Leonard Letter Articles on Tax Administration – 2004-2008
“Third Quarter Taxable Sales Up From Last Year” – January 5, 2004
I am pleased to report that third quarter 2003 taxable sales figure is up 3.1 percent from the same time period in 2002. BoE staff estimates that California businesses completed approximately $115.7 billion in transactions in the quarter as opposed to $112.2 billion the prior year. The increase is the largest increase since the first quarter of 2001, a sign that the California economy is on the mend.
“An Idea That Should Not See the Light of Day” – January 5, 2004
It seems that good ideas take a long time to come to fruition and bad ideas keep getting attention long after they should have died. Once again there are those pushing for the creation of a California State Tax Court. Once again, we should quash this discussion before someone takes it too seriously and imposes yet another layer of burdens on taxpayers. The bad idea is usually offered up by attorneys who are quite comfortable with the U.S. Tax Court and not quite so comfortable with the Board of Equalization. There is not doubt that the BoE is a different environment from formal court. We do not have formal rules of evidence, we allow ex parte communication and submitting briefs is optional. Some argue that the Board is too friendly to taxpayers, others argue that we are too inclined to agree with our own staff.
A tax attorney and friend, Eric J. Miethke, recently shared with me his testimony before the Commission on Tax Policy in the New Economy. I offer to Leonard Letter readers his reasons, with my concurrence, why a state tax court is unnecessary:
1. The current system adequately handles thousands of cases involving sales tax, personal and corporate income tax, state-assessed property tax, and special tax appeals. Miethke cites as evidence the fact that fewer than 30 of these thousands of cases were appealed to the courts in 2002, and writes, “The Board is flexible enough to make generally well-reasoned decisions” both in complex cases argued by professionals and for average taxpayers with boxes full of receipts arguing for themselves.
2. There are no cost savings from creating a new court. The BoE would still have to exist—along with the Franchise Tax Board and Employment Development Department tax functions for that matter. There are simply not enough cases requiring a specialty court’s attention for this to make fiscal sense.
3. The current system works because the BoE not only makes the regulations, but also then hears the cases that arise from those regulations. That puts us in the unique position to correct our own mistakes or advocate for legislative change when something is not working well.
4. Short of a constitutional amendment, there is no way to have a state court hear local property tax appeals.
5. There are not enough qualified judges to sit on such a court. Miethke says, “People with such expertise are in short supply and high demand, and are unlikely to be interested in the relatively modest salary paid to the judiciary.”
None of which is to say there cannot be improvements to the current system. Miethke, for example, calls on the BoE to publish more of its decisions to build up a more coherent body of law, something I have been working with my colleagues to accomplish. I also still believe that we could accomplish more for less money if we combined the tax functions of the BoE, FTB and EDD. It is nonsensical for three state agencies to be doing essentially the same function, and it is unfair to taxpayers to have to jump through hoops with separate bureaucracies. I hope Mr. Miethke’s testimony is taken seriously by the Commission and anyone else who continues to offer up a state tax court as a solution to a non problem.
“California’s Bad Grades” – January 26, 2004
CFO Magazine recently released a survey of corporate tax officials’ views about the taxing agencies in various states. (See http://www.cfo.com/article/1,5309,11645|38|M|786|,00.html) Not surprisingly, California did not make a good showing, as many of you who have to pay taxes or deal with state agencies already know.
When asked how states’ revenue-department policies and
systems influence companies' decisions to locate or expand there, the least
desirable state was New Jersey. California was next.
When asked to rate the independence of this state's administrative appeals process-- tax board, administrative law judge, or tax court-- from its audit department, respondents said Pennsylvania was the least independent, followed by Massachusetts and then California.
Another question was about “gray areas” at the auditor level and asked which states' auditors are the most unfair or least able to avoid escalation of these issues. Again, New Jersey was the worst and California was next.
When asked which states are most aggressive about asserting nexus positions for corporate income tax over corporations with only an economic presence in the state, the rankings were: 1. New Jersey; 2. Massachusetts; 3. New York; 4. California.
California was ranked as having the legislature most likely to eliminate or reduce existing business tax incentives this year, and was also listed as the most aggressive at assessing additional tax based several factors as well as the state most likely to pursue clawbacks of individual company incentives this year.
“Tax Delinquents” – February 17, 2004
I was intrigued by an AP story that began, “Three Georgia state lawmakers, including the chairman of the House Ethics Committee, are on a list of delinquent taxpayers that revenue officials are posting on a Web site in hopes of shaming people into paying up.” I wondered if California might have a similar list, but I learned that the Franchise Tax Board does not publicize names of individuals who are delinquent or who fail to file tax returns. However, FTB does publicize names of individuals who face criminal charges for alleged tax crimes; to see those press releases, visit: http://www.ftb.ca.gov/aboutFTB/press/index.html
“Now Playing at a Theater Near You” – February 23, 2004
Last week the Board of Equalization heard a case about whether popcorn sold in movie theaters should be tax-free. Remember that prepared, hot foods are subject to sales tax. The Century Theater Group argued that their popcorn is not really hot. They said that it is made in one machine, and then transferred to another to be “conditioned” for public consumption. That conditioning includes heated air, but the purpose of the hot air is only to prevent the absorption of moisture by the “hygroscopic” popcorn. Any heating of the actual popcorn is merely incidental. Further, they argued that the temperature of the popcorn in the bags given to customers is always between room temperature and body temperature, therefore it will not be perceived as “hot” by customers. We also debated whether the addition of “hot buttered topping” should influence our decision. This argument did not pass the giggle test, since all of us who have eaten movie theater popcorn know perfectly well when we get a batch that is hot, with or without the buttery topping. I think I speak for all movie-goers when I say that I would rather pay the sales tax and eat hot popcorn than save a few pennies and eat room temperature, dry popcorn.
“Millions and Millions Owed” – March 1, 2004
Recently I shared an AP article about Georgia’s public list of delinquent taxpayers, which including several elected officials. While California does not have a similar list for income tax delinquents, Board-sponsored legislation requires the publication of a list of not more than 12 of the state’s largest sales and use tax delinquencies. One taxpayer who appeared on this list paid the amount of $1,676,941.24. The 12 who appear on the list now owe the state more than $52 million. Check out the delinquents for yourself at http://www.boe.ca.gov/sutax/topdebt.htm
“Owner Beware” – March 15, 2004
Another lesson learned from last week's Board of Equalization meeting. We had two cases on appeal where the taxpayer before us testified that he did not actually run the business but instead allowed some other party to use his state license. While these were car dealer licenses, from a state taxation point of view this is as bad as a doctor allowing some one to practice medicine in his office while the doctor played golf. Now these taxpayers are before us saying they did not know that the person they trusted with their business would fail to pay the required taxes. Since the business was in their name we had no choice but to rule against them and suggest they go after the person they once trusted to get their money back.
“New Boxes for Popcorn” March 22, 2004
Seeking to undermine Governor Schwarzenegger's program to "blow up boxes" and make state government more efficient and more accessible to the public is a group that would add a new box over the Board of Equalization. They call it a Tax Court although it appears that the decision-makers will not be judges nor will it exactly be a court. The promoters of this scheme include major corporations who lost their tax cases before the Board of Equalization. One is the lawyer for the infamous "popcorn is not hot" case that I profiled a few weeks ago. I guess they want to shop their case from forum to forum until they find someone who will agree with them that movie theater popcorn is not hot food.
“FTB Taxpayer Advocate Not Easy to Reach” – March 22, 2004
I noticed in a recent publication about tax advocacy that the Board of Equalization’s Taxpayer Rights Advocate Office is listed with a phone number for directly contacting our advocates (888-324-2798). However, the FTB’s Taxpayer Advocate Bureau only lists a web address and a fax number (916-845-6614). I went to the FTB web site and clicked on Taxpayer Advocate. It turns out that if you need help from FTB’s Taxpayer Advocate, you must fill out a form and send it to FTB and wait for them to get back to you. This illustrates the difference between a government entity that is accountable directly to the voters, like the BoE, and one that is not. The Franchise Tax Board must be made more accountable and available to taxpayers.
“Free E-Filing Offer” – March 29, 2004
A company located in Oxnard, Fileyourtaxes.com, had a promotion for California residents in which they offered free federal and California state personal income tax return construction and eFiling for the 2003 tax year. The free offer was only for March 25 and 26. I checked with the Franchise Tax Board, and they said the company and its offer, was legitimate. I would very much like to hear from anyone who used this service. I would like to know if the people who took advantage of this offer and whether they are satisfied. I did not hear about this until the deadline had passed. I am disappointed that the Franchise Tax Board would first endorse this private company’s program and then not do much to tell taxpayers about it.
“New Taxpayer Rights Advocate” – March 29, 2004
Todd Gilman has been appointed as the Board’s new Taxpayers’ Rights Advocate. I am pleased with Mr. Gilman’s appointment and believe he will do an outstanding job representing taxpayer interests. He has worked in the Taxpayers’ Rights and Equal Employment Opportunity Division since August 2001. His experience in the department qualifies him to be responsible for helping resolve taxpayer problems and complaints. If you have a problem or complaint, call me and the Advocate’s Office at 1-888-324-2798.
“Free NetFile Service” – April 5, 2004
If you are getting nervous because the April 15 deadline for filing income taxes is quickly approaching, consider this time- and cost-saving option. The Franchise Tax Board’s NetFile program is designed to allow millions of Californians to e-file their returns for free. Returns go directly to the FTB, and the system is easy to use. When you file your return using NetFile, you can get a fast refund or choose to pay the amount you owe electronically. FTB will give you confirmation that your return was filed and keep only the final return information you file. To use this system, you must be filing a 2003 California personal income tax return and have been a California resident for all of 2003. There are some other qualifications, which you can read at NetFile qualifications. To learn more, see http://www.ftb.ca.gov/online/netFile/index.html. For those who use this service I would be interested in hearing any critique you might have.
