This bill requires taxpayers to remit payments to the Franchise Tax Board (FTB) by electronic funds transfer (EFT) once statutory payment or total tax liability thresholds are met, and it defines acceptable EFT methods and settlement timing. It also creates a modest penalty regime for failures to use EFT, an administrative waiver process, and a procedure allowing taxpayers to opt out when thresholds fall below the statutory levels in the prior year.
For tax practitioners and corporate finance teams, the bill centralizes how large payments are received, allocates who pays certain banking costs, and gives the FTB discretion to grant waivers. The rules affect cash management, reconciliation, and compliance processes for entities subject to combined reporting.
At a Glance
What It Does
The bill requires payments to the Franchise Tax Board by electronic funds transfer once specified installment, extension, or total tax liability thresholds are exceeded, defines acceptable EFT methods (ACH debit/credit, Fedwire, international transfer), and sets the date when payment is deemed made based on settlement. It creates a $100 initial and $500 subsequent failure penalty, subject to reasonable-cause relief, and permits the FTB to grant waivers.
Who It Affects
Corporations and taxpayers who meet the statutory payment or liability thresholds and entities filing combined reports whose aggregated income pushes them over thresholds. Banks and payment processors are affected through ACH and wire handling and the bill also touches FTB operations for processing and waiver determinations.
Why It Matters
The bill standardizes electronic payment obligations and settles who bears banking costs for different transfer methods, which changes operational responsibilities for tax, treasury, and accounting teams. The waiver language and settlement timing create administrative questions that will shape how tax departments manage large remittances and dispute settlement timing.
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What This Bill Actually Does
The bill makes electronic funds transfer the required method for remitting payments to the Franchise Tax Board when a taxpayer crosses specific payment or total-tax-liability thresholds, or when a taxpayer has been granted permission to use EFT. It leaves the FTB responsible for prescribing EFT procedures and for accepting EFTs, and it sets out how the state and taxpayers share banking costs depending on whether the transfer is an ACH debit, ACH credit, Fedwire, or international transfer.
A taxpayer whose payments fall below the statutory thresholds in the prior year may elect to stop using EFT; the election must follow forms and procedures the FTB prescribes. Separately, the bill allows taxpayers to request a waiver from the EFT requirement; the FTB may grant a waiver only if it concludes that the amounts exceeding thresholds were not representative of the taxpayer’s ordinary liability.
If granted, the waiver substitutes its own terms for the statutory EFT obligations going forward.On timing, the bill deems payment complete on the date the EFT is initiated provided settlement to the state's demand account occurs no later than the next banking day; if settlement occurs later, the payment date is the settlement date. The bill also clarifies how combined reporting affects threshold calculations: where combined reporting is required, the incomes of all group members with California-source income are aggregated and treated as a single taxpayer for determining whether thresholds have been exceeded.For enforcement, the bill imposes a stated monetary penalty structure for failures to remit by EFT—$100 for the first failure and $500 for subsequent failures—unless the taxpayer demonstrates reasonable cause and absence of willful neglect.
It also places limits on when Fedwire and international transfers may be used: Fedwire requires prior FTB approval and a showing that other ACH methods are unavailable for reasonable cause, with associated banking costs potentially charged to the taxpayer.
The Five Things You Need to Know
The bill requires EFT when installment payments, extension payments, or total tax liability cross statutory thresholds tied to dollar amounts and taxable-year rules (see section thresholds).
The penalty for failing to remit by EFT is $100 for an initial failure and $500 for each subsequent failure, but the taxpayer can avoid penalties by proving reasonable cause and no willful neglect.
The FTB may grant a waiver from EFT requirements only if it determines that the payments exceeding thresholds were not representative of the taxpayer’s tax liability; waivers replace statutory terms for future remittances.
Payment is considered made on the EFT initiation date only if settlement to the state’s demand account occurs on or before the next banking day; otherwise, the payment date is the settlement date.
For combined-reporting groups, the bill aggregates the income of all members with California-source income and treats the group as a single taxpayer when determining whether EFT thresholds are met.
Section-by-Section Breakdown
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When EFT is required
This provision lists the triggers that force a taxpayer to use EFT: certain installment payments or extension payments above set dollar thresholds, a total tax liability above set thresholds, or explicit FTB permission to use EFT. Practically, it shifts payment method obligations from voluntary to mandatory once an entity crosses objective financial thresholds or requests EFT authority, requiring treasury and tax teams to monitor payment and liability levels to avoid noncompliance.
