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1997 Annual Report -Introduction

The Franchise Tax Board

The Franchise Tax Board (FTB) administers California’s Personal Income Tax Law, Bank and Corporation Tax Law, and Homeowner and Renter Assistance Law, which are elements of the California Revenue and Taxation Code (R&TC).

During 1997, the three-member board was chaired by the current State Controller, Kathleen Connell. The other board members were Ernest J. Dronenburg, Chair of the Board of Equalization, and Craig L. Brown, Director of the Department of Finance.

Gerald H. Goldberg, the Board’s appointed Executive Officer, directed the activities of 4,300 permanent full-time employees and approximately 1,930 seasonal employees. FTB had offices located throughout California and in Texas, Illinois, and New York.

Personal Income Tax (Full-Year California Residents)*

Item

1995 (Filed in 1996)

1996 (Filed in 1997)

Percent Change

Number of Returns

Number of Taxable Returns

Taxable Income

Total Tax Liability

12,084,643

8,195,394

$ 381,782,144

$ 18,155,801

12,172,201

8,421,180

$ 421,252,482

$ 20,322,785

0.7

2.8

10.3

11.9

Bank and Corporation Tax*

Item

Income Years Ending in 1995

Income Years Ending in 1996

Percent Change

Number of Returns

Income Reported for Taxation

Total Tax Liability

418,262

$ 42,984,525

$ 4,757,092

430,796

$ 47,264,188

$ 4,881,666

3.0

10.0

2.6

Homeowner and Renter Assistance*

Item

1996

1997

Percent Change

Number of Claimants

Amount of Assistance

154,067

$ 14,142

148,893

$ 13,261

-3.4

-6.2

* Dollars in thousands.

The Year In Review

During the 1997 calendar year, FTB processed the 1996 tax returns of individuals and corporations and the 1997 claims of homeowners and renters.

The Personal Income Tax Program experienced a 0.7 percent increase in the number of returns filed and a 2.8 percent increase in the number of taxable returns filed. Taxable income increased by 10.3 percent and total tax liability increased by 11.9 percent.

The Bank and Corporation Program saw the number of returns filed increase by 3.0 percent. California net income increased by 10.0 percent and total tax liability increased by 2.6 percent.

The Homeowner and Renter Assistance Program experienced a 6.2 percent decrease in assistance paid and a 3.4 percent decrease in the number of claimants.

More information about the department's programs is presented in other sections of this report.

Significant legislation enacted in 1997 had an impact on treatment of losses incurred because of storms or flooding which occurred in 1996 or 1997, conformity to federal tax law provisions, the renter's tax credit, and economic incentive zones.

For more information about these measures and other legislation enacted in 1997, see the legislation section.

For detailed information about Personal Income Tax, Bank and Corporation Tax, and Homeowner and Renter Assistance, see the attached appendices to this report.

During 1997 the department implemented significant technological advances and enhancements to improve the efficiency of the department’s programs. These advances included the acquisition of new computer equipment to facilitate the creation of a client- server environment. This equipment allowed the department to obtain and use new information from the Employment Development Department and the addition of an Interactive Voice Response (IVR) system in the Withhold-at-Source Program.

The IVR system is expected to increase the level of customer service by providing quick responses to frequently asked questions and providing customers with quick access to departmental program representatives.

The electronic filing program that was fully implemented for eligible taxpayers in 1997 experienced an increase of 55 percent over that of the 1996 filing season. The Telefile process, which allows taxpayers who meet certain criteria to file their tax returns via telephone lines, showed an increase of 1.9 percent.

The Delinquency Control (DLC) Program was fully implemented during 1997. This program automatically generates notices to corporations that have failed to file necessary returns with the department.

The Pass-Through Entity Automated Screening and Support System (PASS) pilot was launched during 1997. When PASS is fully implemented, the department anticipates that it will prove to be the most technologically advanced, reliable, and efficient business tool employed by the Audit Program.

In addition, the department was involved in a project to re-engineer its processing operations. This project, called the Re-engineering and Modernization of the Pipeline (RAMP), is divided into three phases:

Phase I is the Modernization and Re-engineering of the Cashiering System (MARCS) project. The goal of MARCS is to replace and modernize the department’s cashiering process. Implementation is anticipated during 1998.

Phase II is the Data Capture Re-engineering (DCR) effort. This second phase is designed to replace and modernize the department’s data entry system. Implementation of this phase has not yet been determined.

Phase III is a conversion to a paperless environment and will include long term storage of documents. This phase will bring most of the department into a paperless environment.

General Fund Calendar Year Collections: Cash Basis*

Item

1996

1997

Percent Change

Amount (Millions)

Percent Total

Amount (Millions)

Percent Total

Personal Income Tax

$21,993.6

46.3

$24,440.5

48.3

11.1

Bank and Corporation Tax

5,687.9

12.0

5,649.3

11.2

-0.7

Subtotal

$27,681.5

58.3

$30,089.9

59.5

8.7

Retail Sales and Use Tax

16,101.9

33.9

17,017.6

33.6

5.7

Estate, Gift and Inheritance Tax

736.5

1.5

622.2

1.2

-15.5

Insurance Company Tax

1,136.4

2.4

1,193.6

2.4

5.0

Cigarette Tax

169.2

0.4

168.6

0.3

-0.4

Alcoholic Beverage Excise Tax

268.9

0.6

271.7

0.5

1.0

Horse Racing Fees

61.1

0.1

50.7

0.1

-17.0

Other Revenues plus Interest on Investments

1,306.0

2.8

1,161.1

2.3

-11.1

Subtotal

$19,780.0

41.7

$20,485.4

40.5

3.6

Total

$47,461.5

100.0

$50,575.3

100.0

6.6

*Derived from the monthly State Controller's Cash Receipts and Disbursements Report. These figuresare not directly comparable to the data in the Personal Income Tax and Bank and Corporation Tax Appendices, which are expressed on a taxable year basis. Totals may not add due to rounding.

General Fund Revenues 1997 Calendar Year

Franchise Tax Board - 59.5%

General Fund Revenue 1997 Calendar Year Percentage Graphic

Personal Income Tax - 48.3%

Bank and Corporation Tax 11.2%

All Other Sources - 40.5%

General Fund

The programs administered by the department collected over $30 billion, representing over 59 percent of the General Fund revenue for 1997.

The Personal Income Tax Program accounted for over 48 percent of the General Fund total and the Bank and Corporation Tax Program accounted for over 11 percent.

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