WORK SESSION SB 480, SB 32

 

TAPES 51, 52 A-B

 

SENATE REVENUE COMMITTEE

MARCH 2, 2005 †8:30 AM† †STATE CAPITOL BUILDING

 

Members Present:††††††††††††††††† Senator Ryan Deckert, Chair

††††††††††††††††††††††††††††††††††††††††††††††† Senator Gary George

††††††††††††††††††††††††††††††††††††††††††††††† Senator Rick Metsger

††††††††††††††††††††††††††††††††††††††††††††††† Senator Floyd Prozanski

††††††††††††††††††††††††††††††††††††††††††††††† Senator Charles Starr, Vice Chair

†††††††††††††††††††††††

Witnesses Present:††††††††††††††† Debra Buchanan, Oregon Dept. of Revenue

††††††††††††††††††††††††††††††††††††††††††††††† Dexter Johnson, Legislative Counsel

††††††††††††††††††††††††††††††††††††††††††††††† Jim Craven, American Electronics Association

††††††††††††††††††††††††††††††††††††††††††††††† Jody Wiser, Tax Fairness Oregon

††††††††††††††††††††††††††††††††††††††††††††††† Paul Richey, Tax Fairness Oregon

 

Staff Present:††††††††††††††††††††††††† Paul Warner, Legislative Revenue Officer

††††††††††††††††††††††††††††††††††††††††††††††† Lizbeth Martin-Mahar

††††††††††††††††††††††††††††††††††††††††††††††† Barbara Guardino, Committee Assistant

 

 

TAPE 51, SIDE A

005

Chair Deckert

Calls meeting to order at 8:35 a.m. Committee will discuss Voluntary Compliance Initiative (VCI) tax amnesty program. SB 480-1 amendments just arrived, so committee will not pass bill out today.

 

WORK SESSION, SB 480

030

Paul Warner

Explains SB 480-1 proposed amendments (EXHIBIT 1). First 17 pages are VCI, and borrow extensively from language of HB 2486. Remainder of bill deals with general amnesty. Dates are blank. Need direction from Dept. of Revenue in terms of resource management.

 

057

Warner

Directs membersí attention to spread sheet, SB 480 Preliminary Revenue Impact Numbers (EXHIBIT 2). Either segment could be a stand-alone bill. Figures are in millions. Figures and information are based on Californiaís VCI program.

 

081

Warner

Explains process and assumptions in creating the spread sheet. Tax shelter back taxes totals $16.9 million. Net revenue from VCI is $1.2 million.

 

117

Warner

General amnesty is more complicated but has more states to draw information from. Most relevant is recent amnesty in Michigan.

 

144

Warner

Most important revenue is from non-filers, although itís very difficult to assess. Ratio of non-filers to those already assessed is 3/1. About 75% of the returns would be from those already assessed. General consensus is that amnesty speeds up collection for those who are already in the system.

 

179

Warner

Overall impact estimate for SB 480 is $12.2 million plus $9 million in the 2005-07 biennium; biggest impact is in 05-07.

 

190

Chair Deckert

Asks what dates Mr. Warner based the 05-07 data on.

 

194

Warner

Responds, based it on the assumption that amnesty would be in place 9-12 months after the session.

 

210

Debra Buchanan

Discusses time frames for implementation. DOR could begin VCI section next fall, perhaps November to January of 05-06. This would not require significant change. General Tax Amnesty Program would require a new name and address program, and DOR wouldnít have resources to do that until perhaps July to October 2006. California said running simultaneous amnesty programs would be problematic.

 

240

Buchanan

See amendments, ďGeneral Tax Amnesty ProgramĒ page 18. It appears to apply only to tax years starting January 1, 2002. Believes that should apply for amended returns only. Non-filers should include any years that taxpayers did not file.

 

255

Warner

Revenue impact is based on amended returns only for three years. Non-filers would be extended beyond that.

 

275

Buchanan

Assumption is that penalty enhancement should apply only to non-filers who fail to come in during amnesty period. Expresses concern about people who make honest mistakes and donít know to apply for amnesty.

 

302

Buchanan

Discusses page 22, lines 1-3.

