Existing law authorizes taxpayers to contribute amounts in excess of their personal income tax liability for the support of specified funds. Existing law also has administrative provisions applicable to voluntary contributions.

This bill would include, as generally applicable administrative provisions, that any new or extended voluntary contribution that takes effect on or after January 2, 2017, include the words voluntary tax contribution in the name of the fund, that the administering agency, as defined, include specified information about the fund on its Internet Web site, that the contributions made be continuously appropriated from the fund to the administering agency, and minimum contribution amount for the continuation of any voluntary tax contribution on the tax return form, and a generally applicable repeal date for a voluntary tax contribution.

Existing law authorizes taxpayers to contribute amounts in excess of their personal income tax liability for the support of specified funds. Existing law also has administrative provisions applicable to voluntary contributions.

This bill would include, as generally applicable administrative provisions, that any new or extended voluntary contribution that takes effect on or after January 2, 2017, include the words voluntary tax contribution in the name of the fund, that the administering agency, as defined, include specified information about the fund on its Internet Web site, that the contributions made be continuously appropriated from the fund to the administering agency, and minimum contribution amount for the continuation of any voluntary tax contribution on the tax return form, and a generally applicable repeal date for a voluntary tax contribution.

Existing law authorizes taxpayers to contribute amounts in excess of their personal income tax liability for the support of specified funds. Existing law also has administrative provisions applicable to voluntary contributions.

This bill would include, as generally applicable administrative provisions, that any new or extended voluntary contribution that takes effect on or after January 2, 2017, include the words voluntary tax contribution in the name of the fund, that the administering agency, as defined, include specified information about the fund on its Internet Web site, that the contributed funds contributions made be continuously appropriated from the fund to the administering agency, and minimum contribution amount for the continuation of any voluntary tax contribution on the tax return form, and a generally applicable inoperative repeal date for a voluntary tax contribution.

Existing law authorizes taxpayers to contribute amounts in excess of their personal income tax liability for the support of specified funds. Existing law also has administrative provisions applicable to voluntary contributions.

This bill would require include, as generally applicable administrative provisions, that any new or extended voluntary contribution to include the words voluntary tax contribution in the name of the fund, require that the administering agency agency, as defined, to include specified information about the fund on its Internet Web site, include a continuous appropriation of that the contributed funds be continuously appropriated to the administering agency, and specify the minimum contribution amount for the continuation of any voluntary contribution. tax contribution on the tax return form, and a generally applicable inoperative date for a voluntary tax contribution.

Existing law authorizes taxpayers to contribute amounts in excess of their personal income tax liability for the support of specified funds.

This bill would require any new or extended voluntary contribution to include the words voluntary tax contribution in the name of the fund, require the administering agency to include specified information about the fund on its Internet Web site, include a continuous appropriation of the contributed funds to the administering agency, and specify the minimum contribution amount for the continuation of any voluntary contribution.

 UNFINISHED BUSINESS  

Bill No: SB 1476

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/20/16

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SENATE FLOOR: 37-0, 4/28/16

AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall, Hancock, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Wieckowski, Wolk

NO VOTE RECORDED: Hernandez, Runner, Vidak

ASSEMBLY FLOOR: 78-0, 8/15/16 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST: This bill establishes general requirements for all new or extended voluntary tax contribution funds.

Assembly Amendments make technical changes, and clarifies that this bill only applies to new and extensions of voluntary tax contributions.

ANALYSIS:

Existing law:

1. Allows taxpayers to contribute money to voluntary contribution funds (VCFs) by checking a box on their state income tax returns. California law requires contributions made through so-called “check-offs” to be made from taxpayers’ own resources and not from their tax liability, as is possible on federal tax returns. Check-off amounts may be claimed as charitable contributions on taxpayers’ tax returns in the subsequent year.
2. Requires that each VCF is individually added to the tax return by legislation. With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount. In general, the minimum contribution amounts are adjusted annually for inflation. For most VCFs, the minimum contribution amount is $250,000, beginning in the fund’s second year. The following check-offs do not have a minimum contribution requirement:
   1. California Firefighters’ Memorial Foundation Fund,
   2. California Peace Officer Memorial Foundation Fund, and
   3. California Seniors Special Fund.
3. Requires the Franchise Tax Board (FTB) to deposit the total of all contributions into the fund created as part of the VCF’s legislative authorization. For some VCFs, such as the Protect Our Coast and Ocean Fund, taxpayers’ contributions are allocated to a state agency for use in a state administered grant program. Other VCFs’ authorizing statutes direct administrative agencies to allocate donations to a private organization. For example, the Office of Emergency Services passes VCF funds to the American Red Cross. Other funds require the State Controller to send the funds directly to private organizations without passing through an administrative agency, such as the California Fire Foundation. The FTB, the Controller, and an administrative agency may deduct from the amount of donations each VCF receives for direct costs of administering a fund.