“Serving Lawyers at Taxpayers’ Expense” – April 5, 2004
There is a proposal before the Legislature seeking to create a new state Tax Court that would hear tax appeals rather than the Board of Equalization (BoE). Currently, any taxpayer can come before the Board of Equalization and present their point of view -- with or without an attorney-- because the process is fairly informal. Taxpayers do not have to familiarize themselves with legal jargon or worry that there is secret code of conduct when coming before the Board. The state Tax Court idea, however, is modeled on the United States Tax Court and the procedural rules for that body cover more than 200 pages. The table of contents for this document is larger than the BoE’s entire Rules of Practice. I submit that the average California taxpayer would not fare well before such a body without a highly trained and expensive attorney. I also disagree with having five attorneys appointed by the Governor take the place of the Constitutionally-mandated and voter-elected Board. The last thing this Legislature needs to do is pass another Full Employment for Lawyers Act. This bill should be killed in its very first committee.
“Further April 15 Deadlines” – April 12, 2004
Thursday sounding too soon to get your tax returns filed? Many people need time to file their income tax return beyond April 15th, but remember that obtaining such an extension will only avoid the "late-filing" penalty. It will not avoid a "late-payment" penalty. The late payment of taxes after April 15th will result in a penalty of 5%, plus 1/2% for each additional month or fraction thereof, up to 40 months.
In addition to being the filing deadline, April 15th also marks the end of the Franchise Tax Board's (FTB) limited amnesty program for people who have used illegal tax shelters and other abusive schemes in the past. Prior to FTB's crackdown, the Voluntary Compliance Initiative (VCI) allows taxpayers to pay back taxes for tax year 2002 or before, to avoid becoming subject to the increased penalties beginning April 15th. Last year, the legislature not only increased the penalties for using such schemes, but extended the statute of limitations for pursuing these schemes from four years to eight years. To learn more about the VCI program, visit: http://www.ftb.ca.gov/law/tax_shelter/.
“Tax Court Bill Not Well Received” – April 19, 2004
Last Tuesday, the Tax Court bill, AB 2472, was heard in the Assembly Judiciary Committee. Even though the bill passed out of the committee 6-4, only one member expressed any real enthusiasm for the bill, and ironically, that member is a Republican. Three of the other members voting 'aye' expressed strong reservations about voting for the bill. Of these, all Democrats, two said they only voted for the bill to keep it alive as a possible blank slate (or "vehicle") for any proposed reforms of the Board that may be in the upcoming California Performance Review. Even though the bill is still alive, I am heartened and thankful for the pointed questions and the 90 minutes the committee spent digesting the bill in full -- an eternity by capitol standards. In particular, I commend the committee's chair, Assemblymember Corbett, for her fairness.
In the hearing, Assemblyman Darrell Steinberg (D-Sacramento) asked the bill's author what I think is the most relevant question of all -- where are the aggrieved taxpayers who are being harmed by the current system? Steinberg said, "Are they here today? Are they outside standing in the hall?" The three proponents -- Assemblymember Wolk, a tax lawyer, and a UC Davis professor -- all sat silently and dodged the question. I guess it never occurred to them that government exists to serve all its citizens, not just tax attorneys who would be the sole beneficiaries of a formal tax court. This is a perfect example of special-interest legislation that provides no benefit to the common good. As far as I can tell, the proponents never bothered to consult taxpayers. One of the Democrats on the committee said that the bill, "is definitely not cooked yet." I say it should not even be on the menu, raw or cooked.
“Board Employees Punished for Abusing Privacy Rights” – April 26, 2004
Taxpayer privacy is a very serious matter. Taxpayer rights and taxpayer confidentiality compose the lens through which I judge board policy and procedures. I am aware that many employees of the Board read this letter, and I want them and the public to known that two Board employees are being disciplined for accessing FTB records for non-work related purposes. One of these employees looked at the FTB accounts of relatives, friends, and even neighbors. This employee has been demoted and no longer has access to confidential taxpayer information. In addition, I am looking into whether recent changes in state law give the Board the authority to notify all those who were victimized by this behavior, including the employee's neighbors.
Because there are many employees of the Board who serve the public with distinction, it is vitally important that we police ourselves well so that the good reputation of those who are honorable, along with the department itself, is not tarnished by the bad behavior of a few.
“Tax Court Proponents and Independence” – May 3, 2004
Let me make an observation about another argument put forth by the proponents of a state tax court. The criticism is that the Board of Equalization is not an independent, impartial tax court. I hear this fairly often. But the funny thing is, the critics seem equally divided as to what the Board’s bias is. Some say that we are too inclined to give money away to the taxpayers. Others maintain, with equal vehemence, that we are just shills for the state’s treasury.
I see that a group called COST (Council on State Taxation) has recently put forth this criticism in its newsletter, and my friend Assemblyman Tom Harman has written about it in the Orange County Register.
COST defines independence as a tribunal “that is not located in, or report, directly or indirectly, to the tax administrative agency or any other subordinate executive branch agency.” I could see the point if California had a tax tribunal that was made up of judges who were appointed by the Governor to hear cases and regulate tax law. However, the BoE members are directly accountable to the voters. Therefore, the voters get to judge the judges. What could be fairer than this? That COST draws no distinction between elected and appointed members of a tribunal makes their argument incomprehensible. My suggestion to COST is if they want to engage the issue in California, they need to address the reality in California.
“Taxing to Your Health” – May 24, 2004
To the Board of Equalization there is a big difference between health food and healthy foods. A constituent contacted me about a health nutritional supplement juice made from fruit. Because it is marketed as a nutritional supplement and a health enhancement, the California tax authorities have deemed it not to be food, which is exempt from sales tax, but to be tangible personal property, which is subject to the sales tax. This ignores the fact that this is a juice that people drink directly from the bottle and use as their morning meal. It would be interesting to see whether the revenuers would still view this product as taxable if it were to be sold as a fruit juice or a breakfast drink with little or no advertising related to health.
“Deadbeat Redemption” – May 24, 2004
Several months ago, I wrote about the Board’s top ten list of deadbeats—people who owed millions in back sales tax. I heard from so many of you who were frustrated that the state was not going after these people, so I wrote an article explaining that the list was fairly worthless since it was never updated and consisted mostly of people who had gone out of business and from whom we would never collect a dime. Turns out the list is in even worse shape than I thought. One person who found himself on the list, sought assistance from the BoE’s Taxpayer Rights Advocate Office. The terrific staff at TRA was able to argue the taxpayer’s case to the revenuers on staff who thought the man owed money, and they won. Not only has staff determined that the man owes nothing, but he is actually owed refunds on earlier collections. This man ended up on a list designed to create public pressure and humiliation even though the state owed him money. Perhaps some good will come of the absurdity of this: more people will know that the TRA is available to help taxpayers and that it does actually win cases. If you need help, call TRA at 1-888-324-2798.
“How Can You Give Away What Is Not Yours?” – January 3, 2005
Last week the Los Angeles Times unveiled a hit piece campaign against the Board of Equalization charging that we had given away tax dollars to companies that paid no taxes. By selecting only certain facts, the article presented a skewed and inaccurate story. The issue concerns the Manufacturers Investment Tax credit. This tax credit was passed into law to encourage manufacturers to buy more production equipment for their California operations. The credit was limited to 6% of the purchase price of the equipment, so the state was saying that if manufacturers came up with 94% of the money to buy the equipment then the state would credit their taxes for the remaining 6%. Personally, I think this is a good incentive for manufacturing and manufacturing jobs in California.
The other twist in the law is that the taxpayer could choose to take this credit as a refund of their income taxes or a refund of their sales taxes. Hundreds of companies have chosen to take this credit from their income taxes without controversy. However, the government auditors have resisted allowing taxpayers to take this credit against their sales taxes. This is the substance of the so-called “give away.” All these companies paid their sales taxes. California, unlike many states, charges full sales taxes on manufacturing equipment, which means that to locate machinery in California you have to pay an average of 8% OVER the purchase price in sales taxes. The credit law would have given a 6% refund so the taxpayer never comes out ahead when compared to other states.
The Board of Equalization voted to honor the credits against the sales taxes paid for these companies that have chosen to expand their businesses in California despite all of our anti-business laws and regulations. My premise is that taxpayers should pay ever penny they owe to the government, but I will help them to make sure that they never pay one penny more than that.
“Helping Taxpayers” –
January 24, 2005
I applaud fellow Board of Equalization Member Claude Parrish for the improvements to Board practices that he has recommended. I concur with his belief that these changes will be beneficial to taxpayers who are appearing before the Board. The staff would be required to ask the Board after each decision whether the decision should be published. A published decision is the only way taxpayers learn what the Board’s interpretation of tax rules are. Last decade the Board stopped publishing many decisions. Returning to that process will benefit taxpayers and enable us to develop a more coherent body of tax guidance. He also wants to schedule our cases to give taxpayers more time when needed to present their cases and to try to give taxpayers a better idea of when their cases will be heard.
“FTB540EZ Just Got
Easier But Does Anybody Know It?” – January 24, 2005
The Franchise Tax Board has finally made long-overdue positive changes to its Form 540 2EZ. For 2002, it removed the $400 cap on interest income that could be reported on this form. For 2003, it allowed social security to be reported. For 2004, it allowed dividends and some pensions (if not treated differently than federal pensions) to be reported. Keeping the pressure on FTB has worked and will potentially save thousands of filers from being forced to use a more difficult return. However, not all of the 2004 FTB instructions have caught up with these changes. Only a portion of the instructions for the three 2004 forms have been posted. Pages 1-5 for Form 540 2EZ instructions are not yet posted; neither are pages 1-8 for Form 540A instructions, nor are pages 1-16 for Form 540 instructions. These are the pages that would normally contain alerts to changes. I urge the FTB to boldly provide this alert in the instructions for all three forms so that taxpayers will not use a harder form based on the old assumption that they do not qualify to use Form 540 2EZ.
“More Whining About Tax Credits” – February 7, 2005
Democrats want to raise taxes in California, but most of them at least understand that expressing that intention out loud is bad news since most people do not want to pay higher taxes. Consequently, they have taken to disguising their efforts. You saw it in the last few weeks when there was criticism of the Board’s following the law to refund sales tax to companies qualified for the Manufacturers Investment Credit (MIC). Those companies paid the taxes and were entitled to a refund. Last week Lenny Goldberg was attacking again, criticizing California corporations for taking $237 million in tax credits to reduce their tax liability to zero. That amount represents just 2.6% of the $9.105 billion the state expects to collect in corporate taxes this year. Just like the dependent credit available to families, these corporate credits are a tiny portion of the total tax take. Our corporate tax rate is in the top tier of taxes nationwide and it does not distinguish between small and large companies. Mr. Goldberg is simply trying to whip up a frenzy for his ongoing effort to increase California’s bank and corporate taxes. Given that the rough estimates of the state’s deficit are as high as $9 billion it would take a doubling of the corporate tax rate to try to raise this amount of money, not just the $237 million that might be achieved by forbidding the use of credits to zero out tax liabilities. Of course, in this economy corporations can be very mobile and if the rate goes higher then more companies will simply leave California.
