BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |SB 816 |Hearing |3/30/16 |
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|Author: |Hill |Tax Levy: |No |
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|Version: |1/4/16 |Fiscal: |Yes |
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|Consultant|Grinnell |
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State Board of Equalization: members: contributions
Eliminates the current $250 threshold that triggers conflict of
interest requirements for BOE members under the Kopp Act.
Background
In 1850, the Legislature first directed county assessors to tax
property; however, assessors in different counties often applied
different tax rates and methods of assessment. The California
Constitution of 1879 created the five-member Board of
Equalization (BOE), composed of four members elected by district
and the State Controller, to equalize rates and assessment
practices among counties. In 1910, voters amended the
Constitution to direct BOE to value property owned by railways,
companies selling gas and electricity, or telephone companies.
The Constitution additionally allows the Legislature to
authorize BOE assessment of property owned or used as "public
utilities." BOE also administers the Sales and Use Tax,
locally-imposed transactions and use taxes, several excise
taxes, and more than 30 other fee programs, and considers all
appeals under these laws and programs.
When the Legislature created the Bank and Corporation Franchise
Tax in 1929, instead of directing BOE to collect the tax, it
instead established the Franchise Tax Commissioner to do so. A
three-member Committee consisting of the State Controller,
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Director of Finance, and the Chair of BOE appointed the
Commissioner. The Legislature granted to BOE appellate review
functions over the Commissioner's actions, and chose to retain
this same structure when it enacted the Personal Income Tax in
1935. In 1948, the Legislature replaced Commissioner with the
Franchise Tax Board, consisting of the same three officials
charged with appointing the Commissioner.
BOE considers more than 1,000 appeals per year for all of its
programs, and appellants and their representatives make
contributions to BOE candidates. Prior to 1991, the Political
Reform Act's conflict of interest provisions didn't apply to BOE
members. In that year, the Legislature enacted SB 1738
(Roberti), an omnibus political reform bill which included the
Quentin L. Kopp Conflict of Interest Act of 1991, also known as
the Kopp Act. The Kopp Act applied several conflict of interest
measures to BOE members, including:
Requiring members who know or who have reason to know
that they received a contribution or contributions totaling
more than $250 in the last 12 months from a party, the
party's agent, any participant, or the participant's agent,
to a proceeding before BOE, to disclose the fact on the
record prior to rendering a decision on the proceeding,
Requiring parties or participants in adjudicatory
proceedings before BOE to disclose on the proceeding's
record any contribution or contributions exceeding $250
made by a party, the party's agent, any participant, or the
participant's agent to any member of the Board within the
last 12 months. However, when a "close corporation" is the
party or participant, disclosure only applies to the
majority shareholder.
Prohibits members from making, participating in making,
or otherwise attempting to use his or her official position
to influence, the decision in any adjudicatory proceeding
where the member received a contribution or contributions
from a party, the party's agent, any participant, or the
participant's agent, to a proceeding before BOE within the
previous 12 months, so long as the member knows that the
participant has a financial interest in the decision.
However, a member can participate in a decision under the
circumstances described above so long as the member returns
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the contribution.
The Kopp Act provides that violations are punishable as a
misdemeanor, but requires prosecutions to be initiated within
four years of the date of the violation. Any person convicted
is subject to a fine up to the greater of $10,000 or three times
the contribution, and cannot serve as an elected official or
lobbyist for four years following the time for filing a notice
of appeal has expired, or all possibility of direct attack in
the courts of this state has been finally exhausted, unless the
court at the time of sentencing specifically determines that
this provision shall not be applicable. The author wants to
delete the current $250 amount, thereby applying the Kopp Act's
provisions to BOE members regardless of the amount of the
contribution.
Proposed Law
Senate Bill 816 deletes the Kopp Act's $250 threshold, thereby
triggering its provisions whenever a BOE receives a contribution
in any amount. The measure also makes conforming changes.
State Revenue Impact
BOE states that SB 816 does not directly affect state or local
revenues.
Comments
1. Purpose of the bill . According to the author, "California's
five-member Board of Equalization is the only elected tax
commission in the nation. It collects sales, property and use
taxes, acts as the state's tax court in settling disputes, and
assesses public utility and railroad properties. Four board
members are elected by districts; the state controller is the
fifth member. SB 816 ensures that Board of Equalization (BOE)
members comply with disclosure and recusal procedures for all
contributions received in the previous 12 months instead of just
those over $250. The measure prevents BOE members from voting
on cases if they've received a contribution from that entity
within the previous 12 months. Current law contains a loophole
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that allows individuals with business before the BOE to
contribute to BOE members at levels below $250 without
triggering disclosure and recusal rules. As an example, a BOE
member's reelection campaign committee last year received 45
contributions of $249 each from executives, attorneys and other
employees of a tax consulting firm totaling more than $11,000.