This bill:

1. Establishes the following general provisions for all tax check-offs:
   1. Sets a minimum contribution amount of $250,000 beginning the second calendar year after the first appearance of the fund on the income tax return, and eliminates the inflation adjustment in subsequent years.
   2. Lengthens the current standard five year sunset to seven years.
   3. Requires the administering agency to post online the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including, but not limited to, information regarding recipients of funds.
   4. Provides that funds shall be continuously appropriated to the administering agency to be spent as prescribed in the bill that enacts the voluntary contribution.
   5. Includes the words “voluntary tax contribution” in the name of the fund.
2. Applies to all voluntary contribution funds established or extended after January 2, 2017.

Background

SB 1476 results from extensive research and an oversight hearing which identified best practices and reforms needed to ensure that taxpayers’ voluntary contributions are being put toward charitable purposes in a transparent and timely fashion.

The current tax check-off process starts with the Legislature enacting legislation. Next, a taxpayer contributes to an established tax check-off on the income tax form. The donation is collected by FTB and distributed to the State Controller by June 15th each year. Contributions made after June are not distributed to the State Controller’s Office until the following year. The State Controller then distributes the funds according to the enacting statute, which generally requires an appropriation by the Legislature. Next, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance. Once the Department of Finance approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. After the Governor signs that bill, only then can the Controller transfer the donation to the administering agency. This process can take years.

When a tax check-off is repealed, or fails to meet the minimum contribution limit, the check-off fund is removed from the income tax form. After four years of inactivity the tax check-off fund is abolished, and unused funds revert to the General Fund at the direction of the Department of Finance. Before the Department of Finance abolishes a tax check-off fund, the Department sends a letter to the Joint Legislative Budget Committee informing the Committee of all funds slated to be abolished. At that time, the Joint Legislative Budget Committee has the opportunity to object to the check-off fund’s abolishment. The letter from the Department of Finance does not specify the type of fund being abolished; the letter only lists names of funds. Thus, it is unclear from the face of the letter if an abolished fund is a privately-funded taxpayer check-off fund or a government fund.

SB 1476 will ensure timely use of tax check-off funds by eliminating the current requirement of “appropriation by the Legislature” of funds. Elimination of requiring an appropriation by the Legislature for each tax check-off will result in funds arriving to the administering agency at least a year earlier than under the current process. This bill also protects tax check-off funds from reverting to the General Fund by requiring tax check-off funds to include “voluntary contribution fund” in their names so that the Legislature, Department of Finance, and the Joint Legislative Budget Committee are aware when a tax check-off fund is slated for abolishment and reversion to the General Fund. Lastly, this bill includes reporting requirements by the administering agency. This serves as a safeguard against eliminating the appropriation by the Legislature requirement. Instead of the intended use of the funds only being available to the Department of Finance in a BCP, the use of the funds will be online available to everyone.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 8/15/16)

Asian & Pacific Islander American Health Forum

Breast Cancer Action

Breast Cancer Fund

California Breast Cancer Organizations

K to College

University of California

West Fresno Family Resource Center

OPPOSITION: (Verified 8/15/16)

None received

ARGUMENTS IN SUPPORT: According to the author, On December 9, 2015 Senate Governance and Finance held an oversight hearing titled “California’s Tax Check-off Program: Room for Improvement?” The hearing reviewed the current status of California’s tax check-off funds and found a framework was needed to improve our current tax check-off system. Specifically, the Committee found that donated funds could take years to reach the intended recipient, or worse yet the money ends up in state coffers. The Legislature created California’s tax check-off system in 1982 with a noble intention: to make it easier for Californians to donate to charitable causes. To date, tax check-offs have raised over $102 million for various charitable causes, including social services, public health, and environmental protection. SB 1476 seeks to streamline the tax check-off process to ensure all funds reach their intended recipient as quickly as possible, and address administrative burdens tax check-off recipients have faced.

ASSEMBLY FLOOR: 78-0, 8/15/16

AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon

NO VOTE RECORDED: Roger Hernández, Olsen

Prepared by:

8/19/16 20:05:04

**** END ****

SENATE THIRD READING

STR Bill Id:SB 1476

Author:(Committee on Governance and Finance)

As Amended Ver:June 16, 2016

Majority vote

SENATE VOTE: 37-0

SUMMARY: Establishes general requirements for all new or extended voluntary tax contribution funds (VCFs). Specifically, this bill:

1. Requires the words "voluntary tax contribution" to be included as part of the name of the fund.
2. Requires the administering agency's Internet Web site to report the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including information regarding recipients of funds.
3. Defines an "administering agency" as the state agency or other governmental entity, other than the Franchise Tax Board (FTB) and the State Controller, to which funds are allocated to accomplish the purposes of the voluntary tax contribution designation.
4. Provides, unless otherwise specified, for each VCF's automatic sunset on January 1 of the seventh calendar year following the VCF's first appearance on the personal income tax (PIT) return.
5. Requires each VCF to meet a minimum contribution threshold of $250,000 each calendar year to remain on the PIT return.
6. Requires contributions made to each VCF to be continuously appropriated to the administering agency to be spent, as specified.
7. Specifies that these requirements only apply to new or extended VCFs that take effect on or after January 2, 2017.