 

324

Dexter Johnson

Reminds committee, it is not legal to have an emergency clause on this bill. It must take effect 90 days after the end of session. October might be cutting it close.

 

337

Vice Chair Starr

Suggests setting date at November 1, 2005 through January 31, 2006.

 

349

Warner

Notes, VCI will net a smaller dollar amount than general amnesty.

 

365

Jim Craven

Draws membersí attention to some unintended consequences in Californiaís amnesty program. Issues center on filers who could have claimed amnesty but didnít, and still had to pay penalties. California is reworking some language to address these issues. He still favors the bill.

 

422

Warner

Committee might want to consider giving DOR discretion in cases where the dispute is legitimate.

 

422

Sen. Prozanski

Thought this issue was already resolved.

 

443

Chair Deckert

Would be willing to place language in House bill to address this if necessary.

 

TAPE 52, SIDE A

026

Sen. George

Page 8 of -1 amendments, questions concerning Section 12, line 14; and lines 25 and 26. Wonders if itís possible anyone could be operating a tax shelter and not understand they were violating Internal Revenue Code? 100% seems like a severe penalty for someone who might just make a mistake.

 

034

Warner

Responds, the intent is that any dollars made from a tax shelter transaction were illegal, so the taxpayer is sacrificing the dollars earned from it. The level of understanding among promoters should be higher now after Californiaís program.

 

049

Chair Deckert

Asks Ms. Buchanan if she knows of any case where the promoter did not know the tax shelters were illegal.

 

055

Buchanan

Would be surprised if that were the case.

 

065

Jody Wiser

What is happening with these transactions is abusive tax shelter sellers are receiving money and theyíre saying if state comes after them, the seller will return their money. That means the taxpayer, not the state of Oregon, gets the money. Recommends changing wording to return money to state.

 

098

Wiser

Asks Mr. Warner for clarification on whether there are no penalties during amnesty. Not everyone should get away without paying a penalty.

 

125

Warner

Refers to page 10, lines 4-8. All penalties that would otherwise be imposed would be waived during VCI period, then following is a 20% abusive tax shelter penalty per transaction.

 

138

Chair Deckert

Sees both the value of waiving a penalty, and imposing a nominal penalty. Asks if anyone would object to a small penalty.

 

151

Sen. George

Agrees on a penalty for those who know itís wrong, but some people attend seminars and believe what they did was legal.

 

165

Sen. Prozanski

Disagrees. Donít set up an exception for those ignorant of the law.

 

194

Warner

Anticipates 500 returns, not a huge amount, but perhaps DOR director can have discretion on a penalty amount.

 

210

Wiser

Non-filers who are already identified by the state and know they owe taxes should not be given relief from penalties.

 

WORK SESSION, SB 32

230

Lizbeth Martin-Mahar

Provides DOR authority to establish rules to waive or reduce penalties on taxpayers for good or sufficient cause. First offense. Minimal revenue impact. This bill addresses Sen. Georgeís issue from last time bill was heard.

272

Sen. Metsger

SB 32 answers questions committee discussed in SB 480, especially line 29. Would provide flexibility.

 

285

Buchanan

Agrees, it would provide DOR opportunity to look at the facts of a single case. Gives a hypothetical case.

 

310

Sen. George

Comments, this provides the balance he was looking for.

 

325

Sen. Prozanski

This bill may address issues brought up by Jim Craven.

 

331

Buchanan

The only concern is if lawmakers want penalties to be applied after an amnesty period, doesnít know where DOR would have discretion in those cases.

 

339

Chair Deckert

Perhaps committee needs to amend SB 32 to ensure itís connected to amnesty and VCI.

 

363

Sen. Prozanski

Wants to make certain DOR feels comfortable where committee is going as far as discretion.

 

389

Chair Deckert

Adjourns meeting at 9:30 a.m.

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant††††††††††††††††††††††††††††††††††††††††††††††††††††††

 

Exhibit Summary:

1.      SB 480-1, March 2, 2005, Warner, 23 pp.

2.      SB 480-1, SB 480 Preliminary Revenue Impact Numbers, March 2, 2005 Warner, 1 pp.

3.      SB 480-1, Citizen Testimony on Senate Bill 480, March 2, 2005, Richey, 2 pp.