The State Worker

How can California possibly make a new tax department in two weeks?

The Legislature on Thursday, June 15 voted to break up the Board of Equalization and reassign most of its workforce to a new Department of Tax and Fee Administration by July 1. So far, there are no plans for Board of Equalization employees to move to a new office.
The Legislature on Thursday, June 15 voted to break up the Board of Equalization and reassign most of its workforce to a new Department of Tax and Fee Administration by July 1. So far, there are no plans for Board of Equalization employees to move to a new office. Sacramento Bee file photo

California lawmakers debated for decades about whether they wanted to kill a long-troubled agency called the Board of Equalization that collects $60 billion a year in taxes and government fees.

Now they’re giving themselves just two weeks to strip the agency of almost all of its authority and its workforce.

That fast timeline is one consequence of the Legislature’s decision on Thursday to diminish the Board of Equalization and replace it with two new tax departments, one of which has to be up-and-running by July 1.

Supporters of the plan say change was long overdue for the agency. They point to critical audits that showed board members inappropriately intervening in the agency’s daily operations, and a 2015 report from the State Controller’s Office that revealed the tax agency had misallocated $47.8 million in revenue that was owed to local governments.

The new departments – one to collect taxes and the other to hear disputes from taxpayers – would report to the Governor’s Office instead of an elected board. It’s the same approach that every other state uses to manage taxes.

“The sweeping reform passed today takes the duties of BOE down to the studs and structurally remodels to ensure more consistent, fair, transparent and efficient administration of California’s tax laws and appeals,” said state Controller Betty Yee, the longest-serving member of the Board of Equalization and the main driver behind the plan to split the agency.

But critics of the plan are skeptical that state government can manage the break-up of the Board of Equalization by the deadline it gave itself.

“This is an agency that will be abolished and created in two weeks time. That makes absolutely no sense,” said Sen. Scott Wilk, R-Antelope Valley.

Here are answers to some questions that taxpayers, lawmakers and state workers are asking in the wake of the budget vote.

Q: I’m a taxpayer contesting an audit. What happens to my appeal?

A: As California’s tax court, the Board of Equalization weighs complaints from residents fighting income tax audits and businesses that are on the hook for sales tax, airline fees, cannabis taxes, and a host of other charges.

The elected Board of Equalization will continue hearing appeals through the end of this year. Over the next six months, the state plans to hire administrative law judges who would start work on weighing tax complaints on Jan. 1, 2018.

They’d be hired through the Office of Administrative hearings, a department that reports to the Governor’s Office. The budget provision that would create the new tax department said tax appeals would be considered by panels of three judges.

Taxpayers who want to contest decisions from the administrative judges would have to file lawsuits against the state in civil court. That’s how most other states handle tax disputes.

Q: What happens to Board of Equalization employees, and will they be paid next month?

A: Most Board of Equalization employees will continue doing the same jobs they have today, but they will report to a department with a different name.

“We’re not creating a new agency from scratch. We’re moving some existing functions and putting them under new management,” said Finance Department spokesman H.D. Palmer.

Service Employees Union International Local 1000, the union that represents the vast majority of Board of Equalization employees, endorsed the proposal to break up the agency, and it has not yet aired concerns in public.

Taryn Kinney, a spokeswoman for the State Controller’s Office, said current employees won’t miss a paycheck. The controller “is well prepared with our existing routine processes to quickly switch the affected employees’ payroll over to the new department with no impact on the timing of their paychecks.”

Dan Elliott, a spokesman for the Board of Equalization, said employees have not yet been told whether they’ll be assigned to one of the new departments. Some of them are expected to stay with the Board of Equalization, which will continue to have elected board members who would become taxpayer advocates.

The Board of Equalization also would be responsible for ensuring the fair collection of property taxes by county assessors, collecting alcohol-related taxes and assessing property taxes paid by utilities.

Q: Will this reorganization save any money?

A: No.

The bill breaking apart the Board of Equalization includes an extra $5 million to establish an Office of Tax Appeals. No employees are expected to lose their jobs.

The Governor’s Office also will have to appoint executive teams to lead the departments it is creating.

“What they did yesterday was not going to make it cheaper,” said Board of Equalization member George Runner.

Q: Is this a done deal?

A: Gov. Jerry Brown still has to sign the bill breaking apart the Board of Equalization. His administration supported the plan, so it’s likely that he’ll sign it.

Some critics of the plan suggested over the past week that they’re considering a lawsuit that would seek to preserve the Board of Equalization authority as a tax court. Several Republican lawmakers on Thursday, for instance, read clauses from the state Constitution that they said were intended to prevent sudden overhaul of state agencies.

Q: Will Board of Equalization employees move to new offices?

A: Most Board of Equalization employees work at its headquarters on N Street in a building that has been plagued by mold, water leaks, falling windows and unreliable elevators.

Hundreds more work around the state in about 20 field offices.

So far, the state has not announced plans to move those workers. Lawmakers who supported the plan this week said it’s too early to say whether the state will reorganize those field offices.

Q: Who will lead the new department?

A: Brown will appoint key executives at the Department of Tax and Fee Administration. The new department would report to Brown’s Government Operations Agency, which includes the states Human Resources Department and Department of General Services.

Some Board of Equalization leaders might move to the new department, but it’s too early to say which ones. Other executives from the Board of Equalization would continue to work for it, supporting its elected members and managing the programs that the agency is required to oversee, such as monitoring property tax collection.

Q: What happens to the Board of Equalization’s $300 million technology upgrade?

A: The tax agency is in the midst of one of the largest technology projects in the state. It’s called the Centralized Revenue Opportunity System, and it’s expected to be installed and in use over the next two years.

Elliott, the Board of Equalization spokesman, said breaking apart the tax board could mean that certain fee programs would not be added to the new accounting program. Those decisions could affect its implementation.

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

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