MMRSA, approximately 34% of dispensaries are estimated to be compliant with the SUT despite having faced the same risks. This bill would grant a special benefit to the segment of medical cannabis-related businesses that were not aware of or chose to not comply with the SUT.
- Amnesty Penalties: Research shows that pairing tax amnesty programs with strengthened enforcement provisions may reduce future noncompliance and sentiments of unfairness amongst taxpayers who do not benefit from amnesty. Although this bill contains some enhanced enforcement provisions, it is unclear how they may be applied. This bill allows the BOE to impose double the rate of penalties if a notice of determination is issued to a taxpayer that was eligible for, but did not participate in, amnesty. However, the BOE maintains discretion to decide whether double penalties are justified and imposed in specific cases.
Additionally, this bill requires DCA to suspend or refuse to issue, reinstate, or renew a state dispensary license of a qualified taxpayer that is eligible for, but does not participate in, the amnesty program, and does any of the following:
- Fails to register with the BOE;
- Has its seller's permit revoked; or,
- Both reports a gross understatement of tax and fails to pay in full the taxes and interest due for each requested amnesty period.
However, a qualified taxpayer that does not participate in the program would not have requested amnesty, leaving open the possibility that a tax-delinquent dispensary would not have its license suspended or refused by the DCA, so long as it held a valid seller's permit. Although the BOE would likely revoke a taxpayer's seller's permit in such an instance, the BOE again maintains discretion to decide whether revocation is justified in specific cases. Since the DCA is still in the process of developing regulations regarding state licensure, it is also unclear for how long of a period a qualified taxpayer's state license may be suspended or refused.
- Substantial amendments: This bill was substantially amended in the Senate and the Assembly-approved provisions of this bill were deleted. This bill, as amended in the Senate is inconsistent with Assembly actions.
Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0004981
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB 567 |
THIRD READING
Bill No: AB 567
Amended: 8/19/16 in Senate
PRIOR VOTES NOT RELEVANT
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-1, 6/13/16
AYES: Hill, Block, Gaines, Galgiani, Hernandez, Jackson, Mendoza, Wieckowski
NOES: Bates
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 6/22/16
AYES: Hertzberg, Beall, Hernandez, Moorlach, Pavley
NOES: Nguyen
NO VOTE RECORDED: Lara
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
SUBJECT: Medical cannabis: regulation and taxation amnesty
DIGEST: This bill requires the Board of Equalization (BOE) to establish a tax amnesty program (Program) for medical cannabis-related businesses and requires state licensing authorities to suspend or refuse to issue, reinstate, or renew a state license under the Medical Marijuana Regulation and Safety Act (MMRSA) if a qualified taxpayer that is eligible to participate in the Program does not pay owed taxes and interest.
Senate Floor Amendments of 8/19/16 remove conflict with AB 26 (Jones-Sawyer) by adding chaptering out language.
Existing law:
- Establishes the Bureau of Medical Marijuana Regulation within the Department of Consumer Affairs (DCA) to administer and enforce the MMRSA. (Business and Professions Code (BPC) § 19302)
- Defines “licensing authority” as the state agency responsible for the issuance, renewal, or reinstatement of the license, or the state agency authorized to take disciplinary action against the licensee. (BPC §19300.5 (w))
- Establishes the BOE to: (Government Code § 15606)
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, including uniform procedures for the consideration and adoption of written findings of fact by local boards of equalization, as specified.
- Prepare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation. It may adapt the instructions to varying local circumstances and to differences in the character and conditions of property subject to taxation as in its judgment is necessary to attain this uniformity.
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, with respect to the assessment and equalization of possessory interests.
This bill:
- Makes legislative findings that, although California enacted and expanded the Compassionate Use Act of 1996, the sale of any cannabis still remains illegal under federal law. As a result of uncertainty created by state and federal differences, many medical cannabis-related businesses have been noncompliant with tax laws since their inception, and would owe massive penalties and interest if they were to come into compliance. The portions of this bill establishing medical cannabis-related business tax penalty programs serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
- Declares legislative intent to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive for those businesses to come forward and pay owed taxes and interest by enacting the Medical Cannabis Tax Amnesty Act (Act).
- Requires a licensing authority to suspend or refuse to issue, reinstate, or renew a state license pursuant to the tax penalty amnesty program’s parameters.
- Requires the BOE to develop and administer a tax penalty amnesty program for qualified taxpayers.
- Requires a licensing authority to revoke or refuse to issue, reinstate, or renew a state license under the MMRSA if a qualified taxpayer that is eligible to participate in the Program does not participate, as specified.
- Requires the Program to be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, and apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Prohibits the waiving of penalties and the prohibition against the bringing of a criminal action for violations if the either of the following applies as of the first day of the amnesty period:
- The qualified taxpayer is on notice of a criminal investigation.
- A court proceeding has already been initiated.
- Prohibits a refund or credit from being granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty, as specified.
- States that the Program shall apply to any qualified taxpayer who, during the amnesty period, files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
- Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied; and,
- Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement, as specified.
- Authorizes the BOE to impose penalties at a rate that is double the rate of penalties described in law and bring criminal actions with respect to the difference between the amount shown on the return, and the correct amount of tax if the BOE issues a notice of determination after the amnesty period upon a return filed, as specified, or upon any other nonreporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty. States that this will not invalidate any waivers, as specified.
- Requires the DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the Program but does not participate in the Program, and that does any of the following:
- Fails to register with the BOE.
- Has a seller’s permit revoked, as specified.
- Does both of the following:
- Reports a gross understatement of tax.
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement.
- Requires DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the BOE issues a deficiency determination upon a specified return and the qualified taxpayer does both of the following:
- Reports a gross understatement of tax.
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
- Authorizes the BOE to refuse to issue a permit to any person, pursuant to the provisions applicable to the refusal to issue a permit as specified, or may revoke a seller’s permit issued for any person that is both of the following:
- Eligible to participate in the Program but does not participate; and,
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the Program as a medical cannabis-related business.
- Requires the BOE to adequately publicize the Program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the Program.
Background
California began regulating medical marijuana with the passage of the Compassionate Use Act in 1996, which exempted patients and their primary caregivers from criminal liability under state law for the possession and cultivation of marijuana. In 2003, the Legislature authorized the formation of medical marijuana cooperatives—nonprofit organizations that cultivate and distribute marijuana for medical uses to their members through dispensaries. Most recently, the MMRSA passed in 2015, which consisted of three separate bills enacted together to license and regulate medical marijuana (AB 243 (Wood, Chapter 688, Statues of 2015); AB 266, (Bonta, Chapter 689, Statutes of 2015); and SB 643 (McGuire, Chapter 719, Statutes of 2015). These bills created a comprehensive state licensing system for the commercial cultivation, manufacture, retail sale, transport, distribution, delivery, and testing of medical cannabis. Medical marijuana cooperatives will be phased out under the MMRSA and replaced by state-licensed businesses.
The MMRSA went into effect on January 1, 2016, and licensure requirements will follow when the regulatory entities responsible for implementation pass necessary regulations.
This bill aims to bring medical cannabis dispensaries into compliance with sales tax laws. BOE estimates a noncompliance rate of 66% of all dispensaries selling medical marijuana. This bill provides an incentive for those dispensaries who have failed to remit sales tax in the past to do so prospectively. This bill could be effective in increasing prospective sales tax compliance to the extent a tax incentive induces medical marijuana dispensaries to comply with sales tax law.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No
According to the Senate Appropriations Committee, BOE would incur administrative costs in the low millions of dollars annually, resulting from taxpayer notification, amnesty application processing, return processing, computer programming, and public inquiry responses. The analysis notes that BOE estimates that the bill would lead to increased one-time state and local revenue in the range of $53 million to $106 million, depending on the participation rate of cannabis-related businesses. The analysis also notes that DCA would incur first-year costs of $102,000 and $94,000 thereafter (special funds) to process applications and verify with BOE that distributors are in compliance with this bill’s requirements.
Board of Equalization
OPPOSITION: (Verified 8/22/16)
None received
ARGUMENTS IN SUPPORT: The Board of Equalization writes, “Many medical cannabis-related businesses want to be regulated, taxed, and treated like other businesses. However, these businesses have been operating in the shadows for years for fear of federal prosecution. Last year, the Legislature enacted the MMRSA, a package of legislation that establishes a comprehensive licensing and regulatory framework for medical marijuana including cultivation, manufacturing, transportation, distribution, and sale. The MMRSA comports with the enforcement priorities outlined in the U.S. Department of Justice guidance to federal prosecutors regarding cannabis enforcement under the Controlled Substances Act (referred to as the Cole Memo) and likely will serve to shield the state’s industry from federal action. As a result, medical cannabis-related businesses that previously operated underground may be more willing to come forward and comply with state tax and regulatory laws.”
Prepared by: Myriam Bouaziz / GOV. & F. / (916) 651-4119
8/22/16 22:45:58
**** END ****
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 | AB |
THIRD READING
Bill No: AB 567
:
PRIOR VOTES NOT RELEVANT
SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 8-1, 6/13/16
AYES: Hill, Block, Gaines, Galgiani, Hernandez, Jackson, Mendoza, Wieckowski
NOES: Bates
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 6/22/16
AYES: Hertzberg, Beall, Hernandez, Moorlach, Pavley
NOES: Nguyen
NO VOTE RECORDED: Lara
SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16
AYES: Lara, Beall, Hill, McGuire, Mendoza
NOES: Bates, Nielsen
DIGEST: This bill requires the Board of Equalization (BOE) to establish a tax amnesty program for medical cannabis-related businesses and requires state licensing authorities to suspend or refuse to issue, reinstate, or renew a state license under the Medical Marijuana Regulation and Safety Act (MMRSA) if a qualified taxpayer that is eligible to participate in the Program does not pay owed taxes and interest.
Existing law:
- Establishes the Bureau of Medical Marijuana Regulation within the Department of Consumer Affairs (DCA) to administer and enforce the MMRSA. (Business and Professions Code (BPC) § 19302)
- Defines “licensing authority” as the state agency responsible for the issuance, renewal, or reinstatement of the license, or the state agency authorized to take disciplinary action against the licensee. (BPC §19300.5 (w))
- Establishes the BOE to: (Government Code § 15606)
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, including uniform procedures for the consideration and adoption of written findings of fact by local boards of equalization, as specified.
- Prepare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation. It may adapt the instructions to varying local circumstances and to differences in the character and conditions of property subject to taxation as in its judgment is necessary to attain this uniformity.
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, with respect to the assessment and equalization of possessory interests.
This bill:
- Makes legislative findings that, although California enacted and expanded the Compassionate Use Act of 1996, the sale of any cannabis still remains illegal under federal law. As a result of uncertainty created by state and federal differences, many medical cannabis-related businesses have been noncompliant with tax laws since their inception, and would owe massive penalties and interest if they were to come into compliance. The portions of this bill establishing medical cannabis-related business tax penalty programs serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
- Declares legislative intent to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive for those businesses to come forward and pay owed taxes and interest by enacting the Medical Cannabis Tax Amnesty Act (Act).
- Requires a licensing authority to suspend or refuse to issue, reinstate, or renew a state license pursuant to the tax penalty amnesty program’s parameters.
- Requires the BOE to develop and administer a tax penalty amnesty program (Program) for qualified taxpayers.
- Requires a licensing authority to revoke or refuse to issue, reinstate, or renew a state license under the MMRSA if a qualified taxpayer that is eligible to participate in the Program does not participate, as specified.
- Requires the Program to be conducted for a six-month period beginning July 1, 2017, through December 31, 2017, and apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Prohibits the waiving of penalties and the prohibition against the bringing of a criminal action for violations if the either of the following applies as of the first day of the amnesty period:
- The qualified taxpayer is on notice of a criminal investigation.
- A court proceeding has already been initiated.
- Prohibits a refund or credit from being granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty, as specified.
- States that the Program shall apply to any qualified taxpayer who, during the amnesty period, files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
- Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied; and,
- Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement, as specified.
- Authorizes the BOE to impose penalties at a rate that is double the rate of penalties described in law and bring criminal actions with respect to the difference between the amount shown on the return, and the correct amount of tax if the BOE issues a notice of determination after the amnesty period upon a return filed, as specified, or upon any other nonreporting or underreporting of tax liability by any person who could have otherwise been eligible for amnesty. States that this will not invalidate any waivers, as specified.
