The State Worker

Oil companies, unions – and taco trucks – in fight to save California’s tax board

Scandals make case for tax board overhaul, Phil Ting says

Assembly Budget Chairman Phil Ting, D-San Francisco, favors an overhaul of a tax agency called the Board of Equalization. Its recent scandals, he says, make a case for a new approach.
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Assembly Budget Chairman Phil Ting, D-San Francisco, favors an overhaul of a tax agency called the Board of Equalization. Its recent scandals, he says, make a case for a new approach.

In a last-ditch bid to save a California agency that collects more than $60 billion a year in taxes, small business groups are starting to speak up about services they received from elected officials who can investigate audits.

In one case, an Encinitas coffee shop owner saved $330,000 in taxes after staff for an elected official requested a second look at an audit that the Board of Equalization later determined was inappropriate.

In another, a group of Irvine taco truck owners last year challenged amended tax returns that they felt pressured to sign by staff members at the Board of Equalization. The immigrant taco truck owners left meetings at the agency believing that state employees would report them to other government departments if they did not sign the paperwork, according to an accountant who represented them in claims against the tax agency.

The Board of Equalization “tactics were wrong. These were police department style tactics,” said Marc Brandeis, the former Board of Equalization auditor who represented them.

Those little guy vs. the state cases are representative of the arguments Board of Equalization members are making in the last hours before the Legislature votes on a plan that would gut their agency and create two new departments to take over most of its work.

One new department would collect tax and fees for dozens of programs ranging cannabis fees to sales tax. Another would replace the Board of Equalization as California’s tax court, ending the state’s unique practice of allowing elected officials to weigh tax disputes. Opponents of the proposal say elected tax board officials are more responsive to small businesses with tax disputes than civil servants would be.

The proposal to diminish the Board of Equalization was shaped by years of reports of misconduct and a damning audit in March that concluded elected board members had inappropriately intervened in the agency’s daily operations.

At budget hearings over the past week, Republican lawmakers voted against the plan but most Democrats voted for it. They called it a long overdue change.

“I guess you can call it a power grab. I prefer to think of it as the administration straightening out a hot mess,” said Sen. Richard Roth, D-Riverside.

The plan likely will go to a vote with the state budget Thursday, and it would take effect immediately upon Gov. Jerry Brown’s signature, leading to the creation of a new state revenue department by July 1. Some opponents say the pace is just too fast.

“The proposals implement a massive overhaul of an agency that collects one-third of all of the state’s revenue by July 1 – just two weeks from now,” an alliance of business groups wrote to lawmakers on Tuesday. The letter included lobbyists for oil companies, farmers, restaurants, insurance companies, manufacturers and retail stores.

They’re not the only ones who are worried.

Three of the board’s five elected members have publicly criticized the deal that would strip their agency of almost all of its power and hand it to the proposed Department of Tax and Fee Administration.

A fourth, board member Fiona Ma, supports major changes at the agency, but wants more time. She wanted the Board of Equalization to retain its power to settle tax disputes, reflecting her belief that elected officials tend to be more responsive to residents than civil servants.

“It’s too fast,” she said. “I don’t think anybody knows what’s going on.”

Labor is split on the proposal. Service Employees Union Local 1000, the union that represents Board of Equalization employees, endorsed the overhaul.

Private sector construction unions are opposing it. A lobbyist for five construction unions on Wednesday announced their opposition, called the tax agency “critical to the fight against the underground economy” because it has helped prosecute companies that skirt prevailing-wage requirements.

Russell Lowery, chief of staff to board Chairwoman Diane Harkey, also is reaching out to lawmakers trying to retain the agency’s power as a tax court, describing the Encinitas coffee shop and Irvine taco truck cases. On Thursday, Harkey’s office gave The Bee documents from both cases showing that the Board of Equalization had dismissed the higher taxes it had intended to charge the businesses.

If the board loses its authority as a tax court, Lowery says, big business will still be able to hire attorneys and fight the state in civil court. Smaller outlets would lose an avenue for representation.

“Nobody’s going to court over a $25,000 taco truck,” Lowery said. “Without us, the big guy is still going to do it. It’s the little guy who won’t have a shot.”

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

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