“The Laugh Factor” –
February 14, 2005
Some people consider taxes to be a boring, droll subject. And I cannot deny that I do some very dry reading. However, every once in awhile there is a bit of humor that brightens even the dull world of tax minutia.
First, in a case before the Board, a taxpayer had submitted amended tax returns for one year of his businesses three times. On each of those amended returns, he claimed a net operating loss carryback, something the Rev and Tax Code does not allow. When the taxpayer appealed his case to the Board, the request for the carryback disappeared. Instead, he now claimed that he had a trucking and hauling expense. He provided no document of that expense and, coincidentally, lowered his tax liability by the same amount that the theoretical carryback would have. The truly funny part of the case was a quote from the taxpayer’s CPA, who said, “[I]t did not appear that the corporation should show a net taxable income when there was never any money in the bank at month end or at year-end.” Ahh, if only filing taxes were that simple!
Second, a tax official in Ohio has been suspended for one week without pay. The malfeasance? Attempting to introduce some levity into the otherwise staid city tax return form instruction. Among his lines: “If we can tax it, we will” and “"Free advice: if you don't have a profit in a five-year period, you might want to consider another line of work.” Both statements may advance the cause of honesty in government, but perhaps fall short of the concept of justice for taxpayers.
“Small Victory” – March 28, 2005
One pair of taxpayers experienced a small and rare victory this week at the Board of Equalization hearing. This couple had been appealing their state income tax audit for five years. During that five years, there were long stretches of time where the state did nothing on their appeal. In fact, when they hired a new attorney, it took him 12 months to even get a meeting scheduled with Board staff. The taxpayers asked the Board to waive the interest that accrued during all the time when they were ready to talk and act but the state was sitting on its hands doing nothing. Fortunately, the Board agreed on a 4-1 vote to waive the interest. I hope that was a message to staff not to delay and procrastinate. Whether its true or not it raises the suspicion that the tax agents are delaying on purpose in order to eventually get more interest money out of the taxpayer.
“Taxpayer Rights Agenda for California” – April 25, 2005
I have had a productive and busy 2+ years here at the BoE, but there is much more to do. While it is possible to be immersed in the minutia of tax law and the particular cases I must consider, it is more important to articulate and implement broad principles. That list is below. I am pushing several of these ideas as legislation this year.
The government coming after taxpayers is no different than a criminal indictment. Yet, taxpayers are treated worse than criminals and have fewer rights. California taxpayers should demand the same right to a jury trial that accused criminals have.
The Franchise Tax Board should not be allowed to threaten taxpayers with disclosure of their personal information for not ceding to the government’s demands. Taxpayers may voluntarily make their information public by seeking justice before the BoE or a court, but involuntary disclosure is an outrage that deserves correction and vigilant monitoring.
Taxpayers coming before the Board of Equalization should have the same access to public defenders that accused criminals have in court.
If you are accused of a crime in court, the burden of proof of your guilt is with the government. However, if you are a taxpayer accused of wrongdoing, the burden is on you to prove your innocence. The IRS changed that in 1998 and California needs to adopt that approach as well so that the burden of proof belongs with the government.
To prove fraud, the Board of Equalization abides by a court decision that they must present “clear and convincing” evidence. Yet, accused criminals enjoy protection “beyond a reasonable doubt.” Taxpayers should have at least the same rights as criminals.
Tax department employees have broad immunity that shields them if they abuse taxpayers or violate their rights. Tax employees should not have greater immunity than public safety employees.
“To Catch a Thief” – May 9, 2005
I am known as an advocate for taxpayers. While everyone should pay what they owe, no one should be overpaying their taxes. If the tax auditors think that taxpayers should have paid more, then the dispute is appealed to our Board of Equalization. Issues like these are not criminal matters, and I have been critical of the tax investigators when they move such disputes into the criminal court where it is not only more expensive for the government but the taxpayer is risking their freedom as well as their money. However, that position does not extend to taxpayers who try to bribe government agents. Our BOE investigators have just compiled enough evidence to convict a taxpayer of two felony counts of tax evasion and one felony count of bribery. It is crooks like this one who make it harder on the rest of the taxpayers who are working to not overpay their taxes.
– May 23, 2005
The liberals are sometimes too clever by half. There is a major California Supreme Court tax case called General Motors vs. FTB over the interpretation of the complex formula used to determine the California income tax share of multinational corporations. A number of cases before our Board of Equalization revolve around these factors of the formula. But while Attorney General Bill Lockyer and the Franchise Tax Board are arguing that the current law gives California the right to tax these companies in this way it seems our State Controller Steve Westley and Assemblyman Dario Frommer are arguing that the law does NOT permit this and needs to be changed, so that the state can assess these taxes in the future. Does this not undermine completely the FTB's legal case to try to change the law while that very law is in dispute in court?
Or is Westley who is also the Chairman of the Franchise Tax Board signaling to the Supreme Court that the state's legal position is so weak that it needs a new law to be able to get these taxes?
“Wanted: Traveling Tax
Volunteers” – May 31, 2005
The Organization for Economic Cooperation and Development has identified so-called tax havens around the world. I do not know if this list is for encouraging investment in these places or if this is a bad thing. Democratic Assemblyman Ira Ruskin thinks it is a bad thing and has proposed raising the taxes on anyone who reports they have investments in these countries. Some of these places certainly seem poor by American standards so penalizing investors could be very harmful to their growth. I do know that a number of these places have some of the best scuba diving in the world, and for that reason alone I volunteer to travel the world checking out these so-called tax havens. Are there any other volunteers to visit the following “tax havens”?: Andorra, Anguilla, Antigua and Barbuda, Aruba, Bahamas, Bahrain, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Cook Islands, Cyprus, Dominica, Gibraltar, Grenada, Guernsey, Isle of Man, Jersey, Liberia, Liechtenstein, Malta, Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, Netherlands Antilles, Niue, Panama, St. Christopher and Nevis, St. Lucia, St. Vincent and the Grenadines, Samoa, San Marino, Seychelles, Turks and Caicos, U.S. Virgin Islands, Vanuatu. What a wonderful world it would be if California were on a list of tax havens.
“Making E-Filing E-asier” – June 27, 2005
Taxes are complicated and filing them can be overwhelming. One of my goals is to simplify life for taxpayers and one of the ways I am accomplishing that is by pushing the BOE to improve its electronic services. My hope is that you can spend less lime filling out your tax returns and more time generating business.
If you are a single-outlet retailer (including temporary accounts, governmental agency accounts, and revoked accounts) who pays Sales and Use Tax to the BOE, you are eligible to file your return electronically (e-filing). The BOE web page has a link to a service provider for your filing convenience. You can also pay your taxes via electronic fund transfer (EFT). Be sure to check out the electronic service section on the BOE’s web page at www.boe.ca.gov/elecsrv for more details.
I anticipate that by the end of 2005 the BOE will offer free e-filing from the web page for this same group of filers. I am working to expand e-services to include e-filing for multiple-outlet taxpayers and prepayments. Watch for updates to electronic services on the BOE web page.
“Hard Lemonade or Hard Liquor” – July 18, 2005
Attorney General Bill Lockyer has recently launched a very politicized campaign against teenage drinking. His target is flavored malt beverages, which he blames for having a greater influence on teenage drinking than beer, wine, and all distilled spirits. He hopes that the liquor industry will challenge him so he can have a public spat as the election year approaches. His problem is that so far no one is fighting him.
These beer-based drinks typically contain 4-5% alcohol by volume, along with various artificial and natural flavorings to modify the beer taste. Instead of taxing these popular drinks at 20 cents per gallon (the rate for beer), the Attorney General has demanded that the Board of Equalization retroactively increase taxes to $3.30 per gallon (the rate for distilled spirits).
The underlying problem is that California’s legal definition of beer has not kept pace with advances in modern food technology. Our 70-year-old law defining beer is eerily reminiscent of Germany’s famous Beer Purity Law of 1516. In California, “Beer means any alcoholic beverage obtained by the fermentation of any infusion or decoction of barley, malt, hops, or any other similar product, or any combination thereof in water…” This definition pre-dates the invention of most artificial flavorings, food colorings and food preservatives. Under a very stringent interpretation of this statute, most products now sold as “beer” may not qualify as beer.
At this point, very little is known about the precise recipe for each brand of flavored malt beverage. Some brands allegedly get most of their alcohol from distilled spirits added to the beer base, so the manufacturers may only have themselves to blame if the Board is ultimately forced to tax them as distilled spirits. How taxing these drinks as distilled spirits will deter teenage drinking is beyond me, but it may look good as a campaign slogan.
“MICkey Mouse” – August 1, 2005
Here is a prime example of the state’s left hand foiling the work of the right hand at the expense of taxpayers. More than three years ago, the BoE made a precedential decision about applying the Manufacturers Investment Credit to grocery stores. The case had been on appeal from the Franchise Tax Board (FTB), and the BoE decided FTB’s regulation exceeded the law and was invalid. In short, the BoE said the FTB was wrong and the grocery stores were entitled to the tax credit. Yet, instead of then simply granting the MIC to other grocery chains, the FTB has denied the tax return of every other grocer claiming the same credit. This costs both the taxpayers and the state time and money—even though the grocer will ultimately prevail. We could prevent ridiculous situations like this if we created a state Tax Commission that would hear all tax cases, provide consistent oversight and give all taxpayer a voice before their elected officials with the hassle these grocers have experienced.
“BoE Advocates Here to Help You” – September 12, 2005
The staff of the Board’s Taxpayer Rights Advocate Office assists taxpayers who have been unable to resolve a tax matter through normal channels. They can also provide information regarding appeal procedures, or advice when there appears to be rights violations by Board auditors or compliance staff. Taxpayers also call to convey their frustration, seek assurance or confirmation that a Board staff action is lawful and just. The TRA Office provides assistance to taxpayers and Board staff to facilitate better communication and to eliminate potential misunderstandings. Taxpayers are provided information on policies and procedures so they can be better prepared to discuss and resolve their issues with staff.