EXISTING LAW:

1. Allows taxpayers to contribute amounts in excess of their PIT liability to one or more of 19 VCFs on the 2015 PIT return.
2. Provides a specific sunset date for each VCF, except for the California Seniors Special Fund and the State Parks Protection Fund.
3. Requires each VCF to meet an annual minimum contribution amount to remain in effect, adjusted annually for inflation based on the percentage change in the California Consumer Price Index, except for the California Firefighters' Memorial Fund, the California Peace Officer Memorial Foundation Fund, and the California Seniors Special Fund.
4. Provides that upon repeal of a VCF, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal shall continue be transferred and disbursed, as specified.
5. Specifies how contributions shall be allocated in the event that no designee fund is specified, or if an individual designates a contribution to more than one fund and the amount available is insufficient to satisfy the total amount designated.
6. Specifies the order by which new contingent VCFs are eligible to be added to the PIT return.

FISCAL EFFECT: None

COMMENTS:

1. Life Cycle of a VCF: On December 9, 2015, the Senate Committee on Governance and Finance held an oversight hearing on VCF programs. The hearing outlined the process by which a taxpayer's voluntary contribution on his or her PIT return is eventually allocated to the designated charitable fund. The current process starts with legislation enacting a VCF to be established on the PIT return. Next, a taxpayer contributes to an established VCF on the PIT return. The contribution is collected by the FTB and distributed to the State Controller by June 15th each year (contributions made after June are not distributed to the State Controller until the following year). The State Controller then distributes the money according to the enacting legislation, which generally requires an appropriation by the Legislature. As a result, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance (DOF). Once the DOF approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. The State Controller can only transfer money in the fund to the administering agency to effectuate its charitable purpose after the Governor signs the appropriations bill. Overall, years may pass before a charitable donation made to a VCF is put toward its intended use.

When a VCF's its automatic sunset date is not renewed or fails to meet its minimum contribution threshold, the VCF is removed from the PIT return. However, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal must continue to be transferred and disbursed in accordance with the legislation that enacted the VCF. In other words, the balance of the VCF should eventually reach zero as any remaining moneys in the fund are allocated to the intended recipient. After four years of inactivity, all governmental funds, including VCFs, are slated for abolishment by the DOF, with any unspent money in the fund reverting to the General Fund. The DOF must first send the Joint Legislative Budget Committee (JLBC) a letter detailing all funds to be abolished, giving JLBC the opportunity to object to any funds' abolishment. However, the letter does not specify the type of fund being abolished and only lists the name of the funds. Thus, it is often unclear whether the fund proposed for abolishment is a general government fund or a privately funded VCF with remaining disbursements intended for a specific non-governmental charitable purpose.

1. Continuous Appropriation: Current practice generally requires a specific appropriation by the Legislature to allocate money from a VCF to the FTB and the State Controller for reimbursement of costs associated with administering the VCF, with the balance allocated to the administering agency. To streamline the process by which taxpayers' voluntary contributions are put toward their charitable purpose, this bill provides that a continuous appropriation shall be made from all prospective VCFs to the applicable administering agency in accordance with the legislation that enacted the VCF. Money allocated to the FTB and the State Controller will still be subject to a specific appropriation by the Legislature.

According to the author, a continuous appropriation to administering agencies will result in speedier allocation of money for ongoing VCFs, and help ensure that any remaining money in the fund upon repeal of a VCF will still be disbursed as required to achieve its intended charitable purpose. In an attempt to maintain checks and balances on continuously appropriated VCFs, this bill creates new online reporting requirements for administering agencies so the public can easily discern how the money is awarded and spent, including how much money is first absorbed by the administering agency on operating costs. This bill also aims to prevent VCF money from reverting to the General Fund by requiring the words "voluntary tax contribution" in the name of the fund so the JLBC is clearly notified when a VCF is slated for abolishment and can take measures to redirect the money towards its intended charitable purpose, if desired.