- Requires the DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the Program but does not participate in the Program, and that does any of the following:
- Fails to register with the BOE.
- Has a seller’s permit revoked, as specified.
- Does both of the following:
- Reports a gross understatement of tax.
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement.
- Requires DCA to suspend or refuse to issue, reinstate, or renew a state license of a qualified taxpayer if the BOE issues a deficiency determination upon a specified return and the qualified taxpayer does both of the following:
- Reports a gross understatement of tax.
- Fails to pay in full the taxes and interest due for each period for which amnesty is requested or fails to fully comply with the terms of an installment payment agreement entered into by the board pursuant to Section 7077.3.
- Authorizes the BOE to refuse to issue a permit to any person, pursuant to the provisions applicable to the refusal to issue a permit as specified, or may revoke a seller’s permit issued for any person that is both of the following:
- Eligible to participate in the Program but does not participate; and,
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the Program as a medical cannabis-related business.
- Requires the BOE to adequately publicize the Program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the Program.
Background
California began regulating medical marijuana with the passage of the Compassionate Use Act in 1996, which exempted patients and their primary caregivers from criminal liability under state law for the possession and cultivation of marijuana. In 2003, the Legislature authorized the formation of medical marijuana cooperatives—nonprofit organizations that cultivate and distribute marijuana for medical uses to their members through dispensaries. Most recently, the MMRSA passed in 2015, which consisted of three separate bills enacted together to license and regulate medical marijuana (AB 243 (Wood, Chapter 688, Statues of 2015); AB 266, (Bonta, Chapter 689, Statutes of 2015); and SB 643 (McGuire, Chapter 719, Statutes of 2015). These bills created a comprehensive state licensing system for the commercial cultivation, manufacture, retail sale, transport, distribution, delivery, and testing of medical cannabis. Medical marijuana cooperatives will be phased out under the MMRSA and replaced by state-licensed businesses.
The MMRSA went into effect on January 1, 2016, and licensure requirements will follow when the regulatory entities responsible for implementation pass necessary regulations.
This bill aims to bring medical cannabis dispensaries into compliance with sales tax laws. BOE estimates a noncompliance rate of 66% of all dispensaries selling medical marijuana. This bill provides an incentive for those dispensaries who have failed to remit sales tax in the past to do so prospectively. This bill could be effective in increasing prospective sales tax compliance to the extent a tax incentive induces medical marijuana dispensaries to comply with sales tax law.
FISCAL EFFECT: Appropriation: Fiscal Com.: Local:
According to the Senate Appropriations Committee, BOE would incur administrative costs in the low millions of dollars annually, resulting from taxpayer notification, amnesty application processing, return processing, computer programming, and public inquiry responses. The analysis notes that BOE estimates that the bill would lead to increased one-time state and local revenue in the range of $53 million to $106 million, depending on the participation rate of cannabis-related businesses. The analysis also notes that DCA would incur first-year costs of $102,000 and $94,000 thereafter (special funds) to process applications and verify with BOE that distributors are in compliance with this bill’s requirements.
Board of Equalization
OPPOSITION: (Verified 8/11/16)
None received
ARGUMENTS IN SUPPORT: The Board of Equalization writes, “Many medical cannabis-related businesses want to be regulated, taxed, and treated like other businesses. However, these businesses have been operating in the shadows for years for fear of federal prosecution. Last year, the Legislature enacted the MMRSA, a package of legislation that establishes a comprehensive licensing and regulatory framework for medical marijuana including cultivation, manufacturing, transportation, distribution, and sale. The MMRSA comports with the enforcement priorities outlined in the U.S. Department of Justice guidance to federal prosecutors regarding cannabis enforcement under the Controlled Substances Act (referred to as the Cole Memo) and likely will serve to shield the state’s industry from federal action. As a result, medical cannabis-related businesses that previously operated underground may be more willing to come forward and comply with state tax and regulatory laws.”
8/15/16 20:01:54
**** END ****
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 567 (Gipson) - Medical cannabis: regulation and taxation amnesty
Version: August 2, 2016 | Policy Vote: GOV. & F. 4 - 3, B., P. & E.D. 8 - 1, GOV. & F. 5 - 1 |
Urgency: No | Mandate: No |
Hearing Date: August 8, 2016 | Consultant: Robert Ingenito |
This meets the criteria for referral to the Suspense File.
Bill Summary:
AB 567 would require the Board of Equalization (BOE) develop and administer a tax penalty amnesty for qualified taxpayers.
Fiscal Impact:
- BOE would incur administrative costs in the low millions of dollars annually, resulting from taxpayer notification, amnesty application processing, return processing, computer programming, and public inquiry responses.
- BOE estimates that the bill would lead to increased one-time state and local revenue in the range of $53 million to $106 million, depending on the participation rate of cannabis-related businesses.
- The Department of Consumer Affairs (DCA) would incur first-year costs of $102,000 and $94,000 thereafter (special funds) to process applications and verify with BOE that distributors are in compliance with the bill’s requirements.
Background:
Current law imposes a sales and use tax (SUT) on the gross receipts from the sale of, tangible personal property (TPP) based on the sales price, unless specifically exempted by statute. The state portion of the SUT will be 7.25 percent effective January 1, 2017. Cities and Counties may increase their SUT rate up to two percentage points as a transactions and use tax for either specific or general purposes, if voter approved.
Under current state law, every person, retailer, and wholesaler engaged in selling TPP subject to sales tax must apply to BOE for a seller’s permit; failure to do so is a misdemeanor. Additionally, persons who fail to pay their tax obligations are liable for their past tax obligation including accrued interest and penalties for up to eight previous calendar years. In February 2007, BOE issued a Special Notice confirming its policy of subjecting medical marijuana transactions to the SUT, as well as its requirement that businesses engaging in such transactions hold a seller’s permit. A permit does not allow individuals to make unlawful sales, but instead merely provides a way to remit any sales and use taxes due.
Under current law, any person who fails to pay tax to the State by the due date shall be assessed interest at the modified adjusted rate per month from the date the tax became due and payable to the State until the date of payment. There are also a myriad of penalties that are imposed. These penalties, as applicable to medical marijuana dispensaries, are as follows:
- For late payments generally, a penalty of 10 percent of the amount of all unpaid taxes added to any tax not paid in whole or in part within the time required by law.
- Any person who fails to file a timely return is required to pay a penalty of 10 percent of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- Any person remitting taxes by electronic funds transfer is required to, on or before the due date of the remittance, file a return for the preceding reporting period in the form and manner prescribed by BOE. Any person who fails to timely file the required return is required to pay a penalty of 10 percent of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- A penalty of 10 percent of the amount of the tax specified in a determination is added to deficiency determinations if any part of the deficiency for which the determination is imposed is due to negligence or intentional disregard of the law.
- A penalty of 25 percent of the amount of the tax specified in a deficiency determination is added in the case of a determination for failure to file a return, if that failure is due to fraud or an intent to evade the law.
- A penalty of 50 percent applies to the taxes imposed upon any person who, for the purpose of evading the payment of taxes, knowingly fails to obtain a valid permit prior to the date in which the first tax return is due. The penalty applies to the taxes determined to be due for the period during which the person engaged in business in this state as a seller without a valid permit and may be added in addition to the 10 percent penalty for failure to file a return. However, the 50 percent penalty does not apply if the taxable sales or purchases over the period during which the person was engaged in business without a valid permit averaged $1,000 or less per month.
- A penalty of 10 percent of the amount of the tax specified in the determination shall be added to any determination not paid within the time required by law.
- A penalty of 10 percent applies to the taxes imposed upon any person who knowingly issues a resale certificate for personal gain or to evade the payment of taxes while not actively engaged in business as a seller. The penalty is 10% of the amount of tax or $500, whichever is greater, if the purchase is made for personal gain or to evade payment of taxes.
- For prepayments, taxpayers with taxable sales in excess of $17,000 per month are required to make two prepayments of the tax during each quarter) the following penalties apply:
- Taxpayers who fail to make a prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due and who files a timely return and payment for that quarterly period is required to pay a penalty of 6 percent of the amount of prepayment, as specified, for each of the periods during that quarterly period for which a required prepayment was not made.
- Taxpayers who fail to make a timely prepayment, but who makes the prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due, is required to pay a penalty of 6 percent of the amount of the prepayment.
- If any part of a deficiency in prepayment is due to negligence or intentional disregard of the SUT Law or authorized regulations, a penalty of 10 percent of the deficiency is required to be paid.
Proposed Law:
This bill would require BOE to administer a tax penalty amnesty program for medical cannabis-related businesses for a six-month period beginning July 1, 2017 through December 31, 2017. Specifically, the bill would do all of the following:
- Apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Apply to any qualified taxpayer who during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does both of the following: (1) files completed tax returns reporting the non-reported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied, and (2) pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement.
- Allow qualified taxpayers to request to enter into an installment payment agreement, which includes interest on the outstanding amount due, in lieu of full payment. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless BOE determines that the failure was due to reasonable cause, and the total amount of tax, interest, and all penalties become due and payable immediately.
- Require BOE to waive all penalties imposed under SUT Law, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the non-reporting or underreporting of tax liabilities.
- Prohibit any criminal action brought against the qualified taxpayer based on the non-reporting or underreporting of tax liabilities for the tax reporting for which tax penalty amnesty is requested.
- Does not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
- Does not apply to SUT Law violations, to which, as of the first day of the amnesty period, the qualified taxpayer is on notice of a criminal investigation or a court proceeding has already been initiated.
- Provide that no refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty.
- Require BOE to refuse to issue a permit to any person or revoke a seller’s permit issued for any person that is both of the following:
- Eligible to participate in the tax penalty amnesty program, but does not participate in the amnesty program.
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
- Require the DCA to revoke or refuse to issue, reinstate, or renew a qualified taxpayer’s state license who is eligible to participate in the tax penalty amnesty program, but does not, and that does any of the following: (1) fails to register with BOE, (2) has a seller’s permit revoked, or (3) reports a gross understatement of tax.
Staff Comments:
This measure would provide medical cannabis-related businesses an incentive to obtain a seller’s permit by waiving all penalties imposed under SUT Law and prohibiting any criminal action against the qualified taxpayer provided tax amnesty provisions are followed.
In developing its revenue estimate, BOE staff identified 1,623 dispensaries selling medical marijuana in the State. Staff assumes annual sales of $613,000 per dispensary. As noted previously, BOE estimates that the bill would lead to increased one-time state and local revenue in the range of $53 million to $106 million, depending on the participation rate of cannabis-related businesses. Nearly half of the amount would be General Fund revenues.
DCA has yet to finalize its estimate of the bill’s fiscal impact, but indicates that it would incur unknown expenses to interface with BOE to suspense, refuse to issue, reinstate or renew licenses, as specified.
-- END --
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
Bill No: | AB 567 | Hearing Date: | 6/22/16 |
Author: | Gipson | Tax Levy: | No |
Version: | 6/15/16 Amended | Fiscal: | Yes |
Consultant: | Bouaziz | ||
Medical cannabis: regulation and taxation amnesty
Requires the Board of Equalization, and the Employment Development Department to develop and administer a tax penalty amnesty for qualified taxpayers.
Background
Current law imposes a sales and use tax (SUT) on the gross receipts from the sale of, tangible personal property based on the sales price, unless specifically exempted by statute. The current state SUT is 7.5%, but beginning January 1, 2017, the state SUT rate on tangible personal property will be 7.25%. Cities and Counties may increase the SUT rate up to 2% as a transactions and use tax for either specific or general purposes with a vote of the people.
Under state law, every person, retailer, and wholesaler engaged in selling tangible personal property subject to sales tax must apply to the Board of Equalization (BOE) for a seller’s permit. Failure to obtain a seller’s permit is a misdemeanor crime. Furthermore, persons who fail to pay their tax obligations are liable for their past tax obligation including accrued interest and penalties for up to eight previous calendar years. In February 2007, BOE issued a Special Notice confirming its policy of subjecting medical marijuana transactions to the Sales and Use Tax, as well as its requirement that businesses engaging in such transactions hold a Seller’s Permit. A permit does not allow individuals to make unlawful sales, but instead merely provides a way to remit any sales and use taxes due.
Under current law, any person who fails to pay tax to the state by the due date of that tax shall be assessed interest at the modified adjusted rate per month from the date the tax became due and payable to the state until the date of payment. There are also an array of penalties that are imposed under a variety of provisions of the Sales and Use Tax Law. These penalties, as applicable to dispensaries, are as follows:
- For late payments generally, a penalty of 10% of the amount of all unpaid taxes added to any tax not paid in whole or in part within the time required by law.