If you need help resolving a tax dispute, or if you have a question about a Board procedure, I urge you to contact the Taxpayer Rights Advocate Office:
450 N Street, MIC: 70
Sacramento, CA 94279-0070
Toll Free (888) 324-2798
“The Spirit of the Law” – September 26, 2005
The Board of Equalization is being sued because of a 3-2 vote. I hope we lose. The majority narrowly applied the letter of the law and ignored the legislative intent. I was in the minority in believing that health facilities should not be charged sales tax for insulin syringes and supplies that they used to treat diabetic patients. Sales tax law says that such items are exempt from sales tax only if they are supplied directly to the patient. Does the BoE think the facility eats these supplies? Common sense says the end user is the diabetic patient, even if a pharmacist at a health facility touches them first. Although three members of the Board do not agree with that view, I hope that the court sees the logic and refunds the money.
“Fees versus Taxes” – September 26, 2005
Is there a difference between fees and taxes? Historically, fees are government charges for services received by the feepayer, while taxes provide no special benefit to the taxpayer. Now, the Legislature, the courts, and the Board of Equalization have conspired to blur the distinction.
When the voters passed Proposition 13, they amended the California Constitution to require a two-thirds vote for tax increases. Then the Legislature got clever and began calling all new taxes “fees” and adopting them by majority vote. In the Sinclair Paint decision, the California Supreme Court opened Pandora’s Box by permitting these so-called “majority vote tax increases” by allowing a tax to be considered a fee even when there is no benefit to the feepayer as long as they spent the money on a specific program.
In a recent decision, the majority on the Board of Equalization allowed the Department of Health Services (DHS) to stretch the Sinclair Paint decision to the breaking point. A paint company that has never produced any lead paint was forced to pay a “regulatory fee” to mitigate the damage caused by the lead paint it never produced. DHS claimed the company had failed to prove that it did not produce lead paint because it did not provide enough documentation from 1912 and subsequent years, but it seemed clear that NO AMOUNT of documentation would meet the impossible standard that DHS had established for an exemption from the fee. The official DHS position, as upheld by the Democrat majority on the Board of Equalization, is that the constitutionally-required nexus between the feepayer and the alleged damage to be mitigated can simply be presumed to exist in all cases, regardless of the facts or lack thereof.
If the Board of Equalization’s decision is allowed to stand, I doubt the Legislature will ever need to adopt another tax increase. Instead, they will just pass a series of “fee” increases by majority vote. They will not need to worry about the nexus requirement because it will be presumed in every case.
“LA Times Attack Based on Nothing” – October 24, 2005
Last week the Los Angeles Times launched one of the worst cheap shots at the Governor in recent memory. The ridiculous lie first appeared in an Evan Halper story on October 20, “Hunt for Tax Cheats Is Curbed by the Governor” and the paper compounded the mistake by repeating the same charge in an editorial the next day. What is unclear is if the mistake was intentional, or if the LA Times was duped by the Franchise Tax Board.
The claim made in the two articles is that the Governor’s veto of a bill will prevent the Franchise Tax Board from collecting California’s share of income tax when the IRS rules against a taxpayer. According to the LA Times, the bill was needed because a state appellate court recently ruled that a taxpayer does not have to pay the state if the IRS judgment comes four years after the state taxes are due. The Times paraphrased an unnamed FTB “official” who said the veto will mean that FTB employees will no longer be able to collect $30 million a year from “tax cheats.” What the LA Times neglected to mention is that the court case that is the basis for this indictment of the Governor has been granted review by the California Supreme Court. Therefore, the lower court’s ruling is no longer published, no longer eligible to be cited, and FTB employees are not allowed to follow it. Thus, the problem that the Governor supposedly failed to address does not even exist.
“Income Tax Policy Has Greater Business Impact” – November 14, 2005
“Government Profits at the Pump” – November 28, 2005
There was an interesting column on National Review OnLine last week by Tax Foundation members Hodge and Williams about oil profits. They decided to do something a little different than looking at how well oil companies have done. Instead, they focused on how government makes out at the pump. According to the authors, Americans pay an average of 45.9 cents in taxes per gallon, broken down as: 18.4 cents for the feds, with state and local averaging 27.5 cents. California levies an 18 cent motor fuel tax at the pump, plus sales tax (thus, California's “tax on a tax”). BoE staff produces an estimate of the taxable sales of gasoline on a quarterly basis so that the transfer can be made to the state's Public Transportation Account. From the sale of gasoline, the state is expecting to bring in $203 million more sales tax revenue than it anticipated from the first nine months of this year. Our researchers say it is hard to gauge how much extra came in from the emergency spike in gas prices for the total sales tax picture because consumers spend less on other taxable items when fuel prices spike.
In total, U.S. taxes on gasoline brought in more than $54 billion to federal and state coffers last year. Taxes on diesel brought in more. This year's total is clearly going to be much higher. By the authors' estimation, over the past 25 years, major oil companies have also paid about $518 billion in corporate income taxes. They also pay offshore royalites, severance taxes, property taxes, and payroll taxes, and on and on.
There is a worthwhile lesson we can extrapolate from this. If you are looking for villains because of high fuel prices, it is disingenuous to ignore government's portion of the price of each gallon of gas.
“Telecommuting and Taxes” – November 28, 2005
The next time you are stuck in traffic, consider a new study from the Reason Foundation: “The Quiet Success: Telecommuting’s Impact on Transportation and Beyond” by Ted Balaker. (http://www.reason.org/ps338.pdf) Balaker finds that telecommuting “may be the most cost-effective way to reduce rush-hour traffic” and that it also helps improve air quality, expands opportunities for disabled workers, and can make companies more profitable. About 4.5 million Americans telelcommute most work days, and roughly 20 million telecommute sometime during a month. Imagine the reduction in traffic congestion if those numbers increased. Since telecommuting is much cheaper on our infrastructure budgets than other traffic-reducing measures like trains, government should make it a more attractive option. Balaker’s report includes recommendations on changes to zoning laws, telemedicine licensing, and workplace safety rules. Tax laws also need examination. For example, if an employee of a New York City company telecommutes from his home in Tennessee, which state should receive the worker’s income taxes?
“Tax Tip” – December 12, 2005
The IRS announced the new standard mileage rates for 2005. For all business miles driven this calendar year, taxpayers will be able to deduct 40.5 cents per mile (up from 37.5 cents/mile in 2004). Even with the high price of gasoline and car insurance, this seems fairly generous, but I am not complaining! This is the largest one-year increase in the standard mileage deduction in history.
For deductible medical and moving expenses, taxpayers can deduct 15 cents per mile. When providing goods or services to a charitable organization, taxpayers can deduct 14 cents per mile. This seems like a gross disparity, but actually, the charitable mileage rate is set by law and it does not fluctuate with vehicle expenses.
“A Pro-Family Tax Reform Plan” – December 19, 2005
Ramesh Ponnuru in National Review has a response to the President’s Tax Commission. Ponnuru suggests adding the policy goal of making the changes pro-family. He argues that we ought not penalize investments in children. Parents raise the people who will one day pay for Medicare and Social Security. A pro-family tax code can help address this need.
Here is a summary of Ponnuru’s ten-point plan which I would also recommend to the President and Congress:
1.Start with the current tax code, instead of starting from scratch.
2.Triple the standard deduction and fold the personal exemption and most
of the itemized deductions into a much larger standard deduction of $15,000 per adult.
3.Keep the itemized deductions for mortgage interest and charitable contributions and allow people to take these deductions in addition to the standard deduction. More people will take this, so some deductions would have to be smaller – say, a $800,000 limit on mortgage deduction rather than $1 million.
4.Get rid of the AMT for individuals.
5.Fold the existing child credit, the child-care credit, and the adoption credit into a new, enlarged child credit of $2,500 per child.
6.Eliminate the “head of household” filing status.
7.Cut taxes on capital. Tax dividends once, either at the corporate level or individual level. Treat capital gains as regular income but exclude 50
percent of net long-term capital gains. Tax estates at the same rate as long-term capital gains.
8.Cut corporate taxes. Bring top rate down to 32 percent
9.Replace six individual income-tax rates with two, set at 16 and 32 percent. The border between them set so as to raise the same amount of revenue as the current tax code.
10.Stop real income bracket creep. As people grow wealthier, they move into higher brackets. This puts government growth on autopilot. The income level required to trigger the 32 percent bracket should rise with wages, as should the size of the standard deduction and child credit.
“Tax Refund Scam” – January 3, 2006
The IRS is also warning taxpayers about a new internet scam. In this one, you may receive a bogus email from "email@example.com" that indicates you are eligible for a tax refund. There is a link to a website that asks for your personal and financial information, and once someone provides that, their identity—and possibly some of their money--- is stolen. The IRS does not send emails about tax refunds, so if you receive one, it falls under the category of “too good to be true.” You can read about this and other tax scams at http://www.irs.gov/newsroom/article/0,,id=98269,00.html
“Does the Left Hand Even Know the Right Hand?” – January 30, 2006
You have heard me before emphasize the difference between filing your taxes and paying your taxes. Doing either one without the other will cause you a problem. The theory behind electronic filing and paying of taxes is that it makes life easier, both for the taxpayer and the government. I hope that someday that theory proves accurate, but a recent problem brought to my attention by a taxpayer tells me that we are some time away from that realization. This taxpayer has been filing and paying his sales tax electronically by his own volition for some time. Recent legislation (AB 139) requires all holders of sales and use tax permits whose average monthly tax payment are $10,000 or more to pay their sales and use taxes by electronic funds transfer (EFT). This taxpayer was automatically flagged for the new mandatory program. The glitch is that the new program only requires people to PAY their tax using EFT; it has not yet been designed to allow them to FILE electronically. With my intervention, the Board was able to make an exception for this taxpayer and staff is currently trying to identify why the glitch exists and how to fix it. In the meantime, if you find yourself in this Catch-22, let me know.
“BoE Revising Tax Gap Down on Census Data” – March 13, 2006
Board of Equalization
research staff has concluded from a Census Bureau survey that previous data on
uncollected Use Tax revenue has overstated the annual revenue loss from remote
sales by about $41 million per year. Thus, the so-called “tax gap” was
never as large as policy makers have been led to believe.