1. Committee Policy on VCFs: The number of VCF "checkoffs" on the PIT return has grown dramatically in recent years, prompting the Assembly Committee on Revenue and Taxation (Committee) to adopt specific rules regarding VCF legislation. The policy requires all new checkoffs and existing checkoffs seeking reauthorization to have sunset dates and meet a $250,000 minimum contribution threshold adjusted for inflation in subsequent years, among other provisions. This bill provides that all prospective VCFs have a seven-year sunset date, two years longer than current practice generally granting VCFs a five-year sunset date. This bill also provides that all prospective VCFs meet a minimum contribution threshold of $250,000 and does not require the threshold to be adjusted yearly for inflation, deviating from current practice and the Committee's policy.

According to the author, these changes are intended to ease administrative burdens on long-standing VCFs by reducing the burden on non-profits that must otherwise seek new legislation every five years, and leveling ever-increasing minimum contribution amounts successful VCFs must meet to stay on the PIT return. While there are countless worthy causes that would benefit from the inclusion of a VCF on the PIT return, space on the return is limited. Thus, it could be argued that the current system for adding VCFs to the form is subjective and essentially rewards organizations that can convince the Legislature to include their fund on the form. To the extent that VCFs are able to remain on the PIT return for a longer period of time, it may come at the expense of other charitable causes seeking the same opportunity.

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098 FN: 0003478

Date of Hearing: June 13, 2016

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Sebastian Ridley-Thomas, Chair

SBPCA Bill Id:SB 1476

Author:(Committee on Governance and Finance) – As Amended Ver:April 14, 2016

Majority vote. Non-fiscal.

SENATE VOTE: 37-0

SUBJECT: Income taxation: voluntary contributions

SUMMARY: Establishes general requirements for all new or extended voluntary tax contribution funds (VCFs). Specifically, this bill:

1. Requires the words "voluntary tax contribution" to be included as part of the name of the fund.
2. Requires the administering agency's Internet Web site to report the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including information regarding recipients of funds.
3. Defines an "administering agency" as the state agency or other governmental entity, other than the Franchise Tax Board (FTB) and the State Controller, to which funds are allocated to accomplish the purposes of the voluntary tax contribution designation.
4. Provides, unless otherwise specified, for each VCF's automatic sunset on January 1 of the seventh calendar year following the VCF's first appearance on the personal income tax (PIT) return.
5. Requires each VCF to meet a minimum contribution threshold of $250,000 each calendar year to remain on the PIT return.
6. Requires contributions made to each VCF to be continuously appropriated to the administering agency to be spent, as specified.

EXISTING LAW:

1. Allows taxpayers to contribute amounts in excess of their PIT liability to one or more of 19 VCFs on the 2015 PIT return.
2. Provides a specific sunset date for each VCF, except for the California Seniors Special Fund and the State Parks Protection Fund.
3. Requires each VCF to meet an annual minimum contribution amount to remain in effect, adjusted annually for inflation based on the percentage change in the California Consumer Price Index, except for the California Firefighters' Memorial Fund, the California Peace Officer Memorial Foundation Fund, and the California Seniors Special Fund.
4. Provides that upon repeal of a VCF, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal shall continue be transferred and disbursed, as specified.
5. Specifies how contributions shall be allocated in the event that no designee fund is specified, or if an individual designates a contribution to more than one fund and the amount available is insufficient to satisfy the total amount designated.
6. Specifies the order by which new contingent VCFs are eligible to be added to the PIT return.

FISCAL EFFECT: Unknown

COMMENTS:

1. Author's Statement: The author has provided the following statement in support of this bill:

On December 9, 2015 [the Senate Committee on Governance and Finance] held an oversight hearing titled "California's Tax Check-off Program: Room for Improvement?" The hearing reviewed the current status of California's tax check-off funds and found a framework was needed to improve our current tax check-off system. Specifically, the Committee found that donated funds could take years to reach the intended recipient, or worse yet the money ends up in state coffers. The Legislature created California's tax check-off system in 1982 with a noble intention: to make it easier for Californians to donate to charitable causes. To date, tax check-offs have raised over $102 million for various charitable causes, including social services, public health, and environmental protection. SB 1476 seeks to streamline the tax check-off process to ensure all funds reach their intended recipient as quickly as possible, and address administrative burdens tax check-off recipients have faced.

1. Arguments in Support: Proponents of this bill state that maintaining a uniform seven-year sunset date and $250,000 minimum contribution threshold for VCFs will "reduce the legislative and administrative burdens on these programs" while "avoiding threats to their longevity [that] imposing an ever-increasing benchmark [creates]." Additionally, providing continuous appropriation of contributed funds to the administering agency will "reduce administration costs and make funds available up to one year earlier than current law allows."
2. Life Cycle of a VCF: The Senate Committee on Governance and Finance's oversight hearing on VCF programs outlined the process by which a taxpayer's voluntary contribution on his or her PIT return is eventually allocated to the designated charitable fund. The current process starts with legislation enacting a VCF to be established on the PIT return. Next, a taxpayer contributes to an established VCF on the PIT return. The contribution is collected by the FTB and distributed to the State Controller by June 15th each year (contributions made after June are not distributed to the State Controller until the following year). The State Controller then distributes the money according to the enacting legislation, which generally requires an appropriation by the Legislature. As a result, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance (DOF). Once the DOF approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. The State Controller can only transfer money in the fund to the administering agency to effectuate its charitable purpose after the Governor signs the appropriations bill. Overall, years may pass before a charitable donation made to a VCF is put toward its intended use.