- Any person who fails to file a timely return is required to pay a penalty of 10% of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- Any person remitting taxes by electronic funds transfer is required to, on or before the due date of the remittance, file a return for the preceding reporting period in the form and manner prescribed by the Board. Any person who fails to timely file the required return is required to pay a penalty of 10% of the amount of taxes, exclusive of prepayments, with respect to the period for which the return is required.
- A penalty of 10% of the amount of the tax specified in a determination is added to deficiency determinations if any part of the deficiency for which the determination is imposed is due to negligence or intentional disregard of the law.
- A penalty of 25% of the amount of the tax specified in a deficiency determination is added in the case of a determination for failure to file a return, if that failure is due to fraud or an intent to evade the law.
- A penalty of 50% applies to the taxes imposed upon any person who, for the purpose of evading the payment of taxes, knowingly fails to obtain a valid permit prior to the date in which the first tax return is due. The 50% penalty applies to the taxes determined to be due for the period during which the person engaged in business in this state as a seller without a valid permit and may be added in addition to the 10% penalty for failure to file a return. However, the 50% penalty does not apply if the taxable sales or purchases over the period during which the person was engaged in business without a valid permit averaged $1,000 or less per month.
- A penalty of 10% of the amount of the tax specified in the determination shall be added to any determination not paid within the time required by law.
- A penalty of 10% applies to the taxes imposed upon any person who knowingly issues a resale certificate for personal gain or to evade the payment of taxes while not actively engaged in business as a seller. The penalty is 10% of the amount of tax or $500, whichever is greater, if the purchase is made for personal gain or to evade payment of taxes.
- For prepayments, taxpayers with taxable sales in excess of $17,000 per month are required to make two prepayments of the tax during each quarter) the following penalties apply:
- Taxpayers who fail to make a prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due and who files a timely return and payment for that quarterly period is required to pay a penalty of 6% of the amount of prepayment, as specified, for each of the periods during that quarterly period for which a required prepayment was not made.
- Taxpayers who fail to make a timely prepayment, but who makes the prepayment before the last day of the monthly period following the quarterly period in which the prepayment became due, is required to pay a penalty of 6% of the amount of the prepayment.
- If any part of a deficiency in prepayment is due to negligence or intentional disregard of the Sales and Use Tax Law or authorized regulations, a penalty of 10% of the deficiency is required to be paid.
State law requires employers who pay employees California-sourced income to withhold expected taxes. Businesses with one or more employees in the current or preceding taxable year, and who pays wages in excess of $100 per quarter must register with the Employment Development Department (EDD). Employers deposit personal income tax withholding by mail or electronically with EDD, along with amounts for Unemployment Insurance (UI), Employment Training Taxes, and State Disability Insurance (SDI). Federal schedules determine when employers make Personal Income Tax and SDI payments, while UI and ETT payments are made quarterly. Each quarter, the taxpayer files a form to reconcile these deposits with actual taxes due.
Proposed Law
Assembly Bill 567 requires the Board of Equalization and Employment Development Department (EDD) to administer a tax penalty amnesty program for medical cannabis-related businesses for a three-month period beginning July 1, 2017 through September 30, 2017. Specifically, the bill:
- Applies to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Applies to any qualified taxpayer who during the amnesty period files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
- Files completed tax returns reporting the non-reported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied.
- Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement.
- Allows qualified taxpayers to request to enter into an installment payment agreement, which includes interest on the outstanding amount due, in lieu of full payment. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless BOE determines that the failure was due to reasonable cause, and the total amount of tax, interest, and all penalties become due and payable immediately.
- Requires BOE to waive all penalties imposed under the Sales and Use Tax Law, for the tax reporting periods for which tax penalty amnesty is requested, that are owed as a result of the non-reporting or underreporting of tax liabilities.
- Prohibits any criminal action brought against the qualified taxpayer based on the non-reporting or underreporting of tax liabilities for the tax reporting for which tax penalty amnesty is requested.
- Does not apply to the nonpayment of any taxes for which a notice of determination has previously been issued.
- Does not apply to Sales and Use Tax Law violations, to which, as of the first day of the amnesty period, the qualified taxpayer is on notice of a criminal investigation or a court proceeding has already been initiated.
- Provides that no refund or credit shall be granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty.
- Requires BOE to refuse to issue a permit to any person or revoke a seller’s permit issued for any person that is both of the following:
- Eligible to participate in the tax penalty amnesty program, but does not participate in the amnesty program.
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the tax penalty amnesty program as a medical cannabis-related business.
- Requires the Department of Consumer Affairs to revoke or refuse to issue, reinstate, or renew a qualified taxpayer’s state license who is eligible to participate in the tax penalty amnesty program, but does not, and that does any of the following:
- Fails to register with BOE.
- Has a seller’s permit revoked.
- Reports a gross understatement of tax.
AB 567 applies almost all of the same provisions from the BOE amnesty program to the EDD for employment taxes.
AB 567 becomes effective January 1, 2017.
State Revenue Impact
The Board of Equalization estimates a one-time General Fund revenue increase of $52.8 million with 50% compliance, $79.2 million with 75% compliance, or $105.6 million with 100% compliance.
Comments
1. Purpose of the bill. According to the Author’s office, this bill is necessary because many cannabis businesses have failed to comply with California’s business tax requirements due to misunderstanding or fear of becoming a target for investigation.
2. Issue at hand. According to BOE, “Many medical cannabis-related businesses want to be regulated, taxed, and treated like other businesses. However, these businesses have been operating in the shadows for years for fear of federal prosecution. Last year, the Legislature enacted the MMRSA, a package of legislation that establishes a comprehensive licensing and regulatory framework for medical marijuana including cultivation, manufacturing, transportation, distribution, and sale. The MMRSA comports with the enforcement priorities outlined in the U.S. Department of Justice guidance to federal prosecutors regarding cannabis enforcement under the Controlled Substances Act (referred to as the Cole Memo) and likely will serve to shield the state’s industry from federal action. As a result, medical cannabis-related businesses that previously operated underground may be more willing to come forward and comply with state tax and regulatory laws.”
3. Closing the gap. This bill aims to bring medical cannabis dispensaries into compliance with sales tax laws. BOE estimates a noncompliance rate of 66% of all dispensaries selling medical marijuana. This bill provides an incentive for those dispensaries who have failed to remit sales tax in the past to do so prospectively. This bill could be effective in increasing prospective sales tax compliance to the extent a tax incentive induces medical marijuana dispensaries to comply with sales tax law.
4. Employment taxes. Assembly Bill 567 enacts an amnesty program for both sales and use tax as well as employment taxes. Specifically, the bill requires the Employment Development Department to administer a tax penalty amnesty program for medical cannabis-related businesses for a three-month period beginning July 1, 2017 through September 30, 2017. The amnesty program would apply to the unemployment insurance tax and employment training tax. Similar to the sales and use tax amnesty program, the goal of waiving penalties owed by out of compliance businesses is to incentivize employers to remit the unemployment insurance tax and employment training tax.
5. Previous version. The February 24, 2015 version of this bill allowed the Board of Equalization (BOE) or the assessor to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE, or that the BOE has issued a determination to the assessor relating to the statement filed.
6. Incoming! The Senate Business, Professions and Economic Development Committee approved AB 567 by a vote of 8-1 on June 13, 2016.
Assembly Actions
Not relevant to this version of the bill.
Support and Opposition
(6/16/16)
Support: Board of Equalization; California Chamber of Commerce.
Opposition: Unknown.
-- END --
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: Hearing Date: June 13, 2016
Author: | |||
Version: | May 24, 2016 | ||
Urgency: | No | Fiscal: | Yes |
Consultant: | Sarah Huchel | ||
Subject:
SUMMARY:
Requires the Board of Equalization (BOE) and Employment Development Department (EDD) to establish a tax amnesty program (Program) for medical cannabis-related businesses and requires state licensing authorities to revoke or refuse to issue, reinstate, or renew a state license under the Medical Marijuana Regulation and Safety Act (MMRSA) if a qualified taxpayer that is eligible to participate in the Program does not come forward and pay owed taxes and interest.
Existing law:
- Establishes the Bureau of Medical Marijuana Regulation within the Department of Consumer Affairs (DCA) to administer and enforce the MMRSA. (Business and Professions Code (BPC) 19302)
- Defines “licensing authority” as the state agency responsible for the issuance, renewal, or reinstatement of the license, or the state agency authorized to take disciplinary action against the licensee.
(BPC §19300.5 (w)) - Establishes the BOE to: (Government Code § 15606)
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, including uniform procedures for the consideration and adoption of written findings of fact by local boards of equalization, as specified.
- Prescribe and enforce the use of all forms for the assessment of property for taxation, including forms to be used for the application for reduction in assessment.
- Prepare and issue instructions to assessors designed to promote uniformity throughout the state and its local taxing jurisdictions in the assessment of property for the purposes of taxation. It may adapt the instructions to varying local circumstances and to differences in the character and conditions of property subject to taxation as in its judgment is necessary to attain this uniformity.
- Prescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing, with respect to the assessment and equalization of possessory interests.
- Bring an action in a court of competent jurisdiction to compel an assessor or any city or county tax official to comply with any provision of law, or any rule or regulation of the BOE, as specified, governing the assessment or taxation of property. The Attorney General shall represent the BOE in the action.
- Establishes the EDD in the Labor and Workforce Development Agency responsible, for the following functions: (Unemployment Insurance Code § 301)
- Job creation activities.
- Making manual computations and making or denying recomputations of the amount and duration of benefits.
- Determination of contribution rates and the administration and collection of contributions, penalties and interest, including but not limited to filing and releasing liens.
- Establishment, administration, and transfer of reserve accounts.
- Making assessments and the administration of credits and refunds.
- Approving elections for coverage or for financing unemployment and disability insurance coverage.
This bill:
- Makes Legislative findings that, although California enacted and expanded the Compassionate Use Act of 1996, the sale of any cannabis still remains illegal under federal law. As a result of uncertainty created by state and federal differences, many medical cannabis-related businesses have been noncompliant with tax laws since their inception, and would owe massive penalties and interest if they were to come into compliance.
- Makes Legislative findings that the portions of this bill establishing medical cannabis-related business tax penalty programs serve a general public purpose by incentivizing a specific type of business to become current with its tax obligations and therefore do not constitute gifts of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
- Declares Legislative intent to further the public purposes of preventing undue hardship on medical cannabis-related businesses and providing a strong incentive for those businesses to come forward and pay owed taxes and interest by enacting the Medical Cannabis Tax Amnesty Act (Act).
- Requires the BOE and EDD to develop and administer a tax penalty amnesty program (Program) for qualified taxpayers.
- Defines the following terms:
- “Amnesty period” is the period July 1, 2017, through September 31, 2017, during which the tax penalty amnesty program is conducted.
- “Medical cannabis-related business” is a person that engages in the sale of cannabis for medical purposes to qualified patients or the primary caregivers of qualified patients pursuant to the Compassionate Use Act of 1996 or the Medical Marijuana Program.
- “Qualified taxpayer” is a seller that is a medical cannabis-related business.
- “Gross understatement of tax” is a deficiency that is in excess of 25 percent of the amount of tax reported on a qualified taxpayer’s return filed, as specified.
- “State license” includes a license issued for any activity of a medical cannabis-related business.
- “Employment taxes” or “taxes” is the unemployment insurance tax and employment training tax, as specified; state disability insurance tax, as specified; and personal income tax witholding, as specified.
- “Qualified employer” is an employer or employing unit that is a medical cannabis-related business, as specified.
- Requires a licensing authority to revoke or refuse to issue, reinstate, or renew a state license under the MMRSA if a qualified taxpayer that is eligible to participate in the Program does not participate, as specified.
- Requires the Program to be conducted for a three-month period beginning July 1, 2017, through September 30, 2017, and apply to tax liabilities due and payable for tax reporting periods beginning before January 1, 2015.
- Requires the following to apply to any qualified taxpayer who files an application for tax penalty amnesty and pays the taxes and interest, as specified in Item # 11):
- The BOE and EDD shall waive all penalties, as specified, for the tax reporting periods for which tax penalty amnesty is requested that are owed as a result of the nonreporting or underreporting of tax liabilities or the nonpayment or underpayment of employment tax liabilities.
