Would you please fill out this 3-minute survey about our service? Your feedback will help us improve CalMatters.
Gov. Jerry Brown and state legislators are on the verge of virtually eliminating the state Board of Equalization, which has been in existence nearly 140 years.
It’s about time. The five-member tax agency has been an embarrassment for decades.
Four of the five members are directly elected from immense districts and the board, which collects sales and gasoline taxes and acts as an appellate body for income tax cases, has become a landing spot for politicians – ex-legislators, usually – with nothing better to do.
While recent scandals revealed in the political media and highly critical audits of the board’s dysfunction finally goaded Brown and lawmakers to act, the board’s highly politicized approach to handling tax disputes has been evident for decades.
In the 1970s and 1980s, for instance, it was well known that if you had a tax case pending before the board, you could guarantee a win if you hired a certain Southern California lawyer – a former legislator, in fact – to represent you.
When one member of the board during that era, William Bennett, tried to blow the whistle on its unseemly conduct, his colleagues more or less fabricated an accusation that he had cheated on his expense accounts (they were merely minor human errors) and forced him out.
However, Board of Equalization malfeasance goes back much further than that. During the years before and immediately after World War II, it was common practice for board members and agents to shake down liquor store owners with threats to lift their licenses.
William Bonelli, a former legislator appointed to the board in the 1930s, was indicted by a Los Angeles grand jury in November 1939, along with six others, on charges of soliciting bribes in what was described as a $10 million “annual liquor license pay-off scandal.” Bonelli fled to Mexico to avoid trial and died there.
The board’s scandalous and/or dysfunctional operations stem from its history.
California never created a dedicated department of revenue like the federal government and most states have. Rather, the Board of Equalization, created in 1879 to oversee uniform assessment of local property taxes, acquired other duties by default as the state expanded its taxation system to include sales, liquor, fuel and income taxes.
The latter are collected by a three-member Franchise Tax Board, which includes the chairman of the Board of Equalization, but disputed income tax cases go before the Board of Equalization – such as the one involving actor Rob Lowe that provided some of the agency’s recent notoriety.
It’s a recipe for taxpayer confusion and politicization of tax cases. The reform agreement would cut at least 90 percent of the board’s authority and staff, reducing it to its original function specified in the state constitution, and creating a state revenue department, including civil service judges, to handle tax disputes.
It should include the Franchise Tax Board and the taxes now collected by other agencies, such as payroll levies for unemployment and disability insurance. And ideally, the appellate mechanism should be a formal tax court to ensure fairness.
It shouldn’t have taken this long to clean up a dysfunctional and endemically corrupt state agency. But the reform should be a complete one, and not just a patchwork job.