When a VCF's its automatic sunset date is not renewed or fails to meet its minimum contribution threshold, the VCF is removed from the PIT return. However, any contribution designated on a timely filed original return for the taxable year immediately preceding the date of repeal must continue to be transferred and disbursed in accordance with the legislation that enacted the VCF. In other words, the balance of the VCF should eventually reach zero as any remaining moneys in the fund are allocated to the intended recipient. After four years of inactivity, all governmental funds, including VCFs, are slated for abolishment by the DOF, with any unspent money in the fund reverting to the General Fund. The DOF must first send the Joint Legislative Budget Committee (JLBC) a letter detailing all funds to be abolished, giving JLBC the opportunity to object to any funds' abolishment. However, the letter does not specify the type of fund being abolished and only lists the name of the funds. Thus, it is often unclear whether the fund proposed for abolishment is a general government fund or a privately funded VCF with remaining disbursements intended for a specific non-governmental charitable purpose.

1. Continuous Appropriation: Current practice generally requires a specific appropriation by the Legislature to allocate money from a VCF to the FTB and the State Controller for reimbursement of costs associated with administering the VCF, with the balance allocated to the administering agency. To streamline the process by which taxpayers' voluntary contributions are put toward their charitable purpose, this bill provides that a continuous appropriation shall be made from all prospective VCFs to the applicable administering agency in accordance with the legislation that enacted the VCF. Money allocated to the FTB and the State Controller will still be subject to a specific appropriation by the Legislature.

According to the author, a continuous appropriation to administering agencies will result in speedier allocation of money for ongoing VCFs, and help ensure that any remaining money in the fund upon repeal of a VCF will still be disbursed as required to achieve its intended charitable purpose. In an attempt to maintain checks and balances on continuously appropriated VCFs, this bill creates new online reporting requirements for administering agencies so the public can easily discern how the money is awarded and spent, including how much money is first absorbed by the administering agency on operating costs. This bill also aims to prevent VCF money from reverting to the General Fund by requiring the words "voluntary tax contribution" in the name of the fund so the JLBC is clearly notified when a VCF is slated for abolishment and can take measures to redirect the money towards its intended charitable purpose, if desired.

1. Committee Policy on VCFs: The number of VCF "checkoffs" on the PIT return has grown dramatically in recent years, prompting this Committee to adopt specific rules regarding VCF legislation. The policy requires all new checkoffs and existing checkoffs seeking reauthorization to have sunset dates and meet a $250,000 minimum contribution threshold adjusted for inflation in subsequent years, among other provisions. This bill provides that all prospective VCFs have a seven-year sunset date, two years longer than current practice generally granting VCFs a five-year sunset date. This bill also provides that all prospective VCFs meet a minimum contribution threshold of $250,000 and does not require the threshold to be adjusted yearly for inflation, deviating from current practice and this Committee's policy.

According to the author, these changes are intended to ease administrative burdens on long-standing VCFs by reducing the burden on non-profits that must otherwise seek new legislation every five years, and leveling ever-increasing minimum contribution amounts successful VCFs must meet to stay on the PIT return. While there are countless worthy causes that would benefit from the inclusion of a VCF on the PIT return, space on the return is limited. Thus, it could be argued that the current system for adding VCFs to the form is subjective and essentially rewards organizations that can convince the Legislature to include their fund on the form. To the extent that VCFs are able to remain on the PIT return for a longer period of time, it may come at the expense of other charitable causes seeking the same opportunity.

1. Technical Amendments: According to the author, this bill is intended to apply to prospective VCF legislation and not to current VCF legislation that may become law if signed by the Governor this year. The Committee may wish to consider specifying that this bill applies to legislation introduced on or after January 1, 2017.

