Tax Administration:
Can Tax Agencies Legally Refuse Cash for Payment of Tax Debts?

Both the State Board of Equalization and Franchise Tax Board are rolling out plans to refuse cash for the payment of tax debts at their field offices. During a discussion at last week's BOE meeting, Chairman Jerome Horton raised the issue of legality of the idea. It is a good question.

On the side of the one-dollar bill with George Washington's picture, there is a statement that reads, "This note is legal tender for all debts, public and private." In fact, this statement appears on the front of all U.S. currency (and slight variations appeared on the large-denomination bills and certificates that were discontinued in 1969).

The latest word from the U.S. Department of the Treasury:

"The pertinent portion of law that applies to (this) question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled 'Legal Tender,' which states 'United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.' This statute means that all United States (currency) are a valid and legal offer of payment for debts when tendered to a creditor."

Since the Treasury Department specifically mentions payment of taxes, that should be the end of the debate.

(Note that the Treasury Department makes a distinction between payment of a debt and the purchase of a product or service from a private business. In such cases, the buyer can refuse to sell unless the purchaser agrees to the terms of sale. According to the department, however, no federal statute mandates that a private business, a person or an organization must accept currency or coins as for payment for goods and services. Private businesses are free to develop their own policies on whether or not to accept cash, unless there is a state law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large-denomination currency as a matter of policy.)

The tax agencies' no-cash policy also creates disadvantages for some taxpayers. For example, as Chairman Horton pointed out during the BOE discussion, for those without funds in a checking account, there will be some additional cost to obtain a money order.

In addition, some taxpayers wait until the last minute to pay taxes. For those who come in with cash, refusal of the payment may make the payment late, and this will trigger additional interest and penalties. In some cases, a taxpayer could owe an entire month's worth of interest for paying the BOE just one day late.

The Franchise Tax Board has announced that beginning June 1, it will stop accepting cash payments in its Los Angeles and Oakland field offices. The agency says: "The 'no-cash' policy change is intended to increase taxpayer and employee safety, reduce taxpayer wait times at public counters, and reduce cost in handling cash. … If the pilot is successful, we plan to expand it to all of our public service field offices." The FTB adds that a 2.3 percent "convenience fee" will be charged by its credit card processing vendor, with a minimum fee of $1.

The BOE stopped accepting cash on June 1, 2011, in its Oakland, Ventura and San Diego offices, and expanded this no-cash program to six additional offices in February. In the first three offices, more than 700 taxpayers who tried to pay cash were forced to pay with alternative methods. BOE staff believes this improves efficiency.

At last week's hearing, BOE staff defended the legality of the no-cash policy.

In an e-mail to CalTax, the Franchise Tax Board said, "While the FTB has historically accepted cash at all field office locations, there is no legal authority that requires the FTB to accept cash. The normal statutory method of acceptable form of payment of tax, penalties and interest to the FTB is in the form of check, electronic funds transfer, or credit card (or other payment device), as specified in California Revenue and Taxation Code section 19005. In addition, the United States Treasury Department statute under the Coinage Act of 1965, 31 U.S.C section 5103, does not require FTB to accept currency as a form of payment. (See also Tenn. Scrap Recyclers Ass'n v. Bredesen (2009, 6th Cir.) 556 f.3d 442, and Genesse Scrap & Tin Baling Co. v. City of Rochester (2008, WD N) 558 F Supp 2d 432)."

(CalTax: Section 19005 merely allows taxpayers the option to pay by check, credit card, etc., and does not contain language that the tax agencies can refuse cash payments. Further, a state law cannot supersede the coinage laws of the United States. If they can, the Union will be in big trouble. On the point that federal law does not require tax agencies to accept cash, the U.S. Treasury Department has interpreted the Coinage Act of 1965 to say that it does.)

If a taxpayer tries to pay with cash, the FTB told CalTax:

"We are also allowing a one to two business day delay (or longer if appropriate) based upon the ability of the taxpayer to go and convert their cash to a cashier's check or money order. We are providing them with a list of financial institutions and/or postal services close to each office.

"For example:

• If the taxpayer states that they can go and convert the cash and will be able to return the same day, the counter staff will grant a one-day hold.
• If the taxpayer states that they will not be able to return until the next business day OR if it is a Friday afternoon, we are allowing a two business day hold (or longer) if it is appropriate to do so.

"We will document that the taxpayer came into the field office to make a payment with cash, was given instructions to convert their cash and promised to return (same day or next business day) to make payment."

Has either agency received a written opinion from the Treasury Department that it can refuse to accept cash?

June 8, 2012
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