The California State Board of Equalization (BOE) needs to be reformed. The five-member, elected constitutional body is responsible for administration of sales tax, business taxes and fees, state-assessed property tax, and hearing income tax cases. A recent audit has uncovered administrative and operational missteps, which have been well documented in the press. I applaud the effort to examine the BOE, and believe this is the key to improving managerial oversight of the agency.
The initial response from the Governor Jerry Brown and the Legislature was appropriate – checks must be put in place to prevent these same problems from recurring. But there is a difference of opinion as to what needs fixing. Some reformers, like Assembly Revenue and Taxation Committee Chair Sebastian Ridley-Thomas, are rightly focused on addressing the problems raised in the audit. Others, however, have gone beyond the scope of the audit, proposing to gut the agency altogether, including its adjudicatory and regulatory functions. This would be a huge mistake, and it is no surprise that advocates of such measures haven’t recognized the importance of a democratically elected tax board as a check against bureaucratic dominance and tax auditors running amok.
The best illustration of this point is an example. In addition to being a retired political science professor at Cal State LA, I work for a trade association representing the printing industry throughout California. In this capacity, I recently helped a member who went through a gut-wrenching sales tax audit. The amount in dispute – $70,000 in tax – would have crushed this 13-person shop.
The disagreement was over the resale of a chemical which, when mixed in an ink base and applied, became part of a finished, printed fabric. Auditors claimed that the chemical did not become part of the printed fabric, and therefore was taxable. Over a period of four years, to no avail, the company disputed the results of the audit, audit review and formal petition for redetermination.
Lastly, the taxpayer appealed to the final administrative level – a hearing before elected BOE members. The taxpayer met individually with each board member as the case drew closer to hearing. The taxpayer also presented a video of the mixing of the chemical in the ink base and the printing of an image on the fabric, and an explanation of why the position that it took on its sales tax return was the correct one. (This is the type of meeting that is now under attack by BOE detractors, who want to do away with so-called “ex parte” meetings.)
The taxpayer had a brief public hearing before the elected members (taxpayers have 10 minutes to present their case) and after a bipartisan, unanimous decision in its favor, the nightmare was over, since tax agency staff cannot appeal a decision of the elected Board.
This is our representative democracy at its best – taxpayers having an audience before their elected officials, who have the independence and fortitude to rectify a bureaucratic error that, if left uncorrected, would have destroyed this small business and the jobs it creates.
Make no mistake, if the BOE is stripped of its adjudicatory, regulatory and key administrative functions, the real losers will not be the BOE members themselves, but California taxpayers. We can have the best of both worlds – improving the agency with needed administrative reforms while preserving key taxpayer protections. That’s good government, and as Californians, we should not settle for less.
Gerry Bonetto, Ph.D., is vice president of government affairs for Printing Industries of California, the government affairs office of the three commercial printing trade associations in the state: Printing Industries of San Diego, Printing Industries of Southern California, and Visual Media Alliance. The combined membership of the three affiliates is more than 2,000 companies.