Committee staff also suggests adoption of the following amendments:

1. On Page 2, Line 6, insert "any" between "of" and "existing";
2. On Page 2, Line 16, insert "the" between "than" and "Franchise";
3. On Page 3, Line 18, strike "Funds contributed" and insert "Contributions made", and strike "tax check-off"" and insert "voluntary tax contribution"; and,
4. On Page 3, Line 19, insert "from the fund" between "appropriated" and "to".
5. Related Legislation:
   1. AB 1399 (Baker) would add a voluntary contribution for the California Domestic Violence Fund. AB 1399 is pending hearing by the Senate Committee on Governance and Finance.
   2. AB 1789 (Santiago) would extend the voluntary contribution for the School Supplies for Homeless Children Fund. AB 1789 is pending hearing by the Senate Committee on Governance and Finance.
   3. AB 2371 (Frazier) would add a voluntary contribution for the Special Olympics Fund. AB 2371 is pending hearing by the Senate Committee on Governance and Finance.
   4. AB 2430 (Beth Gaines) would add a voluntary contribution for the Juvenile Diabetes Research Fund. AB 2430 is pending hearing by the Senate Committee on Governance and Finance.
   5. AB 2497 (Wagner) would repeal the voluntary contribution for the California Senior Legislature Fund and replace it with a voluntary contribution for the California Senior Citizen Advocacy Fund. AB 2497 is pending hearing by the Senate Committee on Governance and Finance.
   6. SB 1416 (Jeff Stone) would add a voluntary contribution for the Revive the Salton Sea Fund. SB 1416 is pending hearing by this Committee.
6. Prior Legislation: SB 1207 (Wolk), of the 2013-14 Legislative Session, would have modified the current voluntary contribution designation process by establishing the California Voluntary Contributions Program administered by the Office of California Volunteers and requiring charitable organizations to meet certain standards before they could participate in the program. SB 1207 was held on the Assembly Appropriations Committee's Suspense File.

REGISTERED SUPPORT / OPPOSITION:

Support

American Cancer Society Cancer Action Network

Asian & Pacific Islander American Health Forum

Breast Cancer Action

Breast Cancer Fund

K to College

University of California

West Fresno Family Resource Center

Two individuals

Opposition

None on file

Analysis Prepared by: Irene Ho / REV. & TAX. / (916) 319-2098

 THIRD READING  

Bill No: SB 1476

Author:

:

Vote:

SENATE GOVERNANCE & FIN. COMMITTEE: 7-0, 4/20/16

AYES: Hertzberg, Nguyen, Beall, Hernandez, Lara, Moorlach, Pavley

SUBJECT:

SOURCE: Author

DIGEST: This bill establishes general provisions for voluntary contribution funds.

ANALYSIS:

Existing law:

1. Allows taxpayers to contribute money to voluntary contribution funds (VCFs) by checking a box on their state income tax returns. California law requires contributions made through so-called “check-offs” to be made from taxpayers’ own resources and not from their tax liability, as is possible on federal tax returns. Check-off amounts may be claimed as charitable contributions on taxpayers’ tax returns in the subsequent year.
2. Requires that each VCF is individually added to the tax return by legislation. With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount. In general, the minimum contribution amounts are adjusted annually for inflation. For most VCFs, the minimum contribution amount is $250,000, beginning in the fund’s second year. The following check-offs do not have a minimum contribution requirement:
   1. California Firefighters’ Memorial Foundation Fund,
   2. California Peace Officer Memorial Foundation Fund, and
   3. California Seniors Special Fund.
3. Requires the Franchise Tax Board (FTB) to deposit the total of all contributions into the fund created as part of the VCF’s legislative authorization. For some VCFs, such as the Protect Our Coast and Ocean Fund, taxpayers’ contributions are allocated to a state agency for use in a state administered grant program. Other VCFs’ authorizing statutes direct administrative agencies to allocate donations to a private organization. For example, the Office of Emergency Services passes VCF funds to the American Red Cross. Other funds require the State Controller to send the funds directly to private organizations without passing through an administrative agency, such as the California Fire Foundation. The FTB, the Controller, and an administrative agency may deduct from the amount of donations each VCF receives for direct costs of administering a fund.

This bill:

1. Establishes the following general provisions for all tax check-offs:
   1. Sets a minimum contribution amount of $250,000 beginning the second calendar year after the first appearance of the fund on the income tax return, and eliminates the inflation adjustment in subsequent years.
   2. Lengthens the current standard five year sunset to seven years.
   3. Requires the administering agency to post online the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including, but not limited to, information regarding recipients of funds,
   4. Provides that funds shall be continuously appropriated to the administering agency to be spent as prescribed in the bill that enacts the voluntary contribution.
   5. Includes the words “voluntary tax contribution” in the name of the fund,
2. Applies to all voluntary contribution funds established or extended after January 1, 2017.

Background

SB 1476 results from extensive research and an oversight hearing which identified best practices and reforms needed to ensure that taxpayers’ voluntary contributions are being put toward charitable purposes in a transparent and timely fashion.

The current tax check-off process starts with the Legislature enacting legislation. Next, a taxpayer contributes to an established tax check-off on the income tax form. The donation is collected by FTB and distributed to the State Controller by June 15th each year. Contributions made after June are not distributed to the State Controller’s Office until the following year. The State Controller then distributes the funds according to the enacting statute, which generally requires an appropriation by the Legislature. Next, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance. Once the Department of Finance approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. After the Governor signs that bill, only then can the Controller transfer the donation to the administering agency. This process can take years.