- Prohibits a criminal action from being brought against the qualified taxpayer for the tax reporting periods for which tax penalty amnesty is requested based on the nonreporting or underreporting of tax liabilities.
- States that (a) and (b) do not apply to the nonpayment of any taxes, excluding employment taxes, for which a notice of determination has previously been issued.
- Prohibits the waiving of penalties and the prohibition against the bringing of a criminal action for violations if the either of the following applies as of the first day of the amnesty period:
- The qualified taxpayer is on notice of a criminal investigation.
- A court proceeding has already been initiated.
- Prohibits a refund or credit from being granted of any penalty paid prior to the time the qualified taxpayer makes a request for tax penalty amnesty, as specified.
- States that the Program shall apply to any qualified taxpayer who, during the amnesty period, files an application for tax penalty amnesty and, within 60 days after the conclusion of the amnesty period, does all of the following:
- Files completed tax returns reporting the nonreported or underreported tax liabilities for all tax reporting periods for which amnesty is being applied; and,
- Pays in full the taxes and interest due for each period for which amnesty is requested, or applies for an installment agreement, as specified.
- Authorizes the BOE to enter into an installment payment agreement that shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified taxpayer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the board determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
- Authorizes the BOE to impose penalties and bring criminal actions with respect to the difference between the amount shown on the return and the correct amount of tax if the BOE issues a notice of determination after the amnesty period upon a return filed, as specified. States that this will not invalidate any waivers, as specified.
- Requires the application for the Program to be in the form and manner specified by the BOE, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty under this part, be deemed to constitute an acceptable amnesty application. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of a Program application.
- Requires the DCA to revoke or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the Program but does not participate in the Program, and that does any of the following:
- Fails to register with the BOE.
- Has a seller’s permit revoked, as specified.
- Reports a gross understatement of tax.
- States that the Director’s revocation or refusal to issue, reinstate, or renew a state license shall not be effective unless the DCA, at least 60 days before the date of revocation or refusal, mails a notice to the qualified taxpayer that indicates that the license will be refused or revoked by that date.
- Requires the BOE to refuse to issue a permit to any person or shall revoke a seller’s permit issued for any person that is both of the following:
- Eligible to participate in the Program but does not participate; and,
- Engaged in retail sales of medical cannabis in this state that would have been eligible to participate in the Program as a medical cannabis-related business.
- Requires the BOE and EDD to issue forms and instructions and take other actions needed to implement this bill.
- Requires the BOE to adequately publicize the Program for medical cannabis-related businesses so as to maximize public awareness of, and participation in, the Program. Requires the BOE to coordinate to the highest degree possible its publicity efforts and other actions taken in implementing this article with similar programs administered by the EDD.
- States that the Program shall apply to any qualified employer that during the amnesty period files an application the Program and, within 60 days after the conclusion of the amnesty period, does all of the following:
- Files quarterly contribution returns and reports reporting the nonreported or underreported wages and taxes for the calendar quarter that ended December 31, 2013, and prior calendar quarters, for which amnesty is being applied.
- Pays in full all amounts due for all periods for which amnesty is requested, or applies for an installment agreement.
- Authorizes the EDD to enter into an installment payment agreement which shall include interest on the outstanding amount due at the rate prescribed by law. Failure by the qualified employer to fully comply with the terms of the agreement renders the waiver of penalties null and void, unless the EDD determines that the failure was due to reasonable causes, and the total amount of tax, interest, and all penalties shall be immediately due and payable.
- States that if, subsequent to the amnesty period, the EDD issues a deficiency assessment upon a return filed, as specified, the EDD may impose penalties and criminal action may be brought only with respect to the difference between the amount shown on that return and the correct amount of tax. This action shall not invalidate any waivers granted as specified.
- States that if the EDD issues a deficiency assessment , the EDD may issue that deficiency assessment within 10 years from the last day of the calendar month following the quarterly period for which the amount is proposed to be assessed.
- Requires an application for the Program to be in the form and manner specified by the EDD, but in no case shall a mere payment of any taxes and interest due, in whole or in part, for any period otherwise eligible for amnesty be deemed to constitute an acceptable amnesty application. For purposes of the preceding sentence, the application of a refund from one period to offset a tax liability for another period otherwise eligible for amnesty shall not be allowed without the filing of an amnesty application.
- Requires the DCA to revoke or refuse to issue, reinstate, or renew a state license of a qualified taxpayer that is eligible to participate in the Program but does not participate in the Program, and that does any of the following:
- Fails to register with the EDD.
- Reports a gross understatement of tax.
FISCAL EFFECT:
This bill is keyed “fiscal” by the Legislative Counsel. The Assembly Appropriations Committee did not analyze this bill because it was not in this form.
COMMENTS:
- Purpose. This bill is Author sponsored. According to the Author’s office, this bill is necessary because many cannabis businesses have failed to comply with California’s business tax requirements due to misunderstanding or fear of becoming a target for investigation.
- Background. California began regulating medical marijuana with the passage of the Compassionate Use Act in 1996, which exempted patients and their primary caregivers from criminal liability under state law for the possession and cultivation of marijuana. In 2003, the Legislature authorized the formation of medical marijuana cooperatives—nonprofit organizations that cultivate and distribute marijuana for medical uses to their members through dispensaries. Most recently, the (MMRSA) passed in 2015, which consisted of three separate bills enacted together to license and regulate medical marijuana (AB 243 (Wood, Chapter 688, Statues of 2015); AB 266, (Bonta, Chapter 689, Statutes of 2015); and SB 643 (McGuire, Chapter 719, Statutes of 2015). These bills created a comprehensive state licensing system for the commercial cultivation, manufacture, retail sale, transport, distribution, delivery, and testing of medical cannabis. Medical marijuana cooperatives will be phased out under the MMRSA and replaced by state-licensed businesses.
The MMRSA went into effect on January 1, 2016, and licensure requirements will follow when the regulatory entities responsible for implementation pass necessary regulations.
The MMRSA distributes state responsibilities among six agencies:
- DCA (Bureau of Medical Marijuana Regulation): responsible for licensing and regulating dispensaries, transporters, and distributors.
- Department of Fish and Wildlife (DFW): monitor and reduce environmental impacts of marijuana cultivation.
- State Water Resources Control Board (SWRCB): regulate the environmental impacts of marijuana cultivation on water quality and instream flows.
- California Department of Food and Agriculture (CDFA): regulate medical marijuana cultivation and issue licenses to growers.
- Department of Public Health (DPH): develop and enforce regulations and standards for medical marijuana product manufacturers and testing laboratories.
- Department of Pesticide Regulation (DPR): develop pesticide use guidelines for the cultivation of medical marijuana.
This bill will require these state licensing authorities to revoke or refuse to issue, reinstate, or renew a state license under the MMRSA if a qualified taxpayer that is eligible to participate in the tax amnesty program established by the BOE and EDD does not participate in the program.
This bill is also referred to the Senate Governance and Finance Committee, which will analyze the tax implications of this bill and other issues related to tax amnesty programs.
- Related Legislation. AB 26 (Jones-Sawyer) of 2015 requires a licensee under the Act to institute and maintain a training program to educate, inform, and train the licensee's agents and employees regarding compliance with the Act, and requires the Bureau to approve and regulate the training programs. (Status: This bill is pending in the Senate Committee on Business, Professions and Economic Development.)
AB 2385 (Jones-Sawyer) of 2015 prohibits licensing authorities from requiring a local license, permit, or other authorization, and would require the issuance of state license if the authorities determine that the applicant meets all the requirements of the Act and specified criteria relating to Measure D, which was approved by the voters of the City of Los Angeles. (Status: This bill is pending in the Senate Committee on Business, Professions and Economic Development.)
- Previous Legislation. AB 266 (Bonta, Cooley, Jones-Sawyer, Lackey, and Wood, Chapter 689, Statutes of 2015) enacted the Act for the licensure and regulation of medical marijuana, established the Bureau within the DCA, required the CDFA to administer the provisions of the act related to cultivation, required the CDPH to administer the provisions of the Act related to manufacturing and testing of medical cannabis and required the Board of Equalization to adopt a system for reporting the movement of commercial cannabis and cannabis products.
AB 243 (Wood, Chapter 688, Statutes of 2015) required the CDFA, the DPR, the CDPH, the DFW, and the SWRCB to promulgate regulations relating to medical marijuana and its cultivation, as specified, required various state agencies to take specified actions to mitigate the impact that marijuana cultivation has on the environment, and established the Act Fund.
SB 643 (McGuire, Chapter 719, Statutes of 2015) established standards for the prescription of medical cannabis, required the Medical Board of California to prioritize its investigative and prosecutorial resources to identify and discipline physicians and surgeons that have repeatedly recommended excessive cannabis to patients for medical purposes or repeatedly recommended cannabis to patients for medical purposes without a good faith examination, as specified; authorized counties to impose a tax upon specified cannabis-related activity; and set forth standards for the licensed cultivation of medical cannabis.
- Arguments in Support. The BOE writes in support, “Many medical cannabis-related businesses want to be regulated, taxed, and treated like other businesses. However, these businesses have been operating in the shadows for years for fear of federal prosecution. Last year, the Legislature enacted the MMRSA, a package of legislation that establishes a comprehensive licensing and regulatory framework for medical marijuana including cultivation, manufacturing, transportation, distribution, and sale. The MMRSA comports with the enforcement priorities outlined in the U.S. Department of Justice guidance to federal prosecutors regarding cannabis enforcement under the Controlled Substances Act (referred to as the Cole Memo) and likely will serve to shield the state’s industry from federal action. As a result, medical cannabis-related businesses that previously operated underground may be more willing to come forward and comply with state tax and regulatory laws.”
- Recommended Technical Amendments. The following are technical amendments addressing drafting errors:
Page 10, line 2, replace “six” with “three”
On page 10, line 4, replace “31” with “30”
Page 17, line 24, replace “six” with “three”
On page 18, line 19, replace “2013” with “2014”
NOTE:
Double-referral to Governance and Finance Committee
SUPPORT AND OPPOSITION:
Support:
Board of Equalization
Opposition:
None on file as of June 7, 2016.
-- END --
AB 567
Page 6
|
Office of Senate Floor Analyses (916) 651-1520 Fax: (916) 327-4478 |
THIRD READING
Bill No: AB 567
Introduced: 2/24/15
SENATE GOVERNANCE & FIN. COMMITTEE: 4-3, 7/8/15
AYES: Hertzberg, Hernandez, Lara, Pavley
NOES: Nguyen, Beall, Moorlach
ASSEMBLY FLOOR: 47-29, 5/28/15 - See last page for vote
SUBJECT: Property taxation: change in ownership statement: confidentiality of information
SOURCE: Board of Equalization Chairman Jerome Horton
DIGEST: This bill allows the Board of Equalization (BOE) or assessors to disclose whether they’ve received a change in ownership statement (COS) for a legal entity, or that BOE has issued a determination regarding the change.
Existing law:
Provides that all property is taxable unless explicitly exempted by the Constitution or federal law.
Precludes assessors from revaluing real property for tax purposes unless a property is newly constructed, or changes ownership.
Applies different standards for assessors to determine whether real property has changed ownership from changes in ownership interests in legal entities, like corporations and partnerships, which own real property.
Provides that when direct interests in real property change ownership, assessors generally only revalue that percentage interest which transfers.
Directs assessors to revalue all of the legal entity’s property to fair market value only when one person or legal entity purchases or otherwise acquires more than 50% ownership of the corporation or other legal entity in a single transaction, or when the changes in the cumulative ownership of the legal entity’s original co-owners reaches 50% in one or more transactions.
Requires the new owner of a property to file a COS with the assessor.
Considers any information appearing on the COS a secret, and not subject to public disclosure.
Enacts the Legal Entity Ownership Program to help find and detect changes in control and ownership of corporations, partnerships, and other legal entities, which have no recorded deed or notice of a transfer of an ownership interest.
Requires legal entities to file a change of ownership statement with BOE within 90 days of the change, or pay a penalty equal to 10% of the tax on the new value of the property reflecting the change of ownership.
Directs the Franchise Tax Board (FTB) to send BOE a list of legal entities that have reported a change in control or ownership on income tax return.
Requires BOE to analyze completed statements and information from FTB to determine whether a change in control or ownership occurred.
Directs BOE to notify county assessors of changes in control or ownership detects to ensure reassessment occurs.
