BILL ANALYSIS                                                                                                                                                                                                    




                     SENATE GOVERNANCE & FINANCE COMMITTEE
                            Senator Lois Wolk, Chair
          

          BILL NO:  AB 1222                     HEARING:  6/19/13
          AUTHOR:  Bloom                        FISCAL:  Yes
          VERSION:  2/22/13                     TAX LEVY:  No
          CONSULTANT:  Grinnell                 

                           TAXPAYERS' RIGHTS ADVOCATE
          

          Increases amounts of funds BOE's taxpayer rights advocate  
          may return in certain circumstances.  


                           Background and Existing Law  

          The State Board of Equalization (BOE) administers the Sales  
          and Use Tax Law, Use Fuel Tax Law, Alcoholic Beverage Tax  
          Law, Energy Resources Surcharge Law, Emergency Telephone  
          Users Surcharge Law, Hazardous Substances Tax Law,  
          Integrated Waste Management Fee Law, Oil Spill Response,  
          Prevention, and Administration Fees Law, Underground  
          Storage Tank Maintenance Fee Law, and Diesel Fuel Tax Law.   
          In addition, BOE operates other fee programs such as the  
          Ballast Water, California Tire, Covered Electronic Waste  
          Recycling, Fire Prevention, Marine Invasive Species, and  
          Water Rights Fees, as well as the Natural Gas Surcharge,  
          which are governed by the Fee Procedures Collections Law.

          Similar to its counterparts in the Internal Revenue Service  
          and the Franchise Tax Board, the Taxpayers' Rights Advocate  
          (TRA) Office in the Board of Equalization (BOE) helps  
          taxpayers to resolve a matter outside normal channels,  
          provide information regarding a particular set of  
          circumstances, identify rights violations in the audit, and  
          assist in property tax areas.  TRA facilitates  
          communication between taxpayers, BOE, and county staff to  
          eliminate potential misunderstandings.  TRA's vision is to  
          "be the clear and trusted voice of reason and fairness when  
          resolving issues between taxpayers and the government," and  
          its mission "to positively affect the lives of taxpayers by  
          protecting their rights, privacy, and property during the  
          assessment and collection of taxes." TRA reports directly  
          to the Executive Director, and is separate from other BOE  
          offices and programs.





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          When taxpayers' complain about the BOE, TRA has direct  
          access to all BOE documents and staff involved in the  
          taxpayers' issues, and acts as a liaison between taxpayers  
          and BOE.  If TRA disagrees with BOE staff and is unable to  
          resolve the situation satisfactorily, the issue is elevated  
          to the Executive Director for resolution.

          TRA has specific powers to help taxpayers, including  
          staying actions by BOE where taxpayers have suffered  
          irreparable loss as a result of BOE staff actions.  TRA may  
          order the release of a levy or notice to withhold within 90  
          days if the TRA finds that the levy threatens the  
          taxpayer's health or welfare or that of his or her family  
          for all taxes, and may return up to $1,500 to the taxpayer.  
           Neither the release nor the return affects tax due.


                                   Proposed Law  

          This bill increases from $1,500 to $2,300 the amount of  
          levied funds the TRA is permitted to return when the levy  
          threatens the health or welfare of the taxpayer or the  
          taxpayer's family.  The bill also allows TRA to return up  
          to $2,300 in levied funds under the Cigarette and Tobacco  
          Products Tax Law and the Fee Collection Procedures Law,  
          paralleling similar authority in the Cigarette and Tobacco  
          Products Tax Law and the Fee Collection Procedures Law.   
          The measure directs BOE to annually adjust the $2,300  
          threshold for inflation for all taxes.  


                               State Revenue Impact
           
          BOE estimates revenue losses of approximately $4,600  
          annually.


                                     Comments  

          1.   Purpose of the bill  .  According to the Author, "AB 1222  
          updates the amount of levied funds the BOE may return to a  
          taxpayer when the levy threatens the taxpayer's or their  
          family's health or welfare.  It increases the allowable  
          amount from $1,500 to $2,300.  The bill also adds these  
          provisions in the remaining BOE-administered tax and fee  
          programs that currently lack it."  





