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Move Over Hester Prynne: If Your Company Is Delinquent, You May Also Be Wearing A Scarlet Letter

In 2006, then Assembly Member Jerome Horton authored AB 1418 to require the Board of Equalization and the Franchise Tax Board to make publicly available lists of the 250 largest tax delinquencies in excess of $100,000.  In California, the BOE collects sales and use taxes and the FTB collects personal and corporate taxes.

Last year, the legislature enacted AB 1424 (Perea), 2012 Cal. Stats. Ch. 455.  Among other things, this bill:

  • Doubles the length of each agency’s list to 500 names;
  • Requires the FTB to include additional information on its list of the top 500 tax delinquencies, with respect to each delinquency, including the type, status, and license number of any professional or occupational license held by each person liable for payment of the tax and the names and titles of the principal officers of a limited liability company or corporation liable for payment of the tax;
  • Requires state governmental licensing entities, with certain exceptions, that issue professional or occupational licenses, certificates, registrations, or permits, to suspend, revoke, and refuse to issue a license if the licensee’s name is included on either list of the 500 largest tax delinquencies;
  • Requires those licensing entities to collect the social security number or federal taxpayer identification number of each individual applicant of that entity for the purpose of matching those applicants to the names on the lists of the 500 largest tax delinquencies,
  • Requires each application for a new license or renewal of a license to state on the application that the law allows the State Board of Equalization and the Franchise Tax Board to share taxpayer information with a licensing agency and requires the licensee to pay his or her state tax obligation and that his or her license may be suspended if the state tax obligation is not paid; and
  • Prohibit state agencies from entering into any contract for the acquisition of goods or services with a contractor whose name appears on either list of the 500 largest tax delinquencies.

This new law will impact the following licensees of the Department of Corporations:

  • Broker dealers and investment advisers under the Corporate Securities Law of 1968;
  • Lenders, brokers and servicers under the California Finance Lenders Law and the California Residential Mortgage Lending Act; and
  • Securities depositories under the Securities Depository Law.
Accordingly, the Department last week issued this notice of proposed amendments to the application forms and information practices and privacy notices under the Corporate Securities Law of 1968 (10 CCR Sections 260.210, 260.211, 260.211.1 and 260.231), the California Finance Lenders Law (10 CCR Sections 1422, 1422.7, 1423, 1581 and 1582), the California Residential Mortgage Lending Act ( 10 CCR Section 1950.122.8) and the Securities Depository Law ( 10 CCR Section 1805.204) to request federal taxpayer identification numbers from business entities for the purpose of identifying delinquent business taxpayers and add the statement required by AB 1424.  Here is the text of the proposed amendments.  The comment period ends January 28, 2012.
If your company hasn’t paid its taxes, this bill will make sure that it can’t.
One can only wonder at how self defeating these new requirements are.  If the state wants to collect taxes, it is in its interest to keep its taxpayers in business.  Suspending or denying licenses will undoubtedly prove very effective in preventing these taxpayers from engaging in business and perhaps generating the revenues to pay their delinquent taxes.
Is there a scarlet letter in your future?
As noted above, the FTB will be required to list the names and titles of the principal officers of limited liability companies and corporations on the list.  The bill provides that the FTB refer to the limited liability company’s or the corporation’s Statement of Information filed with the Secretary of State or to the limited liability company’s or the corporation’s tax return.  No allowance is made for resignations or mistakes.  Further, not every officer has either authority or responsibility for payment of taxes.
Your bar card may be at risk.
I could spill a great deal more ink on this bill, but I’ll end by noting that bill adds a new Section 494.5 to the Business and Professions Code that provides that the State Bar may recommend to refuse to issue, reactivate, reinstate, or renew a license and may recommend to suspend a license if a licensee’s name is included on a certified list.
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