Election to discontinue EFT
Taxpayers who were required to use EFT may elect to stop using it if the statutory thresholds were not met in the preceding taxable year. The FTB prescribes the form and manner of this election, so taxpayers must follow administrative procedures; the provision gives larger taxpayers a predictable path to resume paper payments when thresholds decline.
Penalty regime for non-EFT remittances
This section fixes the monetary penalties: $100 for a first failure and $500 for each subsequent failure to remit by EFT, subject to reasonable-cause and no-willful-neglect defenses. The structure is administrative and narrowly quantified, which makes compliance risk easy to calculate but raises questions about proportionality when noncompliance involves very large tax amounts.
Waiver standard and effect
Taxpayers can request a waiver from the EFT requirement; the FTB may grant a waiver only if it finds that the excess amounts triggering EFT were not representative of the taxpayer’s normal liability. A granted waiver changes the terms for subsequent remittances, effectively replacing the statutory EFT trigger with FTB-determined conditions. The standard is fact-specific and puts case-by-case discretion in the hands of the FTB.
FTB acceptance date, settlement timing, and definitions of EFT
The bill requires the FTB to accept EFTs (language historically tied to implementation dates) and then defines EFT modes—ACH debit, ACH credit, Fedwire, and international transfer—along with rules on who bears banking costs for each mode. It defines payment completion based on when settlement reaches the state's demand account and limits Fedwire use to cases with prior FTB approval and reasonable cause, with associated cost allocation rules for both taxpayer and state where applicable.
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Explore Finance in Codify Search →Who Benefits and Who Bears the Cost
Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Franchise Tax Board — Simplifies cash collection and reconciliation by standardizing electronic receipts and a clear deemed-payment rule tied to settlement timing.
- Tax compliance and treasury departments at large corporations — Gain predictable payment channels and rules for who pays banking fees across ACH, wire, and international transfers, enabling better cash-flow planning.
- Combined-reporting filers — Benefit from clarity about how group income is treated for threshold calculations, reducing ambiguity in determining EFT obligations.
Who Bears the Cost
- Taxpayers required to convert legacy processes — Must implement or maintain ACH and wire capabilities and update accounting workflows; they may also bear some banking costs for ACH credit, Fedwire, or international transfers.
- Banks and payment processors — Face increased transaction volume and need to support state-directed ACH debits and credits under the prescribed formats and timing expectations.
- Franchise Tax Board operations — Bears administrative burden of implementing EFT procedures, adjudicating waiver requests, and monitoring election filings, potentially without explicit budgetary offsets.
Key Issues
The Core Tension
The bill balances the state’s interest in secure, timely electronic tax collection and predictable cash management against the compliance, operational, and banking costs imposed on taxpayers; resolving that tension requires judging when efficiency and reduced paper-processing justify placing new technical and financial burdens on payors, and how much administrative discretion the FTB should have via waivers and approval rules.
The bill ties mandatory electronic remittance to fixed dollar thresholds and an FTB waiver process, but the dollar amounts in the statute are framed with historical effective dates and may be misaligned with current economic scales — that mismatch could force frequent administrative interpretation or legislative updating. The waiver standard—whether excess payments were "not representative" of liability—is inherently subjective, which concentrates discretionary authority in the FTB and risks inconsistent outcomes for similarly situated taxpayers.
The allocation of banking costs differs by transfer type: the state pays banking costs for ACH debits, the taxpayer may pay state-incurred costs for ACH credits, and both parties may be charged for Fedwire or international transfers. That differentiation creates incentives for taxpayers to prefer one method over another and could shift costs back to taxpayers through service fees.
The Fedwire prior-approval requirement creates an operational friction: taxpayers must demonstrate inability to use ACH methods, introducing an extra administrative step and potential delay when time-sensitive large payments are due.
Finally, the deemed-payment rule hinges on settlement timing to the state’s demand account. In cross-border or weekend/holiday scenarios, settlement delays can create disputes over payment date, penalty accrual, and interest.
That timing interplay, together with modest statutory penalties, may produce strategic disputes over whether a late settlement should trigger penalties or be excused under reasonable cause, increasing the likelihood of case-by-case adjudication rather than predictable outcomes.
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