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          At a time when many Californians are struggling to make  
          ends meet, it is essential that the BOE have tools at its  
          disposal to protect taxpayers while still ensuring their  
          taxes are paid in full.  AB 1222 is an important step  
          toward that goal.  

          2.   One of a kind  .  BOE is the nation's only elected tax  
          appeals board.  As such, they have been criticized for its  
          tax appeal decisions being politicized and favorable to  
          affluent taxpayers.  BOE allows taxpayers and their  
          representatives to directly lobby its members, which is  
          generally barred in judicial or quasi-judicial settings,  
          creating the impression that effective lobbying and  
          political strategy is more influential than applying the  
          facts to the law in tax cases.  BOE didn't usually publish  
          decisions, leaving little to no guidance for either  
          taxpayers or tax enforcement agencies on the correctness of  
          tax positions, until the Legislature required publication  
          (AB 2323, Perea, 2012).  In the recent California Appellate  
          Court case,  City of Palmdale v. State Board of  
          Equalization  , 2012 Cal.App. LEXIS 610, the Court provides a  
          condemning indictment of BOE's performance in the case,  
          faulting them "for rendering a decision without due regard  
          for the statutory and constitutional laws that govern its  
          decision-making."  The Court held that, "To vacate the  
          judgment and reinstate [BOE's] decision would not only  
          imply the agency acted properly, it would also undermine  
          the effectiveness of the judgment in exposing [BOE's]  
          deficiencies in handling the administrative appeal."  

          The trial court's judgment found that BOE's decision  
          granting the City of Pomona's petition for a reallocation  
          of local sales tax required "express findings and a  
          discussion of the evidence supporting them."  However, BOE  
          did "not even hint at the reasons for [its] decision" and,  
          as a result, the trial court was "forced into unguided and  
          resource-consuming explorations . . . ."  

          In refusing to vacate the trial court's judgment, the Court  
          of Appeal noted that, under BOE's decision, the City of Los  
          Angeles stands to lose $2.32 million in tax revenues and  
          that cities and their residents "have a right to know why a  
          city is losing or gaining millions in local sales tax  
          revenues, that is, a right to know the [BOE's] grounds for  
          reallocating those taxes."  The Court also noted:





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               As recited in the judgment, the [BOE]:  (1) failed to  
               understand that it must explain the basis of its  
               decisions; (2) paid little attention to its statutory  
               authority, or lack thereof, to apply regulations  
               retroactively; (3) appeared unconcerned with the  
               principles of due process; (4) was oblivious to the  
               inequities of considering an appeal filed eight years  
               after the Board Management decision; and (5) ignored  
               the requirements of the Administrative Procedure Act.

          While the above criticism applies to BOE, not TRA which is  
          granted additional authority by this bill, should the  
          Legislature grant any additional authority to BOE before  
          improves transparency and accountability in its  
          decision-making, especially by successfully implementing AB  
          2323?  Ultimately, BOE is responsible for its staff and is  
          accountable to the Legislature for its performance;  
          however, a fair argument can be made that a bill expanding  
          the authority of the historically independent TRA shouldn't  
          be affected by BOE's noted shortcomings.  If the Committee  
          wants to go part of the way, it could amend AB 1222 to  
          simply index the existing $1,500 threshold to annual  
          inflation growth in the future and not grant the authority  
          to return funds for BOE's other taxes.  The Committee may  
          wish to consider whether BOE is sufficiently trustworthy to  
          grant it additional powers.

          3.   Necessary  ?  According to BOE, TRA uses the authority  
          expanded by AB 1222 approximately once per year.   
          Additionally, no example exists of a case where TRA wanted  
          to return more funds to a taxpayer that met the criteria,  
          but were limited by the cap the bill hikes.  The Committee  
          may wish to consider whether there's a sufficient problem  
          that makes enacting AB 1222 necessary. 




                                 Assembly Actions  

          Assembly Revenue and Taxation8-0
          Assembly Appropriations       17-0
          Assembly Floor           75-0







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                         Support and Opposition  (6/13/13)

           Support  :  State Board of Equalization.

           Opposition  :  Unknown.