Senate Bill (SB) 1015 became law on June 27, 2012. This bill contained three significant provisions. First, this law acknowledges the doctrine of election, as addressed in a 1938 Supreme Court case, Pacific National Co. v. Welch, 304 U.S. 191, 58 S. Ct. 857, 82 L. Ed. 1282 (1938), applies to elections that affect the computation of California income and franchise tax, unless otherwise provided, and repeals the provisions of the Multistate Tax Compact. Next, this law allows us to use Earnings Withholding Orders for Taxes (EWOTs) for the entire 20-year collection statute of limitations (SOL) without having to record a Notice of State Tax Lien. Finally, this law requires the Employment Development Department (EDD) and the Board of Equalization (BOE) to participate in the Financial Institutions Record Match (FIRM) program.
This bill declares that the judicial doctrine of election applies to elections that affect the computation of California income and franchise tax, unless otherwise provided. The repeal of the Multistate Tax Compact ends California's participation as a voting member of the executive committee of the Multistate Tax Commission.
Under California law, a 20-year collection SOL for state income tax debts allows us to use an EWOT to collect delinquent tax debts within the 20-year SOL. An EWOT is a continuing wage garnishment based on a percentage of a debtor's earnings, not to exceed 25 percent of a debtor’s disposable income. By law, before an EWOT can be issued there must be an enforceable "state tax lien" in effect, whether recorded or unrecorded. Prior to SB 1015, we are authorized to issue an EWOT via an unrecorded statutory tax lien. The statutory tax lien arises upon operation of law on the date an assessment is issued and exists for 10 years, unless the liability is satisfied or a Notice of State Tax Lien is recorded. If the debt remains uncollected during the first 10 years, a recorded Notice of State Tax Lien extends our ability to issue an EWOT for an additional 10 years.
SB 1015 changed the law so that we can issue an EWOT at any time during the 20-year collection SOL without recording a Notice of State Tax Lien.
SB 1015 also authorizes the expansion of the existing FIRM (Stats. 2011, Ch. 14) program to the tax programs administered by EDD and BOE. Under FIRM, financial institutions doing business in this state are required to participate in a quarterly data exchange process to match our list of delinquent tax and non-tax debtors with the financial Institution’s account holders.
SB 1015 requires the BOE and EDD to submit their respective delinquent tax debtor information to us and requires us to include the BOE’s and the EDD’s delinquent tax debtor information in our data file used to match delinquent tax debtor records to financial institution accountholder records.