Many out-of-state retailers are not required to register with the BoE and do not collect taxes on remote sales from California customers. However, the Census Bureau study that was completed in late 2005 as part of a five-year study shows that the vast majority of remote sales --76 percent -- were made with businesses that employ more than 500 employees. Firms of this size are much more likely to have a California presence and be registered with the Board. BoE research indicates that 78 percent of remote sales by larger companies and 64 percent of all remote sales are done with companies that are registered with the Board. The latter figure is up from 60 percent from 1997.
The Census Bureau is scheduled to release more details in May 2006.
“Hung Up on Documentation” – April 3, 2006
Every once in a while a situation arises that serves as a good example to other taxpayers. California is very blessed to be the only state that has an elected tax board. Our tax appeal hearings are much less formal than judicial courts, but this does not mean that taxpayers do not have to provide evidence when they appeal their tax determination.
A business contacted me saying they would soon bring their case before the BoE. They are seeking a large Use Tax refund but did not provide much if any documentation. This company gives away property their customers use. The property is sent from outside California to the customers in California. The legal issue is where the gift was completed. The factual issue is when the company relinquished control of the property. If control was relinquished outside California, the gift was made outside California and no tax is due. If control was maintained until the property was delivered, the gift was made in California and tax is due. In this instance, the shipping records are almost the entire case. The company must provide the relevant bills of lading or similar records. A member of my staff spent a long time talking to these folks, making the point repeatedly that they need to present the documents or they will lose their case – pretty simple. After some time, an attorney for this company said, “I’m getting the impression you are hung up on documentation.”
Yes, I am. In the vast majority of cases, a taxpayer must maintain records that tell a clear story at least four years after the fact in order to prevail before the BoE. If the company fails to produce the relevant records, they will almost certainly lose their case. This is a lesson to us all.
“We Don’t Need No Stinking Badges!” – April 10, 2006
I read in the Sacramento Bee that Congress is requiring tax preparers to have federal licenses, as well as state licenses (in most cases). I tend to think California’s unique tax preparer licensing program is an expensive waste of money, so I am dubious about this new federal proposal.
The state and federal governments already license and register tax attorneys, tax accountants and enrolled agents. The requirements for these professions have artificially reduced the supply of people who can legally provide these services, which has increased the price of their services to consumers. As a result, many people who need tax help have trouble finding help they can afford. If we reduce the supply of tax preparers by creating an expensive, time-consuming, bureaucratic, federal licensing process, the cost for tax preparation services will increase. No other result is plausible.
Instead of licensing tax preparers, I would rather see Congress devote its attention to simplifying federal taxes and making it easier for confused taxpayers to get help directly from the IRS. Last year, the Inspector General for the U.S. Department of the Treasury found that 35% of the advice given over the telephone by the IRS was incorrect! Even if there are a few lousy tax preparers out there in private practice, I suspect they have a better average than the dismal record of the IRS itself. Before Congress decides to waste money on a new licensing program for tax preparers, perhaps they should license the people who answer telephones at the IRS and give the wrong answer 35% of the time.
“Dear Legislator, It’s Tax Day” – April 17, 2006
Dear Members of the California State Legislature,
Today, April 17, 2006, is the due date for personal income taxes. By midnight tonight, we will have sent off to the Franchise Tax Board this year’s tax returns and a great deal of our hard-earned money, through withholding and perhaps even an additional check. This money will show up in the government accounts for which you have responsibility. Please treat all of this money as if you had worked to earn it yourself. Do not squander it. Do not use it to placate special interest groups. Do not think you have to spend it all immediately. We understand that you are presented with many conflicting “needs” for this money, just as we face more ways to spend money in our own households than we bring in. Don’t do it! Have the discipline to make the hard choices; make the bureaucracies operate efficiently, avoid waste and be accountable; and invest in our future by building the infrastructure our families and our economy need. We need you to be responsible with the money we earn and entrust to you. In recent years that trust has been abused. This year, do something to help restore it.
The California Taxpayer
“Tax Help for Nonprofits” – April 17, 2006
Most nonprofit organizations are run by volunteers and perhaps a few staff members who are driven by passionate commitment to a cause. None of these people are likely to be tax experts and, consequently, the cause to which the organization is dedicated can be jeopardized when tax laws are inadvertently skirted. To avoid this problem, I am hosting several free tax seminars for nonprofit and exempt organizations. Those involved in running nonprofits can learn how sales tax applies to their groups, whether they are eligible for property tax exemption, how to comply with the Nonprofit Integrity Act and raffle laws, and why nonprofit does not mean “tax exempt.” For more information and to register for any of these events, go to
Visalia Convention Center
303 E. Acequia, Visalia
1705 Manzanita Ave., Chico
Los Angeles/San Gabriel, Ballroom B2C
225 West Valley Boulevard, San Gabriel
(co-hosted by Board Member John Chiang)
“Taxpayer Beware” – May 1, 2006
With tax refund checks being anticipated at any time by so many taxpayers, it is timely to warn people about another internet scam. The phony email appears to be from the IRS and says that you are owed a certain amount of refund and that you will receive it in six to nine days if you respond to the email. You are asked to click on a link that will then take you to a form where you are asked to provide your social security and a major credit card number so that your account can be credited. The IRS does not send emails to taxpayers owed money. If you receive one of these phony emails, notify the IRS. To learn more about the biggest internet tax scam, see this IRS new release:
“From the Shores of Tripoli to the Mire of the BOE” _ June 5, 2006
If you think you have seen
everything when it comes to horrible tax policies, I have a new one for you.
The Board of Equalization is currently seeking to collect a huge state tax
(known as the Integrated Waste Management “Fee”) from the Marine Corps for
operating a dump at federal expense on federal property at Camp Pendleton. The crazy part is that the Board is just following state and federal law
the way it was clearly intended to apply. Although the federal government
is generally exempt from state taxation, Congress explicitly waived the federal
government's sovereign immunity from this type of state tax when it passed the
Resource Conservation and Recovery Act of 1976. I had to read it to believe it.
Instead of using military funds for body armor, ammunition, or salary increases
for our underpaid troops, the Marines will be forced to spend their funds to
pay a small fortune in dubious state taxes for which the Marines will receive
no benefit of any kind. Somehow, I doubt this is what the Framers of the
Constitution had in mind when they set up the federal system.
“EZ Returns” – July 17, 2006
When I was a new Board Member, one of my highest priorities was improving the BOE’s electronic services. We have been behind in this area and at my insistence; we are now making great strides to catch up. The newest e-services innovation is the Electronic EZ tax return, which made its début on July 3. If you currently are one of the 341,000 eligible businesses that receive the paper EZ Return, then you are likely eligible for filing the “e-File EZ.” Visit
for details. Visit the BOE website often for more additions to e-services coming soon.
“A Good Read: Dickens’s Bleak House” – July 24, 2006
Would-be reformers often suggest that the Board of Equalization should operate more like a formal tax court, rather than an informal tax appeals board where ordinary taxpayers can make their case without lawyers, pleadings and legal briefs. I oppose the idea of tax courts, of course, because they are too expensive and unfriendly to taxpayers. I think the novel “Bleak House” should be assigned reading for anyone seeking to impose more formal, legalistic and judicial processes on the Board of Equalization.
Charles Dickens’ lengthy and complex novel “Bleak House” is based around the arcane world of England’s Chancery Courts of the 1840s, where legal proceedings dragged on for decades. The court’s procedures were so Byzantine and specialized that litigants could not possibly understand them and they were not permitted to represent themselves in court. Even a litigant’s lawyer (“solicitor”) had to hire a barrister to advocate his case before the Lord Chancellor. Vast fortunes were consumed in endless proceedings and lives were destroyed in the hopeless pursuit of equity. Unfortunately, if you talk to anyone who has been involved in a civil trial in the last few years, you might get the impression that the more things change, the more they stay the same.
“Bleak House” is often considered the greatest novel by Charles Dickens, with several parallel plots and a host of interesting characters. The descriptions are fascinating, but often a bit verbose. As with Dickens’ other novels, you cannot escape the feeling that he was paid by the word. Actually, “Bleak House” was published in serial form, with 19 monthly installments, so in a very real sense, Dickens did get paid by the word. Still, the lively and intricately intertwined stories keep the reader’s interest. I would certainly recommend this book — and not just for people advocating formalistic practices for the Board of Equalization.
“Free Tax Help for New Businesses” – August 7, 2006
Since I am a frequent critic
of how the bureaucracy treats taxpayers, it is a singular pleasure to point out
and endorse government activities that are helping people. One such
program is the BoE's Educational Consultation Program. Since 2001,
the BoE has been offering free consultations, primarily to those who have
started businesses in the last 12 months. I am pleased to report that the
program is up state wide and is getting high satisfaction ratings from
Those who take advantage of this receive one-on-one assistance with an experienced tax auditor who reviews their business operations, record-keeping and tax preparation system. This is a great opportunity for business owners to take care of any general or specific questions about how to remit their taxes correctly. These consultations are provided for free to taxpayers and normally last no more than a day.
Since 2001, over 3,000 taxpayers have participated. I would like to see this number go way higher, so please spread the word to anyone with a new business that collects sales tax that this free service is available to help their business run better and to avoid unfortunate headaches down the road.
We all know that California has a reputation for being unfriendly to business. This program helps mitigate that unfortunate reality. If you would like to participate, please call your local BoE field office to make an appointment, or call me at 916-445-2181.
“IRS on Churches” – August 7, 2006
The IRS is stepping up activity against churches and nonprofit organizations that engage in what the IRS deems improper politicking. It has created the Political Activity Compliance Initiative which will review complaints as the come in—rather than when that organization files its annual tax return-- and decide on whether to pursue an investigation.
I have serious concerns with allowing the IRS to run amuck accusing churches of forbidden activities, and, by that very enforcement under the privacy laws preventing churches from joining together to fight the First Amendment battle. I do not believe that a pastor saying bad things about President Bush or Senator Kerry violated the church’s nonprofit status, and I do not believe the IRS should be allowed to restrict free speech. There have been several cases making it clear that churches have ample right to comment on current social and political issues, register voters, and engage in policy discussions, including current legislation. The line comes when the church advocates the election or defeat of a particular candidate, but I am skeptical that this new IRS Initiative will stop at that line, and that is something that should concern everyone who cares about free speech.