When a tax check-off is repealed, or fails to meet the minimum contribution limit, the check-off fund is removed from the income tax form. After four years of inactivity the tax check-off fund is abolished, and unused funds revert to the General Fund at the direction of the Department of Finance. Before the Department of Finance abolishes a tax check-off fund, the Department sends a letter to the Joint Legislative Budget Committee informing the Committee of all funds slated to be abolished. At that time, the Joint Legislative Budget Committee has the opportunity to object to the check-off fund’s abolishment. The letter from the Department of Finance does not specify the type of fund being abolished; the letter only lists names of funds. Thus, it is unclear from the face of the letter if an abolished fund is a privately-funded taxpayer check-off fund or a government fund.

SB 1476 will ensure timely use of tax check-off funds by eliminating the current requirement of “appropriation by the Legislature” of funds. Elimination of requiring an appropriation by the Legislature for each tax check-off will result in funds arriving to the administering agency at least a year earlier than under the current process. This bill also protects tax check-off funds from reverting to the General Fund by requiring tax check-off funds to include “voluntary contribution fund” in their names so that the Legislature, Department of Finance, and the Joint Legislative Budget Committee are aware when a tax check-off fund is slated for abolishment and reversion to the General Fund. Lastly, this bill includes reporting requirements by the administering agency. This serves as a safeguard against eliminating the appropriation by the Legislature requirement. Instead of the intended use of the funds only being available to the Department of Finance in a BCP, the use of the funds will be online available to everyone.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 4/27/16)

Breast Cancer Action

Breast Cancer Fund

California Breast Cancer Organizations

K to College

University of California

West Fresno Family Resource Center

OPPOSITION: (Verified 4/27/16)

None received

ARGUMENTS IN SUPPORT: According to the author, On December 9, 2015 Senate Governance and Finance held an oversight hearing titled “California’s Tax Check-off Program: Room for Improvement?” The hearing reviewed the current status of California’s tax check-off funds and found a framework was needed to improve our current tax check-off system. Specifically, the Committee found that donated funds could take years to reach the intended recipient, or worse yet the money ends up in state coffers. The Legislature created California’s tax check-off system in 1982 with a noble intention: to make it easier for Californians to donate to charitable causes. To date, tax check-offs have raised over $102 million for various charitable causes, including social services, public health, and environmental protection. SB 1476 seeks to streamline the tax check-off process to ensure all funds reach their intended recipient as quickly as possible, and address administrative burdens tax check-off recipients have faced.

Prepared by:

4/27/16 15:57:35

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SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Income taxation: voluntary contributions

Establishes general provisions for voluntary contribution funds.

Background

Existing state law allows taxpayers to contribute money to voluntary contribution funds (VCFs), by checking a box on their state income tax returns. California law requires contributions made through so-called “check-offs” to be made from taxpayers’ own resources and not from their tax liability, as is possible on federal tax returns. Check-off amounts may be claimed as charitable contributions on taxpayers’ tax returns in the subsequent year.

Each VCF is individually added to the tax return by legislation. With a few exceptions, VCFs remain on the return until they are repealed by a sunset date or fail to generate a minimum contribution amount. In general, the minimum contribution amount is $250,000, beginning in the fund’s second year, and is adjusted yearly for inflation thereafter. The following check-offs do not have a minimum contribution requirement:

• California Firefighters’ Memorial Foundation Fund,
• California Peace Officer Memorial Foundation Fund, and
• California Seniors Special Fund.

When a taxpayer contributes to VCFs, the Franchise Tax Board (FTB) deposits the total of all contributions, less an administrative fee, into the fund created as part of the VCF’s legislative authorization. For some VCFs, such as the Protect Our Coast and Ocean Fund, taxpayers’ contributions are allocated to a state agency for use in a state administered grant program. Other VCFs’ authorizing statutes direct administrative agencies to allocate donations to a private organization. For example, the Office of Emergency Services passes VCF funds to the American Red Cross. Other funds require the State Controller to send the funds directly to private organizations without passing through an administrative agency, such as the California Fire Foundation. The Controller and administrative agencies may deduct administrations fees from the amount of donations each VCF receives.

There are currently 19 check-offs listed on the tax return form. The tax check-off program typically collects $4-5 million in annual contributions for all VCFs.