Provides that the assessment roll, and a quarterly updated list of all property transfers, is a public document.
This bill:
Allows BOE or the assessor to disclose that a person or legal entity has filed a legal entity COS with the BOE.
Permits BOE to disclose whether it has issued a determination to the assessor relating to the statement filed.
Comments
As a general matter in California tax law, any information that a taxpayer enters on a return and submits to a tax enforcement agency is considered confidential, and criminal sanctions apply to persons who unlawfully inspect or disclose any confidential tax information. The Legislature has considered several measures that would make public confidential taxpayer information in the hopes of increasing collections, or stimulating debate about the state’s tax policies, such as:
Directing FTB and BOE to publish lists of the top 500 tax delinquencies over $100,000 (AB 1418, Horton, Statutes of 2006 and AB 1424, Perea, Chapter 455, Statutes of 2011).
Requiring FTB to publish on its Web site a list of the 1,500 largest corporate taxpayers filing a Form 10-K with the Securities and Exchange Commission (AB 2439, Eng, 2011). The bill failed passage on the Senate Floor.
Requiring FTB to compile information on any tax expenditure claimed by a taxpayer that is a publicly-traded company, and develop a searchable database by company name and the amount of tax expenditures claimed (AB 2666, Skinner, 2010). Governor Arnold Schwarzenegger vetoed the bill.
AB 567 pierces the veil of taxpayer confidentiality by allowing either the BOE or an assessor to disclose that a taxpayer filed a change in ownership statement for a legal entity, or that BOE has determined that a change in ownership has occurred. However, the piercing is minor in comparison to previous efforts: the measure doesn’t compel disclosure of any taxpayer specific information on the form itself, and any changes in ownership show up on the assessment roll or the quarterly transfer eventually.
AB 567 makes a small change in an area of great dispute. Shortly after passage of Proposition 13, the Assembly Committee on Revenue and Taxation appointed a task force of to wrestle with the various interpretations necessary to implement the initiative. The task force’s initial recommendation concerning changes in ownership of property owned by legal entities was to adopt the “separate entity” theory, providing that so long as the same legal entity owned the property, it would not be reassessed, regardless of whether ownership interests in the entity change, such as stock in the corporation, or partners in the partnership. However, the task force subsequently added the ‘majority-takeover-of-corporate-stock,’ or “change in control,” provision to maintain some parity with the increasing relative tax burden of residential property statewide. As enacted, assessors revalue property to fair market value when one person or legal entity purchases or otherwise acquires more than 50% ownership of a corporation or other legal entity in a single transaction. Ever since, taxpayers have generally been able to plan around the change of ownership rules for legal entities to avoid reassessment. Several legislative measures to change these rules were unsuccessful, such as SB 82 (Kopp, 1992) and SB 17 (Escutia, 2003 and 2005) all of which would have overturned the 50% rule. Last year, the Legislature considered a measure that defined as a change in ownership a single transaction when more than 90% or more of the ownership interests in a legal entity are sold in a single transaction to a person or legal entity, regardless of whether a single individual acquires more than 50% of the ownership interest. That measure responded to a single taxpayer’s transaction, and would have ensnared unwitting taxpayers that lacked the legal expertise to structure a transaction to avoid the reformed standard. The Senate Appropriations Committee held the measure on its suspense file.
FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No
Board of Equalization Chairman Jerome Horton (source)
American Federation of State, County and Municipal Employees
California Tax Reform Association
Los Angeles Assessor Jeffrey Prang
Service Employees International Union
OPPOSITION: (Verified 7/10/15)
Air Logistics Corporation
Associated Builders and Contractors
Associated Builders and Contractors – San Diego Chapter
Building Owners and Managers Association of California
California Association of Boutique and Breakfast Inns
California Business Properties Association
California Chamber of Commerce
California Hotel and Lodging Association
California Manufacturers and Technology Association
California Tank Lines, Inc.
California Taxpayers Association
Chemical Transfer Company
Council on State Taxation
Family Business Association
International Council of Shopping Centers
Kern County Taxpayers Association
NAIOP of California – the Commercial Real Estate Development Association
National Federation of Independent Business
Silicon Valley Leadership Group
Superior Tank Wash, Inc.
TechAmerica
TechNet
West Coast Recycling, LLC.
ARGUMENTS IN SUPPORT: According to the author, “Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance the property tax laws are equitably applied and that the property tax burden is fairly distributed. AB 567 will help add the kind of oversight the public has been looking for regarding these types of transactions."
ARGUMENTS IN OPPOSITION: According to the California Taxpayers Association, “There is no valid reason to begin violating taxpayers’ fundamental protection of keeping their tax information confidential to be released to the public; and would allow the information to be released without tax officials first making a proper determination regarding a property owner’s taxes. The bill will not promote ‘transparency,’ because no public interest would be served by allowing tax officials to release confidential tax information regarding changes in ownership. In fact, an erosion would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break that trust. Oftentimes, no change-in-ownership statement if filed because no change in ownership occurred. In these cases, what purpose is served in disclosing to the public that no form was filed?”
ASSEMBLY FLOOR: 47-29, 5/28/15
AYES: Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Jones-Sawyer, Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Atkins
NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dababneh, Dahle, Beth Gaines, Gallagher, Hadley, Harper, Irwin, Jones, Kim, Lackey, Linder, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Waldron, Wilk
NO VOTE RECORDED: Alejo, Bloom, Daly, Grove
Prepared by: Colin Grinnell / GOV. & F. / (916) 651-4119
7/10/15 15:55:31
**** END ****
AB 567 (Gipson) 2/24/15 Page 3 of 3
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
Bill No: |
AB 567 |
Hearing Date: |
7/8/15 |
Author: |
Gipson |
Tax Levy: |
No |
Version: |
2/24/15 |
Fiscal: |
No |
Consultant: |
Grinnell |
||
PROPERTY TAXATION: CHANGE IN OWNERSHIP STATEMENT: CONFIDENTIALITY OF INFORMATION
Allows BOE or assessors to disclose whether they’ve received a change in ownership statement for a legal entity, or that BOE has issued a determination regarding the change.
Background and Existing Law
Proposition 13 (1978) amended Article XIIIA of the California Constitution to preclude assessors from revaluing real property for tax purposes unless a property is newly constructed, or changes ownership. Assessors revalue property at current, full market value for property tax purposes whenever either of these two events occurs.
Different standards apply when assessors determine whether real property has changed ownership and changes in ownership interests in legal entities, like corporations and partnerships, which own real property. When direct interests in real property change ownership, Assessors generally only revalue that percentage interest which transfers. For legal entities, assessors revalue all of the legal entity’s property to fair market value only when one person or legal entity purchases or otherwise acquires more than 50% ownership of the corporation or other legal entity in a single transaction, or when the changes in the cumulative ownership of the legal entity’s original co-owners reaches 50% in one or more transactions.
Whenever ownership changes, state law requires the new owner to file a Change in Ownership Statement (COS); however, any information appearing on the forms, is considered a secret and not subject to public disclosure. However, the assessment roll, and a quarterly updated list of all property transfers, is a public document.
Often, assessors are unaware a legal entity’s ownership changes, which can trigger reassessment of properties owned by that legal entity. Assessors usually rely on changes in title information supplied by the County Recorder, which don’t account for changes in legal entities. To help track potential reassessments, BOE created the Legal Entity Ownership Program (LEOP) in 1982 to help find and detect changes in control and ownership of corporations, partnerships, and other legal entities, which have no recorded deed or notice of a transfer of an ownership interest in a legal entity. Under LEOP, legal entities must file a change of ownership statement with BOE within 90 days of the transfer, or pay a penalty equal to 10% of the tax on the new value of the property reflecting the change of ownership (SB 816, Ducheny, 2009). Additionally, Franchise Tax Board sends BOE a list of legal entities that have reported a change in control or change in ownership on income tax returns. BOE analyzes completed statements to determine changes in control or ownership, and based on its review, can send legal entities a LEOP COS. BOE then notifies county assessors of changes in control and ownership it detects to ensure reassessment occurs.
Proposed Law
Assembly Bill 567 allows the Board of Equalization (BOE) or the assessor to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE, or that the BOE has issued a determination to the assessor relating to the statement filed. The measure also makes legislative findings and declarations supporting its purposes.
State Revenue Impact
BOE states the measure doesn’t affect property tax revenues.
Comments
1. Purpose of the bill. According to the author, “Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance the property tax laws are equitably applied and that the property tax burden is fairly distributed. AB 567 will help add the kind of oversight the public has been looking for regarding these types of transactions."
2. Piercing the veil. As a general matter in California tax law, any information that a taxpayer enters on a return and submits to a tax enforcement agency is considered confidential, and criminal sanctions apply to persons who unlawfully inspect or disclose any confidential tax information. The Legislature has considered several measures that would make public confidential taxpayer information in the hopes of increasing collections, or stimulating debate about the state’s tax policies, such as:
Directing FTB and BOE to publish lists of the top 500 tax delinquencies over $100,000 (AB 1418, Horton, 2006 and AB 1424, Perea, 2011). The measure was enacted.
Requiring FTB to publish on its website a list of the 1,500 largest corporate taxpayers filing a Form 10-K with the SEC (AB 2439, Eng, 2011). The measure failed passage on the Senate Floor
Requiring FTB to compile information on any tax expenditure claimed by a taxpayer that is a publicly-traded company, and develop a searchable database by company name and the amount of tax expenditures claimed (AB 2666, Skinner, 2010). Governor Arnold Schwarzenegger vetoed this bill.
AB 567 pierces the veil of taxpayer confidentiality by allowing either the BOE or an assessor to disclose that a taxpayer filed a change in ownership statement for a legal entity, or that BOE has determined that a change in ownership has occurred. However, the piercing is minor in comparison to previous efforts: the measure doesn’t compel disclosure of any taxpayer specific information on the form itself, and any changes in ownership show up on the assessment roll or the quarterly transfer eventually. The Committee may wish to consider whether the value of the information AB 567 would bring to public light is worth its cost of taxpayer confidentiality.
3. Baby steps. AB 567 makes a small change in an area of great dispute. Shortly after passage of Proposition 13, the Assembly Committee on Revenue and Taxation appointed a task force of to wrestle with the various interpretations necessary to implement the initiative. The task force’s initial recommendation concerning changes in ownership of property owned by legal entities was to adopt the “separate entity” theory, providing that so long as the same legal entity owned the property, it would not be reassessed, regardless of whether ownership interests in the entity change, such as stock in the corporation, or partners in the partnership. However, the task force subsequently added the ‘majority-takeover-of-corporate-stock,’ or “change in control,” provision to maintain some parity with the increasing relative tax burden of residential property statewide. As enacted, assessors revalue property to fair market value when one person or legal entity purchases or otherwise acquires more than 50% ownership of a corporation or other legal entity in a single transaction. Ever since, taxpayers have generally been able to plan around the change of ownership rules for legal entities to avoid reassessment. Several legislative measures to change these rules were unsuccessful, such as SB 82 (Kopp, 1992) and SB 17 (Escutia, 2005 and 2007) all of which would have overturned the 50% rule. Last year, the Legislature considered a measure that defined as a change in ownership a single transaction when more than 90% or more of the ownership interests in a legal entity are sold in a single transaction to a person or legal entity, regardless of whether a single individual acquires more than 50% of the ownership interest. That measure responded to a single taxpayer’s transaction, and would have ensnared unwitting taxpayers that lacked the legal expertise to structure a transaction to avoid the reformed standard. The Senate Appropriations Committee held the measure on its suspense file.
Assembly Actions
Assembly
Floor 47-29
Assembly Revenue and Taxation 5-3
Support and Opposition
(7/2/15)
Support: BOE Chairman Jerome Horton; California Tax Reform Association; Los Angeles County Assessor Jeffrey Prang, Service Employees International Union; American Federation of State, County, and Municipal Employees.
Opposition: Air Logistics Corporation; Associated Builders and Contractors; Associated Builders and Contractors – San Diego Chapter; Building Owners and Manager Association of California; California Association of Boutique and Breakfast Inns; California Business Properties Association; California Chamber of Commerce; California Hotel and Lodging Association; California Manufacturers and Technology Association; California Tank Lines, Inc.; California Taxpayers Association; Chemical Transfer Co.; Council on State Taxation; Family Business Association; International Council of Shopping Center; Kern County Taxpayers Association; NAIOP of California, the Commercial Real Estate Development Association; National Federation of Independent Business; Silicon Valley Leadership Group; Superior Tank Wash, Inc.; TechAmerica; TechNet; West Coast Recycling, LLC.