“Ghost Taxation” – August 21, 2006
The California Franchise Tax Board has sunk to a new low. At last week's BOE meeting we heard a taxpayer appeal where the government argued that money was due on ghost income. Two couples sold their business. They paid a huge amount in state taxes on the money they received for the business. They did not pay any tax on the balance of the money owed that was not yet due. Years later it turns out that the buyer could not pay the balance so the note was cancelled. Nevertheless, the FTB argued that the state should get an interest payment on this cancelled debt as if it had been paid at the time of the original sale! Neither the FTB nor the majority of the BOE could get the simple fact that these folks never got the money! The state should be honoring people who pay this much in taxes, not hounding them.
“Why Lawyers Should Study Income Tax” – November 11, 2006
Stephen Cohen of Georgetown University and Laura Sager of NYU have published an interesting book, “Why Civil
Rights Lawyers Should Study Tax.” The complexity of the tax code, and
hence the way damages are structured, significantly affects how much victorious
plaintiffs end up with after taxation. I really like that that the
authors, without any hint of irony, chose to direct the book to “civil rights
lawyers” who in this context help their citizen-clients avoid paying taxes more
than they need to. Maybe law schools are not as pro-statist these days as
Here is an abstract from the book:
Civil rights and income taxation may seem as far apart as any two legal subjects could be, but actually intersect in a surprising number of significant ways. Whenever money damages are sought in civil rights litigation, the tax treatment of damages will affect the amount that actually benefits the plaintiff after taxes. Even when litigation seeks non-money damages, as in predatory lending cases, civil rights lawyers need to attempt to structure the relief so that it does not cause undesirable tax consequences, such as income arising from forgiveness of debt. Civil rights lawyers may also need to analyze the financial consequences of tax benefits, such as tax-exempt status, in order to ascertain whether such benefits raise issues under the First Amendment’s Establishment Clause and the Fourteenth Amendment’s Equal Protection Clause.
Hat-tip: TaxProf Blog: http://taxprof.typepad.com/
“Teaching Future Taxpayers” – November 13, 2006
An elementary school teacher recently shared with me a poster that is part of a curriculum package used by fourth-grade teachers of English-learning students for social studies. The lesson we talked about was the causes of the American Revolution and the poster is designed both to emphasize one of those causes and teach English. The poster features four angry Revolution-era people and a “Revolutionary Chant” written by Jim Marshall that goes like this:
“No taxation without representation!
No taxation without representation!
No taxation without representation!
No way, we won’t pay!
We won’t pay without our say!
You have no right to make us pay!
Despite your might, we want our say!
Yes, we care and accept your dare
To defend our rights, that’s only fair!”
I am delighted that we are teaching limited English students not only to speak the language but to develop the tax-resistant culture that characterizes Americans. Sometimes I believe we are losing that willingness to stand up to our government and demand fairness in taxation. Too many people just roll over and sigh about not “fighting city hall.” At least these students are being taught that they can have a say, can protest, can object, and can win.
“Do You Eat Alpacas?” – January 2, 2007
A recent inquiry from a constituent has led to my discovery of yet another hole in our tax regulations. I was asked by someone who raises alpacas whether the animals are subject to the state sales tax. Law on this topic follows this general rule: if an animal is raised to be consumed as food by humans, it is not subject to the sales tax; if an animal is raised for a purpose other than that, it is subject to the same sales tax as any tangible personal property. The alpaca farmer had looked on the Board of Equalization’s website and found our Regulation 1587, which explains what I have written above. It specifically calls out “cattle, sheep swine, baby chicks, hatchling eggs, and bees,” and later added ostriches and emus, plus an annotation for llamas. Then it says that any other animal called out by the state’s Food and Agriculture regulations as a “food animal” was also exempt from sales tax.
Upon further review, I discovered that there is no Food and Ag regulation; there is no list for anyone to reference. This leaves everyone, from alpaca farmers to Board members, wondering what the rules are. Which tax laws apply to alpacas—the ones that apply to cattle or the ones that apply to llamas? I have called on Board staff to fix the problem and bring some common sense to the situation.
“Refund Right” – January 8, 2007
The good news: a court has ruled that a tax you have been paying for 30 years, although you objected to it, is unconstitutional. The bad news: the appellate court rules that even though the tax was unconstitutional, you are not entitled to a full refund.
This is the situation in which Macy’s find itself with its battle against the City and County of San Francisco. I have weighed in with an amicus brief to the court asking that Macy’s be given back all of the illegal taxes it paid to San Francisco, despite the government’s assertion that it simply cannot afford to pay the refund. Can you imagine the court or government’s response if a taxpayer said, “Gee, I know what I did was unconstitutional and that I owe the money, but I just can’t pay it”? Exactly, and that should be Macy’s response as well.
But the bigger lesson here for all of us hearkens back to the founding of this nation. If you do not fight for your rights, you can lose them. If it were not for Macy’s being willing to battle what they knew to be wrong, San Francisco would still be imposing this tax even though they knew it is wrong. An unconstitutional law or tax can continue for a long, long time and someone has to stand up and fight against it. I commend Macy’s for doing so and I hope they will continue to fight for the full refund they are rightfully due.
“Missing a Refund?” – January 22, 2007
The Franchise Tax Board says it had 35,000 state income tax refunds returned by the Post Office last year. That adds up to about $10.5 million the state owes taxpayers. If you are one of them, contact the FTB at 1-800-852-5711. I have asked the FTB to identify other means to find these taxpayers and get their money to them.
“A Taxpayer Win” – January 22, 2007
Back in 2003, a new law allowed the State Water Resources Control Board to impose a fee on holders of water rights to fund the Board’s operations. The 3rd District Court of Appeals ruled last week that the formula the Board established was unfair and unreasonable. The Court did not disagree with the theory that a fee can be charged to cover the costs incurred by the Board administering the regulation, but it did rule that the formula itself was askew.
According to Cal-Tax “the state has the burden of proof to show the estimated costs of the regulatory activity and the basis for determining the manner in which the costs are apportioned, so that the charges bear a fair and reasonable relationship to the burdens and benefits.” The problem for the government is it does not provide a direct service to these water rights owners so with this ruling it will be virtually impossible to charge a fee at all.
“A Taxpayer Loss” – January 22, 2007
A few weeks ago I wrote that San Francisco owes Macy’s a whole lot of money. The city/county government of San Francisco had been charging an illegal tax on Macy’s for decades. Macy’s sued and an appeals court recently ruled that the tax was indeed illegal. The question then became: how much of a refund should Macy’s receive? In my book, they are entitled to a full refund and should get every penny they paid toward this unconstitutional tax. However, San Francisco pleaded poverty and, unfortunately, the courts have bought it. Late last week, the state Supreme Court announced that it will not hear the case about the amount of refund owed Macy’s. This means that the 1st District Court of Appeals’ ruling that the refund should be limited stands and Macy’s will not receive the payout it aptly deserves. A taxpayer can be right, win their court case and still not get the refund money owed.
Imagine the government being right but a court saying the taxpayer does not have to pay because they have run out of money. Nah, that is never going to happen.
“Abolish the BoE! (Just the Name)” – January 29, 2007
Friends, the time
is long-past to address the fact that our name – the Board of Equalization – is
not very descriptive of what we do. True, the first duty of the BoE
when it was formed in 1879 was to equalize county property tax assessments
practices. But since then, the mission of the BoE has expanded to include
administering the lion’s share of California’s tax programs.
It is not hard to discern why the BoE is considered an obscure department when it has a name that does not describe 95% of its work. I have great sympathy with people who call my office wanting to report that they have been discriminated against. Their disappointment is palpable when they learn that “Equalization” is not an homage to the Civil Rights era.
I would love to hear suggestions. I am thinking that the California Tax Board, or maybe California Tax Commission, sound good to the ear, but I want more choices.
“BoE Kills Proposal to Help Ordinary Californians” – February 5, 2007
I am saddened to report that last week the Board of Equalization killed a proposal that sought to give Californians coming in from other states the same Use Tax exemption available for those traveling into California from foreign countries.
The U.S. Customs law exemption was raised in 2002 to exempt from Use Tax the first $800 of goods purchased in foreign countries, up from $400. My proposal would have raised the state’s exemption level -- currently $400 -- to match the federal level. Californians returning from other states should get the same Use Tax exemption as Californians coming back from other countries.
The Board vote was 2 to 1 – one vote short needed for the BoE to sponsor legislation. Board Member Michelle Steel (District 3) joined me by voting “aye.” Board Member Judy Chu voted “no.” The State Controller’s representative and Board Chair Betty Yee (District 1) did not vote, saying they were neutral.
This is an equity issue. Average Californians who lack the means to fly to foreign countries but rather travel to neighboring states should not be treated like second class citizens compared to those who can afford the luxury of foreign travel. Even travelers from Mexico are treated better.
In addition, the real compliance issue is with large-ticket items. This bill would have allowed BoE auditors and staff to focus on those larger items that actually yield Use Tax revenue. There is virtually zero compliance for the smaller items already. Taking no action basically endorses the idea that regular Californians are criminals.
“Claim Your Phone Refund” – February 20, 2007
Last July marked a momentous occurrence in tax law: the federal government stopped collecting the excise tax on long-distance phone calls after a long fight against the tax that was in place to fund the Spanish-American war. (Coincidentally, you can see in this week’s Dates in History section that the war began on February 15, 1898. The Treaty of Paris ending the war was signed on December 10, 1898.) Washington determined that to make up for the illegal tax, it would refund taxpayers via their federal income tax returns for the excise tax charged between March 2003 to July 2006. Taxpayers can either claim a standard refund amount, which needs no documentation, and receive $30 to $60, based on the number of exemptions they claim, or they can make claims on the actual amount paid. (This also does not require document to be sent with the tax return, but such documents must be available for review if the IRS inquires.)
“A Pro-Family Tax Proposal” – March 5, 2007
Taxpayers that file as Head
of Household status receive more favorable treatment – more favorable tax
brackets, higher adjusted gross income thresholds for deductions and
exemptions, and a larger standard deduction than taxpayers filing singly.
We had a case a couple month ago that made me rethink the state’s eligibility policy. A man had applied for HoH status and been rejected by FTB because he was not married and not related by birth or adoption to the minor living in the home. However, this man was clearly the breadwinner for the family. Based on the law, the Board had to side with FTB but I felt terrible about it. I am a big proponent of the traditional family structure, but I am also in favor of giving every incentive for men and women to stay together – whether married or not -- in order to provide a supportive family structure for kids.