Proposed Law

Senate Bill 1476 establishes the following general provisions for all tax check-offs:

• Sets a minimum contribution amount of $250,000 beginning the second calendar year after the first appearance of the fund on the income tax return, and eliminates the inflation adjustment in subsequent years.
• Lengthens the current standard five year sunset to seven years.
• Requires the administering agency to post online the process for awarding money, the amount of money spent on administration, and an itemization of how program funds were awarded by the agency, including, but not limited to, information regarding recipients of funds,
• Provides that funds shall be continuously appropriated to the administering agency to be spent as prescribed in the bill that enacts the voluntary contribution.
• Includes the words “voluntary tax contribution” in the name of the fund,

SB 1476 applies to all voluntary contribution funds established or extended after January 1, 2017.

State Revenue Impact

FTB estimates that the bill will not impact state revenue.

Comments

1. Purpose of the bill. On December 9, 2015 this Committee held an oversight hearing titled “California’s Tax Check-off Program: Room for Improvement?” The hearing reviewed the current status of California’s tax check-off funds and found a framework was needed to improve our current tax check-off system. Specifically, the Committee found that donated funds could take years to reach the intended recipient, or worse yet the money ends up in state coffers. The Legislature created California’s tax check-off system in 1982 with a noble intention: to make it easier for Californians to donate to charitable causes. To date, tax check-offs have raised over $102 million for various charitable causes, including social services, public health, and environmental protection. SB 1476 seeks to streamline the tax check-off process to ensure all funds reach their intended recipient as quickly as possible, and address administrative burdens tax check-off recipients have faced.

2. Tax check-off program. SB 1476 results from extensive research and an oversight hearing which identified best practices and reforms needed to ensure that taxpayers’ voluntary contributions are being put toward charitable purposes in a transparent and timely fashion.

The current tax check-off process starts with the Legislature enacting legislation. Next, a taxpayer contributes to an established tax check-off on the income tax form. The donation is collected by FTB and distributed to the State Controller by June 15th each year. Contributions made after June are not distributed to the State Controller’s Office until the following year. The State Controller then distributes the funds according to the enacting statute, which generally requires an appropriation by the Legislature. Next, the administering agency generally must submit a budget change proposal (BCP) to the Department of Finance. Once the Department of Finance approves the BCP, the appropriation is placed into a bill to be approved by the Legislature. After the Governor signs that bill, only then can the Controller transfer the donation to the administering agency. This process can take years.

When a tax check-off is repealed, or fails to meet the minimum contribution limit, the check-off fund is removed from the income tax form. After four years of inactivity the tax check-off fund is abolished, and unused funds revert to the General Fund at the direction of the Department of Finance. Before the Department of Finance abolishes a tax check-off fund, the Department sends a letter to the Joint Legislative Budget Committee informing the Committee of all funds slated to be abolished. At that time, the Joint Legislative Budget Committee has the opportunity to object to the check-off fund’s abolishment. The letter from the Department of Finance does not specify the type of fund being abolished; the letter only lists names of funds. Thus, it is unclear from the face of the letter if an abolished fund is a privately-funded taxpayer check-off fund or a government fund.

SB 1476 will ensure timely use of tax check-off funds by eliminating the current requirement of “appropriation by the Legislature” of funds. Elimination of requiring an appropriation by the Legislature for each tax check-off will result in funds arriving to the administering agency at least a year earlier than under the current process. The bill also protects tax check-off funds from reverting to the General Fund by requiring tax check-off funds to include “voluntary contribution fund” in their names so that the Legislature, Department of Finance, and the Joint Legislative Budget Committee are aware when a tax check-off fund is slated for abolishment and reversion to the General Fund. Lastly, the bill includes reporting requirements by the administering agency. This serves as a safeguard against eliminating the appropriation by the Legislature requirement. Instead of the intended use of the funds only being available to the Department of Finance in a BCP, the use of the funds will be online available to everyone.

3. Administrative burdens. The Legislature must enact and extend five year sunsets for all tax check-offs. Additionally, most tax check-offs must meet the minimum contribution amount of $250,000 beginning the second calendar year after the first appearance of the fund on the personal income tax return, and indexed yearly for inflation thereafter. It can be burdensome for non-profits to go through the legislative process every five years. Also, long standing tax check-offs have to meet high minimum contribution amounts because of the yearly inflation adjustment.

SB 1476 keeps the minimum contribution amount at $250,000, beginning the second calendar year the fund is on the personal income tax return, and establishes a seven year sunset for all voluntary contribution funds to ease administrative burdens on long standing tax check-offs.

4. Not all the same. While SB 1476 does establish general provisions for all tax check-offs, currently there are a small number of tax check-offs that either do not have a sunset or are not subject to a minimum contribution amount. This bill does not seek to impose all provisions on all tax check-offs, but instead serve as a framework of best practices for tax check-offs. Current and future tax check-offs that have unique circumstances may continue to craft legislation exempting them from some of the general provisions in SB 1476.

Support and Opposition

(4/14/16)

Support: Breast Cancer Fund; University of California.

Opposition: Unknown.

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