-- END --
AB 567
Page 4
ASSEMBLY THIRD READING
AB 567
(Gipson)
As Introduced February 24, 2015
Majority vote
Committee |
Votes |
Ayes |
Noes |
Revenue & Taxation |
5-3 |
Ting, Gipson, Roger Hernández, Mullin, Quirk |
Brough, Patterson, Wagner |
SUMMARY: Allows the State Board of Equalization (BOE), as well as county assessors, to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE or that the BOE has issued a determination to the assessor relating to that statement. Specifically, this bill:
Contains legislative findings and declarations relating to the transparency of the property tax system, the right to privacy, and the balance between the taxing authority's responsibility to safeguard confidential taxpayer information and the public's right to timely information.
Creates an exception to the confidentiality requirement for information reported in a change in ownership (CIO) statement by providing that:
The BOE and the assessor are not required to hold information requested or furnished in a CIO statement for a change in control or a change in ownership, as defined, secret; and,
The disclosure by the BOE or assessor that a CIO statement has been filed shall not be deemed to violate the confidentiality of taxpayer return information in the case where the filing of the statement was prompted by information collected by the Franchise Tax Board (FTB) from the property tax query on the taxpayer's state income tax return, as specified.
EXISTING LAW:
Provides that all property is taxable, unless otherwise provided by the California Constitution or federal laws [California Constitution Article XIII, Section 1(a)]. Limits ad valorem taxes on real property to 1% of the full cash value of that property [California Constitution Article XIII A, Section 1(a) (Proposition 13 of 1978)]. Requires real property to be reassessed to its current fair market value whenever a "change in ownership" occurs. (California Constitution, Article XIII A, Section 2; Revenue and Taxation Code (R&TC) Sections 60 to 69.5)
Requires new owners of real property and certain legal entities to submit a CIO or a change-in-control statement, either with the county recorder or assessor, at the time of recording or, if the transfer is not recorded, within 90 days of the date of the CIO, except as provided.
Requires certain CIO statements to be filed directly with the BOE.
Imposes a penalty for failure to file any of the following statements within the prescribed time period:
A CIO statement required to be filed by a new property owner for real property transfers that must be reported to the local county assessor;
A Legal Entity Ownership Program (LEOP) CIO or a change-in-control statement required to be mailed by a legal entity to the State Board of Equalization (BOE); or
A response to a BOE written request for a legal entity to file a LEOP CIO statement or change-in-control statement.
Requires the BOE and the assessor to hold secret all information furnished in the CIO statement. (R&TC Section 481). These statements are not considered public documents and are not open to inspection except to explicitly authorized persons for certain purposes. (R&TC Sections 408, 481, and 408.2)
Allows public access to certain information, including the assessment roll and a quarterly updated list of all property transfers occurring in the prior two years in each county. (R&TC Section 601, 602, and 408.1)
FISCAL EFFECT: According to the BOE staff, this bill would have no direct impact on General Fund revenues.
COMMENTS:
Author's Statement. The author has provided the following statement in support of this bill, "Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance the property tax laws are equitably applied and that the property tax burden is fairly distributed. AB 567 will help add the kind of oversight the public has been looking for regarding these types of transactions."
Background: Proposition 13 and "Change in Ownership". The property tax applies to all classes of property and is one of the major general revenue sources for local governments in California. A property tax is imposed on the property owners and is based on the value of the property. Much of the law pertaining to taxation of property is prescribed by the California Constitution Article XIII and Article XIII A (commonly known as "Proposition 13"). Proposition 13 was added to the California Constitution in June 1978 and was most recently amended by Proposition 26 in 2010. Proposition 13 was designed to provide real property tax relief by imposing a set of interlocking limitations upon the assessment and taxing powers of state and local governments.1 California Constitution Article XIII A, Section 1 states that, as a general rule, the maximum amount of any ad valorem tax on real property may not exceed 1% of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. The term "full cash value" means the "county assessor's valuation of real property as shown on the 1975-1976 tax bill" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment" (emphasis added) [California Constitution Article XIII A, Sections 1 and 2]. In other words, the California Constitution requires that real property be reassessed to its current fair market value whenever a "change in ownership" occurs. The definition of a "change in ownership" was not included in Proposition 13, but was left to implementing legislation.
Legal Entities: Change in Ownership: Transfers of Real Property. Generally, county assessors discover a CIO via grant deeds or other documents that are recorded with the county recorder. In addition, the county recorder must provide the assessor with a copy of the transfer of ownership document as soon as possible. However, ordinarily the transfer of ownership interests in a legal entity does not involve a recorded deed even if a property reassessment is called for under existing law.
The Legislature has attempted to reduce the volume of unreported business property ownership transfer transactions. The most significant accomplishment was the creation of the LEOP. Under this program, the BOE gathers, and subsequently disseminates, to county assessors information regarding changes in control and ownership of legal entities that own or lease an interest in real property located in California. That information is obtained through monitoring publications, such as the Wall Street Journal and Mergers and Acquisitions, and receiving referrals from assessors. Existing law also requires the FTB to include a question on returns for partnerships, banks, and corporations asking if the entity owns real property in California and whether more than 50% of its voting stock (or other interest) has been transferred to another legal entity.2 This information is shared by the FTB with the BOE. In turn, the BOE is authorized to make a written request to the legal entity to file a LEOP CIO statement to determine if there has been a change in control or ownership of the legal entity. The purpose of the LEOP is to assist county assessors in discovering changes in control or changes in ownership that have not been captured by a county's own discovery systems.
Similarly to the filing requirements applicable to buyers of real property, a person or legal entity that acquires control of another legal entity is responsible for filing a LEOP change-in-ownership statement within 90 days of the event that triggers a change-in-control or CIO of a legal entity, where the entity or any subsidiary owned or held California real property at the time of the change. If the entity fails to self-report, the BOE may send a written request to complete the LEOP CIO statement, in which case the statement must be filed within 90 days of the BOE's written request.3 If a legal entity fails to either self- report or answer the BOE's written request and the failure is discovered later on, then an escape assessment will be made for every tax year that the entity failed to file the CIO statement. There is no statute of limitations applicable to these escape assessments. The penalty for failure to file is 10% of the taxes applicable to the new base-year value of the real property (e.g., land, improvements, and fixtures) if a change in control or CIO has occurred or 10% of the current year's taxes on the real property if a change in control or CIO has not occurred. However, the penalty is limited to $5,000 in the case of the property eligible for the homeowners' exemption and to $20,000 in the case of other types of property, provided that the failure to file was not willful.
Disclosure of Tax Information. The State of California, as well as other states, readily publishes information on unpaid taxes and delinquent taxpayers with respect to property taxes. An unpaid property tax becomes a lien against the real property and dissemination of information on such liabilities is important for protecting potential buyers, lenders, etc. Any recorded real property transfers are made available to the public. A county assessor may also share specified information, otherwise confidential, with various local and state government entities.
In the area of income tax liabilities, however, state law generally prohibits disclosure or inspection of any income tax return information, except as specified in law. In fact, the FTB is required to notify taxpayers if criminal charges have been filed for willful unauthorized inspection or disclosure of their tax data. However, FTB may release tax return information to certain other agencies, including the BOE, legislative committees, the Attorney General, the California Parent Locator Service, the Commissioner of the IRS, and others for certain statutorily enumerated purposes. BOE is similarly restricted from divulging taxpayer information unless specifically authorized by statute. For example, since 2007, both FTB and BOE are required to make as a matter of public record a list of the largest 500 tax delinquencies over $100,000.
The Limited Scope of this Bill. As noted by the BOE staff, in recent years, media reports of the disparate consequences of reassessing property owned by legal entities and property owned by individuals have resulted in an increasing number of inquiries from the public whether specific sales, mergers, acquisitions, and buyouts reported by media trigger the reassessment of a legal entity's real estate holdings. Existing law, however, prohibits BOE staff from providing basic factual information to public, even though this information could eventually become public, when, for example, the assessor reassesses (or does not reassess) the property owned by the legal entity.
Under this bill, the BOE and county assessors are authorized to disclose the fact that a CIO statement has been filed with the BOE or that the BOE has issued a determination to the assessor relating to a CIO statement filed with the BOE. In addition, this bill would exempt from the confidentiality requirement the fact that the filing of a CIO statement was prompted by information collected by the FTB from the taxpayer's state income tax return. The scope of the disclosure proposed by this bill is very limited – it does not require a disclosure of any factual information reported on the taxpayer's state income tax return, such as the amount of gross receipts or sales, gross profit, the amount of credit carryovers, income subject to apportionment, or the amount of each individual credit claimed on the tax return. Furthermore, no actual information reported on a CIO statement, other than the fact that the statement has been filed, may be disclosed to the public. Detailed financial information reported in the state income tax return or CIO statement will remain confidential.
Legal entity change in ownership discovery relies heavily on self-reporting, which does not always result in 100% compliance. State agencies assist local assessors because real property owned by legal entities often undergoes a change in ownership without the public recordation of documents. As stated by the BOE staff in its analysis, the "delayed transparency undermines the public trust in the current property tax system as it applies to legal entity changes in ownerships and fuels the perception that laws are inequitable and should be changed." Transfers of real property are recorded and are already public information. Thus, it is unclear why a disclosure of the mere fact of filing a CIO statement by a legal entity, or the fact that the filing was prompted by the information collected by the FTB, would undermine public trust or should remain confidential.
Analysis Prepared by: Oksana Jaffee / REV. & TAX. / (916) 319-2098 FN: 0000457
1 Since any tax savings resulting from the real property tax limitations provided in California Constitution Article XIII A, Sections 1 and 2 could be effectively eliminated through the imposition of additional state and local taxes, Sections 3 and 4 place additional restrictions upon the imposition of any such taxes. See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, (1978) 22 Cal.3d 208.
2 R&TC Section 64(e).
3 As explained by the BOE staff, the BOE searches for unreported changes in control and ownership of legal entities under Section 64(c) and (d), in addition to receiving information from the FTB.
AB 567
Page 6
Date of Hearing: May 14, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 567 (
Gipson) – As Introduced February 24, 2015
REVISED
Majority vote. Non-fiscal
SUBJECT: Property taxation: change in ownership statement: confidentiality of information.
SUMMARY: Allows the State Board of Equalization (BOE), as well as county assessors, to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE or that the BOE has issued a determination to the assessor relating to that statement. Specifically, this bill:
Contains legislative findings and declarations relating to the transparency of the property tax system, the right to privacy, and the balance between the taxing authority's responsibility to safeguard confidential taxpayer information and the public's right to timely information.
Creates an exception to the confidentiality requirement for information reported in a change in ownership (CIO) statement by providing that:
The BOE and the assessor are not required to hold information requested or furnished in a CIO statement for a change in control or a change in ownership, as defined, secret; and,
The disclosure by the BOE or assessor that a CIO statement has been filed shall not be deemed to violate the confidentiality of taxpayer return information in the case where the filing of the statement was prompted by information collected by the Franchise Tax Board (FTB) from the property tax query on the taxpayer's state income tax return, as specified.
EXISTING LAW:
Provides that all property is taxable, unless otherwise provided by the California Constitution or federal laws [Section 1(a), Article XIII, California Constitution]. Limits ad valorem taxes on real property to 1% of the full cash value of that property [Section 1(a), Article XIII A, California Constitution (Proposition 13)]. Requires real property to be reassessed to its current fair market value whenever a "change in ownership" occurs. (California Constitution, Article XIII A, Section 2; R&TC Sections 60 – 69.5).
Requires new owners of real property and certain legal entities to submit a change-in-ownership or a change-in-control statement, either with the county recorder or assessor, at the time of recording or, if the transfer is not recorded, within 90 days of the date of the CIO, except as provided.
Requires certain CIO statements to be filed directly with the BOE.
Imposes a penalty for failure to file any of the following statements within the prescribed time period:
A change-in-ownership statement required to be filed by a new property owner for real property transfers that must be reported to the local county assessor;
A Legal Entity Ownership Program (LEOP) change-in-ownership or a change-in-control statement required to be mailed by a legal entity to the State Board of Equalization (BOE); or
A response to a BOE written request for a legal entity to file a LEOP change-in- ownership statement or change-in-control statement.