The state Franchise Tax Board acknowledged and agreed that this taxpayer was the sole support for the child. Support that he apparently had no legal obligation to provide, but is choosing to do so. He is probably keeping this child off of the state's welfare system and that certainly is an economic reason for the state to recognize his efforts. So in an ironic situation he is being allowed to claim the child as a dependent for tax purposes but not being allowed to claim Head of Household status because the mom is also in the home and he is not related by blood to the child.
The original aim of Head of Household law is to recognize that families have more expenses than singles. It needs to be updated to reflect situations like this one and to help families in California.
“Making the List” – March 12, 2007
Nearly 300 California taxpayers are receiving letters this week notifying them that their names are about to be posted to the state’s on-line list of leading tax scofflaws. These taxpayers owe nearly $269 million; the smallest amount is $285,000, and the largest is $17 million. A new law requires the BoE to post the list of the 250 taxpayers have delinquencies over $100,000 and the Franchise Tax Board will do the same for personal income tax delinquencies. Taxpayers who receive these notification letters have 30 days to pay up in full, start a payment plan, or demonstrate that they are in the appeals, litigation or bankruptcy process. The list of those who do not make such arrangements should be posted to the BoE website by the end of April.
“Frivolous Tax Excuses” – March 26, 2007
As this year’s deadline for filing personal income taxes approaches, many people express frustrations with owing money, the complexities of the forms, the difficulty in understanding the relationship of state and federal rules, and more. Some people who feel that frustration begin to seek reasons not to file or pay taxes. You may have heard the claim that paying taxes is voluntary, or that only foreign income is taxable, or that you can claim a religious exemption to paying. People who use these excuses, end up costing the rest of us law-abiding citizens a lot of money. If you are tempted by these excuses because of your tax preparation frustrations, I urge you to read the publication “The Truth About Frivolous Tax Arguments” from the IRS to understand the legal issues involved and the reason why people who use these reasons end up being prosecuted for tax evasion:
“Tax Deadline Date Different This Year” – April 9, 2007
We are accustomed to filing our income tax returns on April 15th each year, but this year we have an extra two days. The 15th falls on a Sunday, so the deadline would have been extended to Monday the 16th normally. But, Monday the 16th is an official government holiday called Emancipation Day in the District of Columbia. On that day in 1862, President Lincoln signed into law the Compensated Emancipation Act freeing about 3,100 slaves held in D.C. and signaling that he was planning to free all slaves nine months hence with the Emancipation Proclamation. However, this legislation was the only act providing payment to people who had been enslaved. A federal law passed decades ago provides that official D.C. holidays that affect tax deadlines apply nationwide. Unfortunately, the coincidence of the dates this year was not noticed until after most tax documents were printed, so many official forms do not have the correct due date printed on them. The same timing will occur again in 2011—perhaps that is enough time for the government to plan its printing correctly.
The California Franchise Tax Board will also recognize the deadline as April 17th, along with the United States Treasury, even though the FTB will be at work on the 16th.
“Interest Outrage” – April 9, 2007
The Franchise Tax Board just announced that when taxpayers underpay their taxes the state will charge them 8% interest, but if the government keeps your money beyond what it should, then you will be paid only 5% interest. This is not news; the government announces this every year, and it frosts me every time. This is blatantly unfair, but the legislature does not want to correct this injustice. I can understand setting the interest rate high to encourage people to pay their taxes on time, but should not the government have the same incentive to refund people their money in a timely manner?
“Another Reason to E-File” – April 23, 2007
Given that you just filed your income taxes, the last thing you want to think about is the next tax year. However, I learned something last week that makes me want to spend the next year encouraging everyone to electronically file their tax returns. A friend of mine sent her tax returns with a “return receipt requested” from the Post Office. She became concerned when her Federal IRS receipt was returned but after a few weeks she still had not received a receipt from the State FTB. I inquired of the FTB and was told that not only had her return been received, but it was already being processed and her refund check being cut. She has now received the check, but still no return receipt. I cannot point a finger at either the FTB or the post office for the missing return receipt, but I can point out that if you e-file you can check on-line to make sure your return has been accepted.
“Primer on State Taxes” – April 23, 2007
Just in time for Tax Day, the state’s Legislative Analyst Office has published a Primer on California’s Tax System. While I have to deal with more than 34 taxes and fees as part of my job every day, you may only give a thought to the state’s tax system on this day, when you are writing a check to the FTB. The LAO booklet, available at the link below, walks you through the development of the state’s current tax system, which was established in the 1920s and 1930s. Among the tax tid-bits you can pick up in this booklet:
To see the full report, check out this link:
“Why We Need An Elected Tax Board” – April 30, 2007
A case before us last week
exemplifies why California’s elected tax board is so important. In a Franchise
and Income Tax case last week, a taxpayer came before us insisting that FTB had
double-taxed his income, and on top of this assessed penalties and interest.
The taxpayer did not file tax returns for 3 years (big mistake, not recommended) so FTB made up his tax return for him by calculating (guessing) average salary data of his profession and added it to his W-2 form. What FTB missed was that the W-2 was all of his professional income so they doubled his projected income and took the money out of his bank account.
The taxpayer exhausted all internal administrative remedies at FTB before appealing his case before the BoE. The taxpayer had failed to meet the statute of limitations deadline for disputing the double tax, but the mistake was so egregious he was able to appeal to the BoE. Because of this, FTB took another look at the case and on the morning of the hearing they changed their story and returned the gentleman his money.
Had this situation not been presented in public before the Board I am doubtful this taxpayer would have received justice. I am very gratified that California has the Board of Equalization. You should be too.
“BoE 2005-2006 Annual Report” – July 9, 2007
Last week the Board released the latest annual report. Revenues from sales and use taxes were up seven percent in 2005-06. During the same fiscal year, total BOE collected revenues rose to
Noteworthy facts in the report:
· Taxable sales in the state totaled $553.5 billion during the fiscal year, an increase of $38.2 billion, or 7.4 percent, from taxable sales in 2005-06.
· Total sales and use tax revenues of $44.3 billion included $29.3 billion for state programs and services and $15 billion for cities, counties, and special districts.
· Gasoline, aircraft jet fuel, and diesel and use fuel tax revenues rose by .9 percent to $3.4 billion.
· Collections from the state’s tobacco-related taxes totaled $1.094 billion. Alcoholic beverage tax revenues grew by 1.3 percent to $318.2 million.
Statewide property tax levies for utilities in 2005-06 totaled $38.3 billion, an increase of 11.1 percent. County-assessed property values grew by $429 billion during 2005-06 to reach $3.9 trillion for the 2006-07 tax year.
“What It Takes” – July 16, 2007
Last week I noted the release of the Board of Equalization’s annual report. One of the conclusions that can be drawn from looking at the amount of taxes collected is that it takes California $321 million in expenditures to collect $53 billion in revenue. Economists estimate that we are collecting 96% of the tax due with the remaining 4% hidden in the underground economy. I commend the people of California for such a high level of voluntary tax compliance.
“Get Help With E-Filing” – July 16, 2007
The Board of Equalization is partnering with the California Franchise Tax Board, Internal Revenue Service, and Employment Development Department to present workshops and exhibits about electronic tax filing. Individuals and businesses are covered, along with the e-services offered to tax professionals. At the event, you can receive help enrolling in the e-file programs, talk to e-services representatives from the government agencies involved, test the latest e-file software, and earn continuing education credits. For more information, to find the e-file workshop nearest to you, and to register, go to:
“Tax, Prices and Behavior” – August 13, 2007
The Board of Equalization released figures last week showing that gasoline use in the state fell by almost one percent in April. That works out to a reduction of 10 ½ million gallons from last year and the fourth straight quarter in which Californians have used less gas than they did the prior year. The increased price of gasoline means that we pay twice as much in sales tax on it than we did five years ago. That should not be surprising to any California driver, and Board Chair Betty Yee explains that the drop in usage represents “a persistent trend in consumer behavior.” This is an example of what one expects to happen when the burden grows: people change their behavior. Why that is so apparent in this situation but lost on so many of our friends on the left when they advocate for tax increases as a means to bolster revenue is amazing.
One of the reasons that gas prices and taxes drive consumption so obviously is that consumers are keenly aware of how much they pay for every single gallon. They see the prices on each street corner so they can compare and choose the gas station with the lowest price. They know that that stations nearest freeway off-ramps or in less populated areas will have higher prices. However, such information is not as readily available on many products. For example, consumers operate a bit blindly when it comes to using electricity. You know it is 98 degrees outside and 87 degrees in your house, but you do not know whether turning on the air conditioning will cost you $10.00 or $100.00. I was pleased to see that Edison is moving forward with plans to install smart meters to allow people to see the variable cost of electricity at different times of day and with different demand levels. This will give consumers the equivalent of the street corner price boards they use to make decisions about purchasing gasoline. Yet, a spokesperson for the Utility Reform Network said, “Edison is assuming that people will use and respond to this stuff. . . but we don’t have any guaranteed benefits here.” As the downturn in gasoline purchases indicates, consumers do respond to information and when they have the ability, they choose to avoid consumption at higher costs.
“Taxpayer Wins One” – October 8, 2007
The State Court of Appeals
delivered a stinging decision last Friday, handing victory to taxpayers and
slapping the hands of tax bureaucrats after more of your money.
Lorraine Steinhart, 73, had been given a nice home by her sister via a life estate. (This is a legal mechanism for giving property to someone for the duration of his or her life, but upon that person’s death, the property reverts back to the original owner). Despite Steinhart’s advanced age, the LA County Assessor said the life estate was a change in ownership and jacked up the property taxes from $1,100 per year to more than $6,000 per year. Steinhart sued the County, claiming her interest in the property was limited by the life estate and therefore it was not substantially equal to the fee.
Similar cases have been disputed before the BoE several times in the last few months. I have consistently argued that a life estate should not be considered a change in ownership that triggers reassessment (usually upward in California) because it does not have the same value as a sale or bequest of property. It is an incomplete transfer because it is based only on the life of the tenant. If the life tenant is elderly or unhealthy, he or she will likely have it only a short time, so the value of the property is limited. For example, your elderly grandmother would have real trouble borrowing money using the home you are letting her use via a life estate as collateral because what bank is going to lend against a property holding that is so tenuous? If she passed away next week, the property would revert to the original owner and the bank would be left holding the bag! The Board has disagreed with my thinking on this, but the Court agreed, saying, “Rare is the mortgagee willing to lend on the security of an estate so ephemeral.”
