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Public Meeting Minutes

FRANCHISE TAX BOARD
MINUTES

March 23, 1999

The Franchise Tax Board met in open session at 10:00 a.m. at the State Board of Equalization, 450 N Street, Hearing Room 121, Sacramento, California. Present were Hon. Kathleen Connell, Hon. Johan Klehs, James R. Tucker representing Hon. Johan Klehs, and Annette Porini representing Hon. B. Timothy Gage.

Franchise Tax Board
Staff Participating
Gerald Goldberg, Brian Toman, Johnnie Lou Rosas, Mike Brownell, Don Buxton, Titus Toyama, Doug Bramhall, Benjamin Miller, John Vranna, Larry Counts and Megan Hall.

Others ParticipatingDavid Doerr representing Cal-Tax, Eric J. Miethke representing Nielsen Merksamer, Gina Rodriguez representing Spidell Publishing, Inc., and Richard Harris, representing himself.

Item 1. – Approval of Board Minutes

  1. The Minutes of the December 15, 1998 Taxpayers' Bill of Rights were approved.
  2. The Minutes of the December 16, 1998 Franchise Tax Board meeting were approved.

Item 2. – Application for Voluntary Disclosure

The Board unanimously approved the anonymous Application for Voluntary Disclosure pursuant to Revenue and Taxation Code Section 19191.

Item 3. – Legislative Matters

  1. LP 99-37: The Board approved 2-0 (Annette Porini abstained), but without burden of proof or attorney-client privilege provisions and changed the waiver of interest provision to apply after 18 months. Also, interest will not be waived on RARs until the department has had them one year.
    LP 99-47: Proposal approved 2-0 (Annette Porini abstained).
    LP 99-50: The Board requested that staff meet with industry and took no action on this proposal.
    TP 99-01: The Board took no action on this proposal. Member Klehs asked for a total of how many taxpayers are claiming the ridesharing credit.
    TP 99-02: This proposal was tabled.
    TP 99-03: The Board requested staff to organize a task force to analyze the options for this proposal.
  2. Bills for position were given a 2-0 vote (Annette Porini abstained), as follows:
Legislative BillBoard PositionLegislative BillBoard Position
AB 2
AB 7
AB 9
AB 10
AB 41
AB 49
AB 51
AB 53
AB 68
AB 81
AB 83
AB 86
AB 97
AB 114
AB 122
AB 130
AB 149
AB 152
AB 156
AB 160
AB 203
AB 229
AB 287
AB 356
AB 358
AB 385
AB 401
AB 408
AB 430
AB 436
AB 462
AB 465
AB 473
AB 482
AB 484
Support
Neutral
Neutral
Neutral
Neutral
Oppose
Neutral
Neutral
Support
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Oppose
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Support
Neutral
Neutral
Neutral
Neutral
Neutral
Support
Neutral
Neutral
AB 486
AB 489
AB 490
AB 569
AB 572
AB 579
AB 590
AB 687
AB 763
AB 765
AB 831
ABX 13
ABX 34
SB 17
SB 30
SB 34
SB 37
SB 40
SB 42
SB 48
SB 84
SB 85
SB 86
SB 109
SB 164
SB 229
SB 250
SB 299
SB 304
SB 403
SB 493
SB 495
SB 511
SB 549
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Support
Neutral
Neutral
Neutral
Neutral
Neutral
Support
Neutral
Neutral
Support
Neutral
Support
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral
Neutral

Item 4. – Regulation Matters

  1. Regulation 25106.5, -2, -3, -4, -5, -9, and -10 et seq. (Combined Report Mechanics) and 25128, 25128-1 and 25128-2, (Double Weighted Sales Factor).
    Staff reported that all of the regulations were proceeding through the processes of the Administrative Procedure Act and will be submitted to the Office of Administration Law consistent with the December 16, 1998 Board resolutions.
    The Board unanimously approved staff reports for both regulations.
  2. Regulations 19041 and 19044, (Protest Hearing Procedures/Rules).
    The Board gave staff approval to proceed to notice the proposed regulations.
  3. Regulation Section 25106.5-1, (Intercompany Transactions).
    The Board unanimously approved staff's request for a symposium, which will be held in the spring of 99. The regulation version for the symposium will modify the previously released version.
  4. Proposed Regulation 25106.5(c)-(e), (Combined Report Mechanics).
    The Board directed the staff to notice a proposed substantive amendment to Regulation 25106.5 as it relates to the application of the rule in Appeal of Joyce, Inc. No action was taken with respect to the application of tax credits within a combined report.
  5. Amendment of Regulation 25137(c), (Occasional Sale of Intangible Assets Sales Factor).
    The Board unanimously approved staff's request to schedule a symposium and to notice the proposed regulations after the symposium.
  6. Amendment of Regulation 25137(b), (Treatment of Non-jurisdictional Property in the Property Factor).
    The Board unanimously approved staff's request to schedule a symposium and to notice the proposed regulations after the symposium.
  7. Proposed Regulation 18567, (Extensions).
    The Board unanimously gave staff approval to proceed to notice the proposed regulation.
  8. Proposed Regulations 17252.2-1, 17265-1, 17266-1, 17267.2-1, 23456.2-1, 23456.3-1, 23456.4-1, 23456.7-1, (Recapture of Deduction for Qualified Property Previously Used).
    The Board voted to delay the regulations, pending development of draft language.
  9. Proposed Regulation 17951-4, (Income Sourcing).
    The Board voted to delay the regulation, pending development of draft language.