Requires the BOE and the assessor to hold secret all information furnished in the CIO statement. (R&TC Section 481). These statements are not considered public documents and are not open to inspection except to explicitly authorized persons for certain purposes. (R&TC Sections 408, 481, and 408.2).
Allows public access to certain information, including the assessment roll and a quarterly updated list of all property transfers occurring in the prior two years in each county. (R&TC Section 601, 602, and 408.1).
FISCAL EFFECT: According to the BOE staff, this bill would have no direct impact on General Fund revenues.
COMMENTS:
Author's Statement. The author has provided the following statement in support of this bill:
"Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance the property tax laws are equitably applied and that the property tax burden is fairly distributed. AB 567 will help add the kind of oversight the public has been looking for regarding these types of transactions."
Arguments in Support. The proponents of this bill state that government "functions best when decision-makers can and are held accountable for the consequences of their decisions and the means by which those decisions were made." They note that "one of the most important functions of state and local government is the collection of taxes." Thus, the proponents argue that this bill, by "[removing] the secrecy from the mere fact that change in ownership statements have been filed," will make the government accountable to the public for their decisions." Furthermore, they assert that there "is no risk to confidential information from disclosing the mere fact that a change in ownership has been filed" and that "the formal determinations of state government agencies should not be immunized from the kind of accountability that can only come from public scrutiny."
Arguments in Opposition. The opponents of this bill state that there is "no valid reason to begin violating the fundamental principle of taxpayer confidentiality." They argue that this bill "does not promote 'transparency', because no public interest would be served by allowing a tax agency to release confidential tax information." The opponents believe that "an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break this trust." Finally, they assert that the "benefits derived from such disclosures are speculative at best, and do not warrant taking the risk of inaccuracies or other adverse consequences that may undermine public confidence in the tax system."
Background: Proposition 13 and "Change in Ownership". The property tax applies to all classes of property and is one of the major general revenue sources for local governments in California. A property tax is imposed on the property owners and is based on the value of the property. Much of the law pertaining to taxation of property is prescribed by the California Constitution, Article XIII and Article XIII A (commonly known as "Proposition 13"). Proposition 13 was added to the California Constitution in June 1978 and was most recently amended by Proposition 26 in 2010. Proposition 13 was designed to provide real property tax relief by imposing a set of interlocking limitations upon the assessment and taxing powers of state and local governments.1 Section 1 of Article XIII A states that, as a general rule, the maximum amount of any ad valorem tax on real property may not exceed 1% of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. The term "full cash value" means the "county assessor's valuation of real property as shown on the 1975-1976 tax bill" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment" (emphasis added) [California Constitution, Article XIII A, Sections 1 and 2]. In other words, the California Constitution requires that real property be reassessed to its current fair market value whenever a "change in ownership" occurs. The definition of a "change in ownership" was not included in Proposition 13, but was left to implementing legislation.
Shortly after the passage of Proposition 13, this Committee appointed
a special Task Force - a broad-based, 35-member panel that included
legislative and BOE staff, county assessors, attorneys in the public
and private sectors, and trade associations - to recommend the
statutory implementation for Proposition 13, including the "change
in ownership" provisions. With respect to a transfer of
ownership interest in a legal entity that owns real property, the
Task Force initially recommended adopting the "separate entity"
theory that respects the separate identity of the legal entity.
According to this theory, so long as the legal entity owned the
property, the property will not be reassessed, even if most or all of
the ownership interests in the entity, i.e. stock or partnership
interests, had been transferred. The Task Force recommended the
"separate entity" approach because of the perceived
administrative and enforcements problems with disregarding the
separate identity of a legal entity and the unpredictable ripple
effects of ignoring the general separate entity laws. It should be
noted that while the Task Force, in order to mitigate administrative
difficulties, recommended the "separate entity" approach
for determining when a change in ownership of real property occurs,
it was concerned with the fact that commercial and industrial
properties change ownership less frequently than residential
property.
The "majority-takeover-of-corporate stock"
provision was subsequently added "out of a concern that, given
the lower turnover rate of corporate property, mergers or other
transfer of majority controlling ownership should result in a
reappraisal of the corporation's property – an effort to maintain
some parity with the increasing relative tax burden of residential
property statewide, due to more rapid turnover of homes."
(Implementation of Proposition 13, Volume 1, Property Tax
Assessment, a report prepared by the Assembly Revenue and
Taxation Committee, California State Assembly Publication 748,
October 29, 1979). Thus, the law was amended to provide that
whenever any person or entity has purchased or otherwise acquired
more than 50% ownership of a corporation or other legal entity, any
real property owned by the acquired entity must be reappraised to
full market value.2
Legal Entities: Change in Ownership: Transfers of Real Property. Generally, county assessors discover a CIO via grant deeds or other documents that are recorded with the county recorder. In addition, the county recorder must provide the assessor with a copy of the transfer of ownership document as soon as possible. However, ordinarily the transfer of ownership interests in a legal entity does not involve a recorded deed even if a property reassessment is called for under existing law.
The Legislature has attempted to reduce the volume of unreported business property ownership transfer transactions. The most significant accomplishment was the creation of the Legal Entity Ownership Program (LEOP). Under this program, the BOE gathers, and subsequently disseminates, to county assessors information regarding changes in control and ownership of legal entities that own or lease an interest in real property located in California. That information is obtained through monitoring publications, such as the Wall Street Journal and Mergers and Acquisitions, and receiving referrals from assessors. Existing law also requires the Franchise Tax Board (FTB) to include a question on returns for partnerships, banks, and corporations asking if the entity owns real property in California and whether more than 50% of its voting stock (or other interest) has been transferred to another legal entity.3 This information is shared by the FTB with the BOE. In turn, the BOE is authorized to make a written request to the legal entity to file a LEOP change in ownership statement to determine it there has been a change in control or ownership of the legal entity. The purpose of the LEOP is to assist county assessors in discovering changes in control or changes in ownership that have not been captured by a county's own discovery systems.
Similarly to the filing requirements applicable to buyers of real
property, a person or legal entity that acquires control of another
legal entity is responsible for filing a LEOP change-in-ownership
statement within 90 days of the event that triggers a
change-in-control or CIO of a legal entity, where the entity or any
subsidiary owned or held California real property at the time of the
change. If the entity fails to self-report, the BOE may send a
written request to complete the LEOP CIO statement, in which case the
statement must be filed within 90 days of the BOE's written request.4
If a legal entity fails to either self- report or answer the BOE's
written request and the failure is discovered later on, then an
escape assessment will be made for every tax year that the entity
failed to file the CIO statement. There is no statute of limitations
applicable to these escape assessments. The penalty for failure to
file is 10% of the taxes applicable to the new base-year value of the
real property (e.g., land, improvements, and fixtures) if a change in
control or CIO has occurred or 10% of the current year's taxes
on the real property if a change in control or CIO has not
occurred. However, the penalty is limited to $5,000 in the case of
the property eligible for the homeowners' exemption and to $20,000 in
the case of other types of property, provided that the failure to
file was not willful.
Disclosure of Tax Information. The State of California, as well as other states, readily publishes information on unpaid taxes and delinquent taxpayers with respect to property taxes. An unpaid property tax becomes a lien against the real property and dissemination of information on such liabilities is important for protecting potential buyers, lenders, etc. Any recorded real property transfers are made available to the public. A county assessor may also share specified information, otherwise confidential, with various local and state government entities.
In the area of income tax liabilities, however, state law generally
prohibits disclosure or inspection of any income tax return
information, except as specified in law. In fact, the FTB is
required to notify taxpayers if criminal charges have been filed for
willful unauthorized inspection or disclosure of their tax data.
However, FTB may release tax return information to certain other
agencies, including the BOE, legislative committees, the Attorney
General, the California Parent Locator Service, the Commissioner of
the IRS, and others for certain statutorily enumerated purposes. BOE
is similarly restricted from divulging taxpayer information unless
specifically authorized by statute. For example, since 2007, both
FTB and BOE are required to make as a matter of public record a list
of the largest 500 tax delinquencies over $100,000.
The Limited Scope of this Bill. As noted by the BOE staff, in recent years, media reports of the disparate consequences of reassessing property owned by legal entities and property owned by individuals have resulted in an increasing number of inquiries from the public whether specific sales, mergers, acquisitions, and buyouts reported by media trigger the reassessment of a legal entity's real estate holdings. Existing law, however, prohibits BOE staff from providing basic factual information to public, even though this information could eventually become public, when, for example, the assessor reassesses (or does not reassess) the property owned by the legal entity.
Under this bill, the BOE and county assessors are authorized to
disclose the fact that a CIO statement has been filed with the BOE or
that the BOE has issued a determination to the assessor relating to a
CIO statement filed with the BOE. In addition, this bill would
exempt from the confidentiality requirement the fact that the filing
of a CIO statement was prompted by information collected by the FTB
from the taxpayer's state income tax return. The scope of the
disclosure proposed by this bill is very limited – it does not
require a disclosure of any factual information reported on the
taxpayer's state income tax return, such as the amount of gross
receipts or sales, gross profit, the amount of credit carryovers,
income subject to apportionment, or the amount of each individual
credit claimed on the tax return. Furthermore, no actual information
reported on a CIO statement, other than the fact that the statement
has been filed, may be disclosed to the public. Detailed financial
information reported in the state income tax return or CIO statement
will remain confidential.
Legal entity change in
ownership discovery relies heavily on self-reporting, which does not
always result in 100% compliance. State agencies assist local
assessors because real property owned by legal entities often
undergoes a change in ownership without the public recordation of
documents. As stated by the BOE staff in its analysis, the "delayed
transparency undermines the public trust in the current property tax
system as it applies to legal entity changes in ownerships and fuels
the perception that laws are inequitable and should be changed."
Transfers of real property are recorded and are already public
information. Thus, it is unclear why a disclosure of the mere fact
of filing a CIO statement by a legal entity, or the fact that the
filing was prompted by the information collected by the FTB, would
undermine public trust or should remain confidential.
REGISTERED SUPPORT / OPPOSITION:
Support
The Service Employees International Union (SEUI)
California Tax Reform Association
The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO
Opposition
California Taxpayers Association
California Chamber of Commerce
National Federation of Independent Business
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098
1 Since any tax savings resulting from the real property tax limitations provided in Sections 1 and 2 of Article XIII A could be effectively eliminated through the imposition of additional state and local taxes, Sections 3 and 4 place additional restrictions upon the imposition of any such taxes. See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, (1978) 22 Cal.3d 208.
2 R&TC Section 64(c)(1) requires reassessment when any person or entity obtains control through direct or indirect ownership or control, of more than 50% of corporation voting stock, or obtains a 50% ownership interest in any other type of legal entity. R&TC Section 64(d) requires reassessment when voting stock or other ownership interests representing cumulatively more than 50% of the total interests in a legal entity are transferred by any of the "original co-owners" in one or more transactions.
3 R&TC Section 64(e).
4 As explained by the BOE staff, the BOE searches for unreported changes in control and ownership of legal entities under Section 64(c) and (d), in addition to receiving information from the FTB.
AB 567
Page 6
Date of Hearing: May 14, 2015
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Philip Ting, Chair
AB 567 (
Gipson) – As Introduced February 24, 2015
Majority Vote. Non-fiscal
SUBJECT: Property taxation: change in ownership statement: confidentiality of information.
SUMMARY: Allows the State Board of Equalization (BOE), as well as county assessors, to disclose that a person or legal entity has filed a legal entity change in ownership statement with the BOE or that the BOE has issued a determination to the assessor relating to that statement. Specifically, this bill:
Contains legislative findings and declarations relating to the transparency of the property tax system, the right to privacy, and the balance between the taxing authority's responsibility to safeguard confidential taxpayer information and the public's right to timely information.
Creates an exception to the confidentiality requirement for information reported in a change in ownership (CIO) statement by providing that:
The BOE and the assessor are not required to hold information requested or furnished in a CIO statement for a change in control or a change in ownership, as defined, secret; and,
The disclosure by the BOE or assessor that a CIO statement has been filed shall not be deemed to violate the confidentiality of taxpayer return information in the case where the filing of the statement was prompted by information collected by the Franchise Tax Board (FTB) from the property tax query on the taxpayer's state income tax return, as specified.
EXISTING LAW:
Provides that all property is taxable, unless otherwise provided by the California Constitution or federal laws [Section 1(a), Article XIII, California Constitution]. Limits ad valorem taxes on real property to 1% of the full cash value of that property [Section 1(a), Article XIII A, California Constitution (Proposition 13)]. Requires real property to be reassessed to its current fair market value whenever a "change in ownership" occurs. (California Constitution, Article XIII A, Section 2; R&TC Sections 60 – 69.5).
