Two years ago, the California Legislature enacted an onerous
law requiring business owners dubbed "qualified purchasers" to register with
the State Board of Equalization for the purpose of reporting "use tax." Like
many bad laws, this one was cooked up in an attempt to help balance the state’s
budget. As you might suspect, it hasn’t worked.

I was serving as a senator at the time and voted against
this legislation. Now, as an elected member of the State Board of Equalization,
I’m seeing firsthand the mess this law has created.

The "Qualified Purchaser Program" was supposed to bring in
$200 million in new revenue during its first two years; so far, it has yielded
only a fraction of that total, barely covering related expenses, including new
staff and other program costs.

The program has registered 500,000 California small business
owners, including Avon sellers, dentists and real estate agents. Most of these
registrations have been involuntary, meaning that if BOE staff thinks you meet
the definition of a "qualified purchaser," then you’re automatically
registered, whether you like it or not. Under the program’s terms, any "service
enterprise" that grossed more than $100,000 in a single calendar year and had
no prior relationship with BOE must now annually report its "use tax" on a new

By and large, Californians, including many of these business
owners, are unfamiliar with "use tax." The use tax is similar to the sales tax,
but it is the obligation of the purchaser to remit the tax directly to the BOE,
instead of paying it at the point of sale. The use tax applies when you
purchase items from a retailer who is not located in California and is not
registered to remit tax to California. Purchases subject to use tax include
those made on the Internet from sellers outside the state.

What’s particularly frustrating about the Qualified
Purchaser Program is that it isn’t even necessary. There already were two
different ways for Californians to report use tax: (1) BOE form 79b and (2) a
dedicated line on state income tax forms. Now, an arbitrary but rather large
group of small business owners must report use tax in a completely unique way.
This serves only to make California a more confusing place for our state’s most
important job creators: small business owners and entrepreneurs.

Of the 500,000 business owners registered as qualified
purchasers, more than 60 percent were so confused by the new program that they
didn’t return the paperwork that the BOE sent them. So in May of this year,
without my prior knowledge or approval, BOE staff mailed "final" delinquency
notices to 305,000 business owners, threatening an "estimated" tax bill for
failure to respond.

Not surprisingly, BOE was flooded with thousands of phone
calls from angry, confused and frustrated taxpayers, many of whom were forced
to endure wait times of several hours or more to talk to a BOE representative.
In the past year and a half, BOE has received more than 175,000 calls from
qualified purchasers seeking assistance.

Of those qualified purchasers who actually submitted a
return, an overwhelming 87 percent reported that they owe zero use tax. Of the
few who did owe, the average amount was so small that they likely paid more to
their accountant to comply with this program than they paid in tax. And that
doesn’t count the taxpayer’s time and frustration.

Impacted business owners have been providing my office with
helpful feedback, and I welcome more. I am inviting qualified purchasers to
take a survey on my website at
I plan to share the feedback with my fellow board members and other interested

In the meantime, I will be working with my colleagues on the
board to ensure reasonable implementation of this law. But, to be clear, I also
will be calling for a complete repeal of the program.

The Qualified Purchaser Program is wasting taxpayers’ time
and money with no benefit to the state. Like other Californians, these
taxpayers should be able to pay use tax on their income tax forms or on Form
79b, which BOE has made available for years. The law makes no sense, and is yet
another example of pointless government interference in the lives of
Californians and our economy.

Elected in November 2010, George Runner represents more
than nine million Californians as a member of the State Board of Equalization.
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