In Steinhart v. County of Los Angeles, the court ruled that that a life estate is not a change in ownership that triggers reassessment because the value of a life estate is not substantially equal to the fee value of the property. I am thrilled that the Court of Appeal rectified what the BoE has refused to recognize these last few months.
Here is a link to the decision: http://www.courtinfo.ca.gov/opinions/documents/B190957.PDF
“Another Business Driven Out of California” – October 22, 2007
Unfortunately, I have yet another example of a Board of Equalization decision that is driving business out of California. National Film Laboratories, Inc. in Los Angeles duplicates video tapes of movies that have been edited to be shown in flight on British Airways planes. The Lab then delivers the edited tapes to an export shipper who delivers them to British Airways. Keep in mind, the lab does not have the right to sell the tapes, it is merely providing production services to the companies that then lease or sell the movies to the airline. California sales tax law provides that there shall be no sales tax on items if the property is delivered in California to the purchaser or its representative, after an irrevocable commitment of the property into the process of export. To me, it is clear that the tapes are set to be exported and that no sales tax applies, but a majority of my colleagues assessed this company nearly $200,000 in taxes, interest and penalties. National Film Laboratories, Inc. appealed the Board’s ruling but lost. So National Film Laboratories, Inc. has a disincentive to continue doing business in California and they could save money by leaving.
“Tragedies and Taxes” – October 29, 2007
As I know from my own
family’s experiences, Californians who have suffered losses in the raging
wildfires have a million things on their minds right now, the least of which
are taxes. Emergency tax relief is available in the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura due to wildfires. Tax relief may include extending filing return dates, relieving
penalties and interest, or replacing copies of records lost to fire damage and
relief may able to sales and use taxes, as well as many specialized taxes and
fees paid by businesspeople throughout California.
Additionally, business owners and fee payers who lost records in the fires and need to obtain copies of BOE tax records will be able to receive replacements free of charge. To obtain copies of critically needed tax records on file with the BOE, including prior tax returns filed with the BOE, copies of audits, and permit application forms, please call us toll free at 800-400-7115.
If your taxable property in the counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, Santa Barbara, and Ventura was damaged or destroyed by the fires, you may be eligible for property tax relief. Applications for reduced assessment are available from and must be filed with the county assessor. For more information, please contact your county assessor's office. Links to the assessors are located at:
The BOE has several forms that may be of assistance. BOE 468, Request for Extension, and BOE 27, Penalty and Interest Relief for Disaster Victims, are both available for download on our website, < www.boe.ca.gov >, or by calling our toll free number 800-400-7115.
To read more about how the BOE can help fire victims, see my complete news release here:
“When Laws Collide” – February 4, 2008
Our Board of Equalization exists to resolve tax disputes. Our state Constitution and statutes give us broad authority to make sure that the right tax outcome is reached. A recent case highlighted the problem. The Courts have ruled that taxpayers who win lawsuits must count the entire amount of the judgment, including attorney's fees, as part of their income. Logic suggests that they then should be able to deduct those attorney's fees as legal expenses and the law allows that. However, the law caps the amount of deductions that taxpayers can take. So the result here is that someone so injured or damaged has to not only pay income taxes on that money won to pay the damage but also may have to pay income taxes on that portion of their attorney fees that they could not deduct.
Since the attorney pays income taxes on his fee income, this results in double taxation of the same money. It is wrong and should be changed. I really do not believe the Legislature contemplated that the Franchise Tax Board would interpret the laws this way. Yet when the BOE was presented with an opportunity to set this right, the taxpayer was rejected in a partisan vote. So money that the taxpayer never saw became taxable on his return and the government is indifferent to his over-taxation.
“Government Warped Competition” – February 4, 2008
Technological advances in communication are announced almost daily. Your television signal may come to you from a telephone company and your telephone dial tone may come from a cable television company. Any content, communications, or data that can be transmitted digitally can be sent from a variety of different platforms. In recognition of all of this the Legislature created a digital communications law to level the playing field for these companies. Over the decades these companies have been subject to big distinctions in government regulations, many of them unnecessary and certainly now with all of this competition a lot less necessary.
Taxation is the biggest government influence on business success and right now we are living in an intolerable situation where some of these companies have their property taxes set by the Board of Equalization and others have their property taxes set by 58 county assessors. The BOE has done nothing to define a single method of assessing the property taxes on both telephone and cable companies. It would be a great loss to Californians if one of these companies failed because its tax burden was greater than its competition. Yet the BOE and the Assessors want to take another year to study the issue. I know government is not designed to move quickly, but this is very risky.
And You Thought Not Paying Was Bad – March 17, 2008
As the April 15th filing deadline for state and federal personal income taxes approaches many people may be worried about whether they can pay their tax bills, but another consideration that some do not make is the stiff penalty for failing to file a tax return. This is a prime concern for seniors who often neglect to file because they know they do not owe anything. However, there are draconian penalties for failing to file a return annually even if you owe nothing. Plus, you must file to take advantage of things like the earned income tax credit.
If you have a senior in your family or as a neighbor, please check to make sure she or he is filing the required tax returns. Trained volunteer assistance is available by Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) and you can be matched with the closest to you at this website:
If the senior you are trying to help does not have internet access to find a volunteer, call my office at (916) 445-2181 and we will match you with a helper.
One of the saddest cases I have dealt with on the Board was a senior who had been ill one year and not filed. The Franchise Tax Board staff used a little-known state law that allows them to estimate the income of someone who did not file a tax return. In this case, the bureaucrats made their calculation on the average income of all California insurance agents even though the gentleman at issue had been retired from the insurance business for decades. This poor man ended up paying taxes, penalties and interest that were outrageous, on money he had not made, with money he did not have. Avoid this horrible outcome and make sure the seniors you care about are filing their tax returns on time.
EZer Tax Forms – March 24, 2008
While we can pine for a streamlined tax system with simplified forms and calculations, we recognize that such change will be difficult to bring about. However, at least one form has been improved for taxpayers, California's 540 2EZ. The form is now available on-line as a fill-in document which you can save. That means you can come back to it at any time without having to re-enter all your information. It also gives you the option of having all the necessary mathematical functions, including the calculation of taxes due, done automatically. I commend Roland Boucher and United Californians for Tax Reform (UCTR) for their work with the FTB and legislature to get the form to this usable point.
The work now is to have the IRS make improvements to their 1040EZ. Right now you cannot use the 1040EX form if you:
· are over 65
· have more than $1500 in interest income
· have any income from dividends
· have any income from capital gains, even from mutual funds
· have any income from Social Security
These limitations no longer make sense in today’s world and they should be removed. While Congressman Cox was able to have the income limit raised from $50,000 to $100,000 a few years ago, it could be moved even higher. Plus, this and others forms should be made available in saveable PDF format, just like the 540EZ that is produced by California.
“Joining the 21st Century” --- May 5, 2008
It may be several years into the new century, but the Board of Equalization is finally getting with the available technology that can improve efficiency and save money, both for the government and taxpayers. Beginning in June, the BoE will begin notifying groups of taxpayers that they need to transition to electronic filing of tax returns. In phases, the BoE will stop mailing paper returns to various groups of sales and use tax filers. Different groups of existing filers, and all new permit holders, will receive notices (both via mail and electronically) with notice of the new e-filing requirement, directions about how to register electronically and explain the opportunity for a one-year exemption from the requirement. A year ago, the BoE ran a “toss the paper” campaign to test run our e-services and about one-fifth of those contacted switched to e-filing. From that test, we have improved our e-filing services and are ready to handle e-filing in greater quantity. If you files sales and use tax returns by mail now and want to get a jump start on our e-programs, go to this link to learn more:
or call 1-800-400-7115 for more information and directions. The Board’s district offices are offering one-on-one help to taxpayers who want details. You may find your local district office on this list:
I have been pushing e-services to save businesses money and to make the tax returns easier to file, more accurate, and add the ability to verify that the return has been filed through the use of computers and the Internet.
Increased Transparency at the BoE—October 13, 2008
I am very pleased to inform you that video of the monthly BoE meetings are now being streamed live over the Internet. The October 1st meeting is being archived for viewing. The next BoE meeting is October 28 in Culver City. To watch, there will be a link on the center area of the BoE homepage: http://www.boe.ca.gov/
I am also pleased to announce that pursuant to the new Rules of Practice, summaries of the Board’s meetings with taxpayer hearings are available upon request when the Public Agenda Notice for the meeting comes out, 10 days PRIOR to the meeting. Please call Board Proceedings at 916-322-2270 for these summaries.
Tax Tips for Tribes—October 13, 2008
Since my election to the Board of Equalization I have been working to make complying with tax laws in California easier, despite their inherent complexities. To that end, I am pleased to present a brand new publication, “Tax Tips for Sales to American Indians and Sales on American Indian Reservations.” You may find it on-line at:
This booklet is intended to explain how sales or use tax generally applies to on-reservation sales or purchases. It also explains the types of documentation that retailers and Indian purchasers need to maintain in order to qualify for exemption from paying sales or use taxes with respect to certain transactions. It also provides information on certain other applicable California taxes and fees.
Q&A Made Easier --- December 8, 2008
Tax questions answered while you wait. Thanks to my predecessor, Dean Andal, the Board of Equalization has an innovative program of free educational consultations for retail or wholesale businesses that have been in operation less than 18 months.
The Taxpayer Educational Consultation Program is designed to provide individualized tax education and assistance to new taxpayers in order to help them meet their sales and use tax reporting requirements now and in the future. Experienced BoE auditors perform the consultations, which usually take less than eight hours. During the consultation, the auditor discusses business operations and record keeping with the taxpayer and reviews a few sample transactions in the records, explains the applications of tax that apply to the taxpayer's operations and potential problem areas that may affect the proper reporting of the tax.
The idea is to give tax advice early to help businesses avoid future compliance problems. It's a win-win deal: taxpayers can learn more about properly applying tax and thereby avoid future deficiencies, and the BoE is more likely to collect the proper amount of tax due. If you are interested in participating in the educational consultation program with the Board of Equalization you can call (916) 445-7580 or email at Dorothy.Edwards@boe.ca.gov
As always, if you have a tax question anytime, you can get a written legal opinion by writing the BOE or me with a detailed description of the facts and the tax question.