Requires new owners of real property and certain legal entities to submit a change-in-ownership or a change-in-control statement, either with the county recorder or assessor, at the time of recording or, if the transfer is not recorded, within 90 days of the date of the CIO, except as provided.
Requires certain CIO statements to be filed directly with the BOE.
Imposes a penalty for failure to file any of the following statements within the prescribed time period:
A change-in-ownership statement required to be filed by a new property owner for real property transfers that must be reported to the local county assessor;
A Legal Entity Ownership Program (LEOP) change-in-ownership or a change-in-control statement required to be mailed by a legal entity to the State Board of Equalization (BOE); or
A response to a BOE written request for a legal entity to file a LEOP change-in- ownership statement or change-in-control statement.
Requires the BOE and the assessor to hold secret all information furnished in the CIO statement. (R&TC Section 481). These statements are not considered public documents and are not open to inspection except to explicitly authorized persons for certain purposes. (R&TC Sections 408, 481, and 408.2).
Allows public access to certain information, including the assessment roll and a quarterly updated list of all property transfers occurring in the prior two years in each county. (R&TC Section 601, 602, and 408.1).
FISCAL EFFECT: According to the BOE staff, this bill would have no direct impact on General Fund revenues.
COMMENTS:
Author's Statement. The author has provided the following statement in support of this bill:
"Transparency in assessed value information is critical to the integrity of the property tax system. The public should have sufficient information to provide assurance the property tax laws are equitably applied and that the property tax burden is fairly distributed. AB 567 will help add the kind of oversight the public has been looking for regarding these types of transactions."
Arguments in Support. The proponents of this bill state that government "functions best when decision-makers can and are held accountable for the consequences of their decisions and the means by which those decisions were made." They note that "one of the most important functions of state and local government is the collection of taxes." Thus, the proponents argue that this bill, by "[removing] the secrecy from the mere fact that change in ownership statements have been filed," will make the government accountable to the public for their decisions." Furthermore, they assert that there "is no risk to confidential information from disclosing the mere fact that a change in ownership has been filed" and that "the formal determinations of state government agencies should not be immunized from the kind of accountability that can only come from public scrutiny."
Arguments in Opposition. The opponents of this bill state that there is "no valid reason to begin violating the fundamental principle of taxpayer confidentiality." They argue that this bill "does not promote 'transparency', because no public interest would be served by allowing a tax agency to release confidential tax information." The proponents believe that "an erosion of trust would occur, as the public is acutely aware that tax agencies currently must safeguard their tax information, and this bill would break this trust." Finally, they assert that the "benefits derived from such disclosures are speculative at best, and do not warrant taking the risk of inaccuracies or other adverse consequences that may undermine public confidence in the tax system."
Background: Proposition 13 and "Change in Ownership". The property tax applies to all classes of property and is one of the major general revenue sources for local governments in California. A property tax is imposed on the property owners and is based on the value of the property. Much of the law pertaining to taxation of property is prescribed by the California Constitution, Article XIII and Article XIII A (commonly known as "Proposition 13"). Proposition 13 was added to the California Constitution in June 1978 and was most recently amended by Proposition 26 in 2010. Proposition 13 was designed to provide real property tax relief by imposing a set of interlocking limitations upon the assessment and taxing powers of state and local governments.1 Section 1 of Article XIII A states that, as a general rule, the maximum amount of any ad valorem tax on real property may not exceed 1% of the property's full cash value, as adjusted for the lesser of inflation or 2% per year. The term "full cash value" means the "county assessor's valuation of real property as shown on the 1975-1976 tax bill" or, thereafter, "the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment" (emphasis added) [California Constitution, Article XIII A, Sections 1 and 2]. In other words, the California Constitution requires that real property be reassessed to its current fair market value whenever a "change in ownership" occurs. The definition of a "change in ownership" was not included in Proposition 13, but was left to implementing legislation.
Shortly after the passage of Proposition 13, this Committee appointed
a special Task Force - a broad-based, 35-member panel that included
legislative and BOE staff, county assessors, attorneys in the public
and private sectors, and trade associations - to recommend the
statutory implementation for Proposition 13, including the "change
in ownership" provisions. With respect to a transfer of
ownership interest in a legal entity that owns real property, the
Task Force initially recommended adopting the "separate entity"
theory that respects the separate identity of the legal entity.
According to this theory, so long as the legal entity owned the
property, the property will not be reassessed, even if most or all of
the ownership interests in the entity, i.e. stock or partnership
interests, had been transferred. The Task Force recommended the
"separate entity" approach because of the perceived
administrative and enforcements problems with disregarding the
separate identity of a legal entity and the unpredictable ripple
effects of ignoring the general separate entity laws. It should be
noted that while the Task Force, in order to mitigate administrative
difficulties, recommended the "separate entity" approach
for determining when a change in ownership of real property occurs,
it was concerned with the fact that commercial and industrial
properties change ownership less frequently than residential
property.
The "majority-takeover-of-corporate stock"
provision was subsequently added "out of a concern that, given
the lower turnover rate of corporate property, mergers or other
transfer of majority controlling ownership should result in a
reappraisal of the corporation's property – an effort to maintain
some parity with the increasing relative tax burden of residential
property statewide, due to more rapid turnover of homes."
(Implementation of Proposition 13, Volume 1, Property Tax
Assessment, a report prepared by the Assembly Revenue and
Taxation Committee, California State Assembly Publication 748,
October 29, 1979). Thus, the law was amended to provide that
whenever any person or entity has purchased or otherwise acquired
more than 50% ownership of a corporation or other legal entity, any
real property owned by the acquired entity must be reappraised to
full market value.2
Legal Entities: Change in Ownership: Transfers of Real Property. Generally, county assessors discover a CIO via grant deeds or other documents that are recorded with the county recorder. In addition, the county recorder must provide the assessor with a copy of the transfer of ownership document as soon as possible. However, ordinarily the transfer of ownership interests in a legal entity does not involve a recorded deed even if a property reassessment is called for under existing law.
The Legislature has attempted to reduce the volume of unreported business property ownership transfer transactions. The most significant accomplishment was the creation of the Legal Entity Ownership Program (LEOP). Under this program, the BOE gathers, and subsequently disseminates, to county assessors information regarding changes in control and ownership of legal entities that own or lease an interest in real property located in California. That information is obtained through monitoring publications, such as the Wall Street Journal and Mergers and Acquisitions, and receiving referrals from assessors. Existing law also requires the Franchise Tax Board (FTB) to include a question on returns for partnerships, banks, and corporations asking if the entity owns real property in California and whether more than 50% of its voting stock (or other interest) has been transferred to another legal entity.3 This information is shared by the FTB with the BOE. In turn, the BOE is authorized to make a written request to the legal entity to file a LEOP change in ownership statement to determine it there has been a change in control or ownership of the legal entity. The purpose of the LEOP is to assist county assessors in discovering changes in control or changes in ownership that have not been captured by a county's own discovery systems.
Similarly to the filing requirements applicable to buyers of real
property, a person or legal entity that acquires control of another
legal entity is responsible for filing a LEOP change-in-ownership
statement (or Form BOE-100-B) within 90 days of the event that
triggers a change-in-control or CIO of a legal entity, where the
entity or any subsidiary owned or held California real property at
the time of the change. If the entity fails to self-report, the BOE
may send a written request to complete the LEOP CIO statement, in
which case the statement must be filed within 90 days of the BOE's
written request.4
If a legal entity fails to either self- report or answer the BOE's
written request and the failure is discovered later on, then an
escape assessment will be made for every tax year that the entity
failed to file the CIO statement. There is no statute of limitations
applicable to these escape assessments. The penalty for failure to
file is 10% of the taxes applicable to the new base-year value of the
real property (e.g., land, improvements, and fixtures) if a change in
control or CIO has occurred or 10% of the current year's taxes
on the real property if a change in control or CIO has not
occurred. However, the penalty is limited to $5,000 in the case of
the property eligible for the homeowners' exemption and to $20,000 in
the case of other types of property, provided that the failure to
file was not willful.
Disclosure of Tax Information. The State of California, as well as other states, readily publishes information on unpaid taxes and delinquent taxpayers with respect to property taxes. An unpaid property tax becomes a lien against the real property and dissemination of information on such liabilities is important for protecting potential buyers, lenders, etc. Any recorded real property transfers are made available to the public. A county assessor may also share specified information, otherwise confidential, with various local and state government entities.
In the area of income tax liabilities, however, state law generally
prohibits disclosure or inspection of any income tax return
information, except as specified in law. In fact, the FTB is
required to notify taxpayers if criminal charges have been filed for
willful unauthorized inspection or disclosure of their tax data.
However, FTB may release tax return information to certain other
agencies, including the BOE, legislative committees, the Attorney
General, the California Parent Locator Service, the Commissioner of
the IRS, and others for certain statutorily enumerated purposes. BOE
is similarly restricted from divulging taxpayer information unless
specifically authorized by statute. For example, since 2007, both
FTB and BOE are required to make as a matter of public record a list
of the largest 500 tax delinquencies over $100,000.
The Limited Scope of this Bill. As noted by the BOE staff, in recent years, media reports of the disparate consequences of reassessing property owned by legal entities and property owned by individuals have resulted in an increasing number of inquiries from the public whether specific sales, mergers, acquisitions, and buyouts reported by media trigger the reassessment of a legal entity's real estate holdings. Existing law, however, prohibits BOE staff from providing basic factual information to public, even though this information could eventually become public, when, for example, the assessor reassesses (or does not reassess) the property owned by the legal entity.
Under this bill, the BOE and county assessors are authorized to
disclose the fact that a CIO statement has been filed with the BOE or
that the BOE has issued a determination to the assessor relating to a
CIO statement filed with the BOE. In addition, this bill would
exempt from the confidentiality requirement the fact that the filing
of a CIO statement was prompted by information collected by the FTB
from the taxpayer's state income tax return. The scope of the
disclosure proposed by this bill is very limited – it does not
require a disclosure of any factual information reported on the
taxpayer's state income tax return, such as the amount of gross
receipts or sales, gross profit, the amount of credit carryovers,
income subject to apportionment, or the amount of each individual
credit claimed on the tax return. Furthermore, no actual information
reported on a CIO statement, other than the fact that the statement
has been filed, may be disclosed to the public. Detailed financial
information reported in the state income tax return or CIO statement
will remain confidential.
Legal entity change in
ownership discovery relies heavily on self-reporting, which does not
always result in 100% compliance. State agencies assist local
assessors because real property owned by legal entities often
undergoes a change in ownership without the public recordation of
documents. As stated by the BOE staff in its analysis, the "delayed
transparency undermines the public trust in the current property tax
system as it applies to legal entity changes in ownerships and fuels
the perception that laws are inequitable and should be changed."
Transfers of real property are recorded and are already public
information. Thus, it is unclear why a disclosure of the mere fact
of filing a CIO statement by a legal entity, or the fact that the
filing was prompted by the information collected by the FTB, would
undermine public trust or should remain confidential.
REGISTERED SUPPORT / OPPOSITION:
Support
The Service Employees International Union (SEUI)
California Tax Reform Association
The American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO
Opposition
California Taxpayers Association
California Chamber of Commerce
National Federation of Independent Business
Analysis Prepared by: Oksana Jaffe / REV. & TAX. / (916) 319-2098
1 Since any tax savings resulting from the real property tax limitations provided in Sections 1 and 2 of Article XIII A could be effectively eliminated through the imposition of additional state and local taxes, Sections 3 and 4 place additional restrictions upon the imposition of any such taxes. See Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, (1978) 22 Cal.3d 208.
2 R&TC Section 64(c)(1) requires reassessment when any person or entity obtains control through direct or indirect ownership or control, of more than 50% of corporation voting stock, or obtains a 50% ownership interest in any other type of legal entity. R&TC Section 64(d) requires reassessment when voting stock or other ownership interests representing cumulatively more than 50% of the total interests in a legal entity are transferred by any of the "original co-owners" in one or more transactions.
3 R&TC Section 64(e).
4 As explained by the BOE staff, the BOE searches for unreported changes in control and ownership of legal entities under Section 64(c) and (d), in addition to receiving information from the FTB.
Bill Author
Bill Co-Author(s):