Hard as it might be to imagine, California businesses won a small but important victory last year.  Next year, legislators will have an opportunity to reverse a twenty-year trend and give businesses another victory.

In 2010, Governor Schwarzenegger signed Senate Bill 1028, a  bill sponsored by the Board of Equalization (BOE), which gives BOE members the authority to charge only one day of interest for a tax payment that is one day late.

It might not sound like much, but before SB 1028, a taxpayer who was just ten minutes late in filing his taxes for reasons out of his or her control would have owed an entire month’s worth of interest to the BOE.  Today, if taxpayers are just one day late they may be eligible to pay only one day of interest at the current rate of 6 percent.

If, however, taxpayers inadvertently overpay their taxes, they will get zero interest on their refunds.  This unjust policy hurts taxpayers, hurts the economy, and perpetuates California’s image as an enemy to business.

Prior to 1991, the BOE charged the same interest rate on refunds and late payments.  But 1991 was a tough budget year and legislators decided to lower the refund rate to help close a $14 billion deficit.

The BOE was targeted because of a 1990 court decision that entitled federal government contractors to claim refunds on certain sales tax payments.  These refunds would have included a large amount of interest.  By cutting the interest rate on refunds, the state was able to keep a substantial amount of money.

Fourteen bills to correct this injustice have been introduced since 1991. Eleven of those bills have received the unanimous support of BOE members.  However, the Legislature has killed all except for one of them.  Governor Pete Wilson, who signed the budget package that created this disparity, vetoed a 1992 bill that would have corrected it.

This week, for the twelfth time since 1992, BOE members once again voted unanimously to correct this inequity.

This twenty-year experiment in unscrupulous lending has hurt taxpayers trying their best to comply with the state’s complicated tax laws.  And it’s not only businesses that are hurt but also government agencies that are required to pay one or more of the 27 different taxes and fees administered by the BOE.

The BOE estimates that for the 2012-13 fiscal year, approximately $31 million in interest will be paid to taxpayers who inadvertently overpay their taxes and fees. That $31 million will help small business owners, who accidentally paid too much in taxes, keep their doors open and their employees working.

This proposal doesn’t mean taxpayers will be able to intentionally overpay and expect interest in return.  There are already safeguards in the law to prevent businesses from intentionally overpaying their taxes in order to pocket the interest.

The BOEs stated mission is “to serve the public through fair, effective, and efficient tax administration.”  It is time to live up to that standard and correct this unfairness.  But BOE members cannot do it alone.  It was a legislative decision to end interest equity at the BOE, and it is in the Legislature’s power to restore it.

As we face yet another year with a failed budget and large deficits, policymakers must remember that their decisions are not made in a vacuum; they affect the lives of every Californian who has to pay for the costs and live with the consequences of legislation.  Above all, it is the duty of a public servant to serve the public fairly and equitably.

There is simply no justification for interest rate inequity, and this proposal will put an end to it.  We’ve done our job, now it’s the Legislature’s turn to serve the public and end this unfairness.