CS C.S.S.B. 461 75(R) BILL ANALYSIS WAYS & MEANS C.S.S.B. 461 By: Moncrief (Maxey) 4-28-97 Committee Report (Substituted) BACKGROUND Subchapter A, Chapter 111, Tax Code (Collection Procedures), provides for the collection duties and powers of the comptroller. According to the December 1996 Texas Performance Review, Disturbing The Peace, the Comptroller's Audit Division produced $361.4 million in audit assessments during fiscal 1996. The comptroller's office maintains 34 enforcement field offices in the state, including seven taxpayers service offices. During fiscal 1996, the Enforcement Division collected $486 million for the state in delinquent payments. Along with its field staff, the comptroller's office utilizes sophisticated technology and statistical techniques such as sampling and regression analysis to help auditors recover tax revenues legally due to the state. Advance tax compliance techniques, involving the creation and use of large databases linking information from various sources, are also used. By comparing tax files with other data sources, a determination of owed taxes can be made. As the state's economy becomes more complex and diversified, the need for cutting-edge technology, employing the latest audit techniques, becomes more pressing. PURPOSE This bill would enact 1996 Texas Performance Review Recommendation FR17 to allow the comptroller to contract with vendors on a contingency basis to create an advanced database system to enhance state tax collections. The bill also allows the comptroller to contract with private companies on a contingency basis to perform out of state audits in states without comptroller field offices. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1. Subchapter A, Chapter 111, Tax Code, is amended by adding Sections 111.0035 and 111.0036 to read as follows: Sec. 111.0035. ADVANCED DATABASE SYSTEM. (a) Allows the Comptroller to contract with an appropriate vendor to develop and implement a database system to enhance tax collections. (b) Allows the vendor to be compensated through a contingency fee, which would be determined from a percentage of the amount gained to the state treasury through database enhanced audits and the enforcement actions taken for the identified cases. (c) Specifies that the amount of this compensation is not to exceed an amount stated in the contract. (d) Allows the comptroller to pay a vendor under this section at the times specified in the contract. Establishes that the payments shall be based on the amount that becomes final during the period covered by the payment, and is not subject to litigation. (e) Requires the comptroller to pay vendors through warrants or electronic funds transfers. Also requires the comptroller to amount for the compensation as a subtraction from tax collections and not as a general expense of the comptroller. (f) Requires the comptroller to use competitive bidding to award such contracts. Also requires the comptroller to report instances of 3 or fewer bids to the Legislative Budget Board prior to awarding the contract. (g) Allows the comptroller to enter into separate contracts with additional vendors to develop and implement advanced database systems at the same rate and under the same terms and conditions as the contract awarded through competitive bidding. (h) Allows the comptroller to include any term or condition the comptroller deems necessary in a contract under this section. (i) Requires the comptroller to report semiannually to the Legislative Budget Board: 1) the amount of revenue collected under this section; and 2) the amount of compensation awarded to a vendor under this section. (j) Establishes that a person acting on behalf of this state under a contract under this section does not exercise any of the sovereign power of this state, except that the person is an agent of this state for purposes of developing and implementing an advanced database system to enhance tax collections. (k) Allows the comptroller to provide confidential taxpayer information to a person acting on behalf of the state under a contract authorized by this section. Provides that recipients of confidential information under this subsection are subject to the same prohibition against disclosure as the comptroller, and are subject to the same penalties. Sec. 111.0036. OUT-OF-STATE AUDITS. a) Allows the Comptroller to contract with appropriate vendor(s) to perform tax audits in any state that is not covered by a comptroller field office, and allows the contract to cover more than one state. (b) Allows the vendor to be compensated through a contingency fee, which would be determined from a percentage stated in the contract, and the amount of revenue collected by the comptroller after al available administrative and judicial appeals are exhausted. (c) Specifies 12% as the maximum amount of compensation. And specifies that the amount of this compensation is not to exceed an amount stated in the contract. (d) Allows the comptroller to pay a person under this section at the times specified in the contract. Establishes that the payments shall be based on the amount that becomes final during the period covered by the payment, and is not subject to litigation. (e) Requires the comptroller to pay the contractors through warrants or electronic funds transfers. Also requires the comptroller to amount for the compensation as a subtraction from tax collections and not as a general expense of the comptroller. (f) Requires the comptroller to use competitive bidding to award such contracts. Also requires the comptroller to report instances of 3 or fewer bids to the Legislative Budget Board prior to awarding the contract. (g) Allows the comptroller to enter into separate contracts with additional persons to perform tax audits in other states that are not covered by comptroller field offices at the same rate and under the same terms and conditions as the contract awarded through competitive bidding. (h) Requires the comptroller to report semiannually to the Legislative Budget Board: 1) the amount of revenue collected under this section; and 2) the amount of compensation awarded to a contract auditor under this section. (i) Establishes that a person acting on behalf of this state under a contract under this section does not exercise any of the sovereign power of this state, except that the person is an agent of this state for purposes of performing tax audits. (j) Allows the comptroller to provide confidential taxpayer information to a person acting on behalf of the state under a contract authorized by this section. Provides that recipients of confidential information under this subsection are subject to the same prohibition against disclosure as the comptroller, and are subject to the same penalties. SECTION 2.Establishes that initial contracts made under this Act, shall terminate on August 31, 1999. The comptroller may extend an initial contract for one or more additional terms beyond that date. SECTION 3.Provides that the revenue resulting from tax audits by persons that have contracted with the comptroller is appropriated to the comptroller for the biennium ending August 31, 1999. Provides that the comptroller may only use the revenue to pay contract expenses and the comptroller's direct administrative costs associated with those contracts. Any additional revenue shall be transferred to the general revenue fund, or other dedicated or special funds to which the excess amount belongs. SECTION 4.Emergency clause. COMPARISON OF ORIGINAL TO SUBSTITUTE C.S.S.B 461 adds provisions stating that a person acting on behalf of the state under a contract authorized by this Act, does not exercise any of the sovereign power of this state, except that the person is an agent of this state for purposes of developing and implementing an advanced database system to enhance tax collections, or for the purposes of performing tax audits. C.S.S.B 461 also adds language relating to the privacy of taxpayer information. It provides that contract agents are subject to the same penalties for taxpayer privacy violations as the Comptroller. C.S.S.B 461 also limits the compensation of contract agents for out of state audits to 12% of the taxes collected, after all administrative and judicial appeals are exhausted. C.S.S.B 461 also deletes the provision expiring the section on September 1, 2001.