BILL ANALYSIS Ó 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. AB 1222 (Bloom) - 2/22/13 -- Page 2 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." AB 1222 (Bloom) - 2/22/13 -- Page 3 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: AB 1222 (Bloom) - 2/22/13 -- Page 4 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 AB 1222 (Bloom) - 2/22/13 -- Page 5 Support and Opposition (6/13/13) Support : State Board of Equalization. Opposition : Unknown.