Item 5. – Administrative Matters

  1. 1999/00 Governor's Budget.
    1. Budget adjustments proposed for 1999/00:
      • Limited Liability Companies: 2-1 (Chair Connell – no) Board approval for a proposed $1.8 million adjustment increase and 23 new FTB staff positions.
      • Revenue Augmentation: 2-1 (Chair Connell – no) Board approval for proposed $3.4 million additional adjustment and 58 new FTB positions for revenue activities.
      • Merit Salary Adjustments: 2-1 (Chair Connell – no) Board approval for proposed $3.1 million baseline adjustment to the budget for MSAs.
      • Proposed Budget Control Language: 2-1 (Chair Connell – no) Board approval for proposed new control language to Budget Bill.
    2. Finance Letters:
      • Performance Audit: The Board approved 2-1 (Chair Connell – no), but limited the reductions to the electronic filing for $513,000, the tax booklet reduction in mailing costs for $567,000, and verification of employment for a total of $298,000.
      • INC Project: The Board unanimously approved.
      • HRA/Title IV Workloads: The Board held this matter until the next Board meeting.
      • Operational Recovery/Hotsite: The Board unanimously approved.
      • Student Aid Debt Collection: The Board unanimously approved.
      • Court Ordered Debt Collections: The Board unanimously approved.
      • Emergency Food Assistance Program Fund: The Board unanimously approved.
      • CA Mexican American Veteran's Memorial Beautification and Enhancement Account: The Board unanimously approved.
    3. HRA Program – Policy direction on Title IV Implementation:
    4. The Board decided to hold this item until the next Board meeting.

  2. Capital facilities – Consideration of Space Action Requests (Form 9).
    The Board unanimously approved all Space Action Requests.
  3. Contract Requiring Board Approval.
    The Board unanimously approved all contracts.

Item 6. – Staff Presentation Regarding Bureau of State Audit Report

Mr. Goldberg summarized the State Audit Report, indicating those areas where staff disagreed.  Mr. Goldberg indicated that the primary area of disagreement related to the proper methodology to determine growth in audit revenue.

Chair Connell listed the State Audit Report's four recommendations:

  1. The Board should indicate additional personnel hours for mandatory activities including the types of revenue, the hours used, as well as projected hours.
  2. The Board should compare subsequent years' budget projections to actual hours and revenues by type of audit achieved.
  3. If the Board intends to request money for auditors to generate additional revenue it should use such resources to supplement rather than to supplant the auditors in the field. However, if the Board later determines resources can produce a greater benefit in support functions, it should report this to the Legislature before reassigning.
  4. The Board should continue to monitor changes in audit revenues resulting in fewer IRS leads and either shift existing staff or request additional staff according to maintain tax revenues.

Chair Connell inquired if this information was going to be implemented into the FTB budget document for the next fiscal year and Mr. Goldberg assured her it would be.

Item 7. – Consideration of State Office Building Adjacent to FTB Headquarters

This item was held over until the next meeting. Chair Connell requested that the Board receive a report from General Services to review, at least a week before the next scheduled FTB meeting, which details who will be occupying the new building, the amount of square footage anticipated, and how the building is going to be financed.

Item 8. – Tax Gap

(Hon. Johan Klehs left the meeting at 11:54 a.m. and was represented by James R. Tucker thereafter.)

John Vranna, Chief of Accounts Receivable Management Division, gave a presentation regarding installment payments.

Mr. Vranna explained that prior to January 1998, taxpayers' that owed an excess of $2500 and needed more than 12 months to pay off their liability had to fill out a complex financial agreement to obtain installment arrangements. As of July 1, 1997, 18,000 taxpayers were taking advantage of the installment arrangements, which brought in monthly revenues of $3.5 million. The default rate at that time was approximately 40 percent.

In January of 1998, the Franchise Tax Board implemented a new program, which included the following highlights:

  • The installment agreement was simplified and modified to request that the taxpayer make payments through electronic funds transfer.
  • Converting wage garnishments and levies into installment agreements.
  • A toll free FAST line was produced for incoming tax questions. This number has been included in newsletters and brochures.
  • Workshops throughout California, as well as speaking engagements for the California Society of Enrolled Agents and Chapters of the California CPA Society have been conducted.
  • A press release was sent out to expand the information to the public and the California Society of Enrolled Agents also put out publicity supporting these activities.

To date there are approximately 75 thousand taxpayers participating in the program with a projected 100 thousand taxpayers participating by July 1, 1999. Monthly revenues are averaging between $12 and $13 million. With the initiation of the program, the overall default rate has gone down to approximately 5%. For those taxpayers taking advantage of the electronic funds transfer program, the default rate is in the 2.3% range.

Item 9. – Taxation of Medical Organizations

The Board unanimously approved the staff report and recommendations.

Item 10 – Legal Ruling Regarding Taxation of Lottery Winnings

This item was held over until the next meeting.

Item 11. – Executive Officer's Time

Mr. Goldberg had no items for discussion.

Item 12. – Board Member's Time

The Board Members approved all Employee Recognition Resolutions. (Karen Beeding, Brenda Christian, Joann Cornelius, Charles Cushing, Kent Evans, Olga Freire, Donna Godard, Janet Gonzales, Irene Hauser, Yu-Lan Hinkel, Roger Holbrook, Patricia Huberty, Ken Kinyon, James Magers, Carrie Pruitt, Jeanne Robinson, Merle Ross, Leon Sims, Rose Smith, Kathreen Townsend, Angie Trevizo, Roberta Yee.)

Item 13. – Closed Session Announcement

Chair Connell announced the agenda for the Closed Session, pursuant to Government Code 11126.3.

The meeting was adjourned at approximately 12:10 p.m.