March 12, 2010
Pursuant to Elections Code Section 9005, we have
reviewed the statutory initiative relating to the treatment under the
personal income tax (PIT) of child support payments, as well as the
establishment of certain administrative requirements with respect to the
Franchise Tax Board (FTB) (A.G. File No. 10‑0012).
Child Support Payments. Payments
for the support of children can be voluntary, privately arbitrated, or
court-ordered. Courts order the noncustodial parent to make payments to
the custodial parent for expenses related to the child's care in cases
where the parents are not living together (due to legal separation,
divorce, or other circumstances) and no voluntary support agreement
exists. This is intended to recognize that both parents are jointly
responsible for the child.
In 2008, there were 1.3 million children in the
state whose custodians were owed current court-ordered child support
amounting to about $2.6 billion. Of this amount, about $1.4 billion was
actually paid, with the remainder considered to be child support debt
("arrearages") and subject to the court enforcement and collection
Current Tax Treatment. Current PIT
law allows deductions from income for certain items including local
taxes, mortgage interest, charitable donations, and extraordinary
medical expenses, but not for general living expenses. In particular,
expenses associated with children such as food and clothing are not
Tax-Related Provisions. The
initiative specifies that child support payments are deductible from
taxable income and would thus be treated differently from other general
Administrative Requirements. The
initiative contains several tax administration requirements that would
affect how FTB handles disputes with taxpayers and how the Department of
Child and Social Services (DCSS) handles child support payment
arrangements. One significant change is that liens would have to be
issued through a court order and with the taxpayer present at the
hearing. Currently, FTB can issue such liens administratively.
Other changes include:
Installment agreements that reduce an
individual's income below his/her county's "average standard of
living" are restricted.
All notices to the taxpayer must be delivered
by certified or registered mail.
In the event of dissolution of marriage or
other partnership, all tax disputes must be resolved with all
The revenue effect of the proposed deduction for
child support payments would depend on several factors including the
fraction of child support payers who itemize their deductions, the
average marginal tax rate of these taxpayers, and the extent to which
deductibility would increase compliance with child support orders.
Assuming that "deductibility" would be interpreted as an itemized
deduction, the proposal would reduce state General Fund PIT revenue by
an estimated $100 million to $200 million per year beginning in 2011‑12.
This amount would depend in large part on whether the deduction would be
subject to an income threshold.
The PIT and child support revenues could also
fall due to new administrative requirements on FTB and DCSS, such as
restrictions on their ability to impose liens on property.
The annual amount of this loss is
uncertain and would depend on the legal interpretation of the
initiative's provisions, but it could be in the high tens of millions of
The initiative's administrative provisions would
require increases in both personnel and other operating expenses by FTB.
The General Fund cost would depend on how the provisions are both
interpreted and implemented, but likely would exceed $10 million
Minor decreases in state welfare administrative
costs, resulting from increased child support compliance, may partially
offset these costs.
Summary of Fiscal Effects
The measure would have the following major state
Reductions in state revenue from administrative
changes and the new deduction for child support payments in the low
hundreds of millions of dollars annually.
Annual tax administration costs likely in
excess of $10 million.
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