Another BOE member received 25 contributions of $249 each from
employees of the same tax consulting firm."
2. PACs . SB 816 will ensure that a party, agent, or
participant who contributes significant amounts, but breaks them
up into several smaller contributions to avoid the $250
threshold, triggers the Kopp Act's conflict of interest
provisions. The measure responds to recent news reports where
45 employees of tax consulting firm Ryan, LLC, donated $249 each
to one BOE member, and 25 employees donated the same amount to
another BOE member. As a result, the measure will likely add
transparency to BOE proceedings in the form of increased
disclosures from BOE members and contributors. However, the
bill's change only applies to direct contributions, because of
current law's ambiguous application to donations from Political
Action Committees. Soon after the Kopp Act was enacted, BOE's
chief counsel opined that a contribution exceeding the $249
limit to the State Controller by a political action committee
controlled by a corporation with a valuation issue before the
board did not disqualify the recipient board member from voting
on the question, stating that "a political action committee does
not come within any of these definitions ["party,"
"participant," or "agent"]. Laura Mahoney with Bureau of
National Affairs, now held by Bloomberg News, found evidence of
the political influence of PACs in BOE cases in her August, 2010
work, "Campaign Contributions and the BOE: A Special Report."
The report selected a sample of BOE cases and found in those
disputes with $250 or less in contributions tied to them, the
taxpayers won 30 percent of the time. In cases with between
$250 and $16,000, the winning percentage rose to 53 percent. At
the level of $16,000 to $50,000, the success rate was 75
percent. For cases where contributions were between $50,000 and
$137,000-the top level-the success rate was 88 percent.
3. Strategic disqualification . The Kopp Act requires BOE
members to disclose contributions, and prohibits them from
making, participating in making, or otherwise attempting to use
his or her official position to influence, the decision in any
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adjudicatory proceeding where the member received a contribution
or contributions from a party, the party's agent, any
participant, or the participant's agent, to a proceeding before
BOE within the previous 12 months. However, taxpayers can use
this restriction to their advantage when combined with BOE
Regulation 5550, which provides that a majority of a
three-member quorum can act on a case if other members or the
Controller's representative are absent or disqualified by the
Kopp Act. Robert Wood described this strategy in his January,
2010, column in Tax Notes, which may have been deployed in BOE's
2-1 decision in the matter of Argonaut Group, Inc. 287738, a
corporation tax case heard in January, 2009. In that case, a
contribution from an appellant disqualified the Controller's
representative under the Kopp Act, and the BOE Chair was unable
to attend the hearing. After hearing the case, one BOE member
made a motion to put the case over for one day to allow the
Chair, but it failed for lack of a second. The two remaining
members then approved the taxpayer's appeal on a 2 to 1 vote.
While SB 816 expands the Kopp Act's application, in so doing,
the measure may also make strategic disqualification easier.
4. One of a kind . Generally, states follow one of two models
to resolve tax disputes. Some states allow taxpayers to appeal
disputes between taxpayers and revenue collection agencies to
courts, similar to the United States Tax Court's review of IRS
decisions, while others place the appellate authority with the
agency that collects the tax. BOE is the nation's only elected
tax dispute resolution board, which allows taxpayers to directly
interact with elected board members regarding the merits of
their cases, but can result in decisions which don't adhere to
legal precedent, according to legal experts. SB 816 would
expand the Kopp Act to apply to a potentially larger set of
actors before the board; however, whether it will reduce the
actual or perceived political influence over the adjudication of
tax disputes in California is unclear. More than ten years have
passed since the last legislative effort to reform this model,
such as the Tax Court proposed in AB 2472 (Wolk, 2003). The
Committee may wish to consider whether alternative models to
adjudicate state tax disagreements may be superior to BOE.
5. Related legislation . AB 1828 (Dodd), makes similar changes
to the Kopp Act as this bill, but also applies its provisions to
so-called behested payments, where elected officials ask groups
and individuals to contribute to the member's preferred charity.
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That measure is currently awaiting hearing in the Assembly
Elections Committee.
6. Double-Referred . The Senate Rules Committee referred SB 816
to the Governance and Finance Committee and the Elections and
Constitutional Amendments Committee.
Support and
Opposition (3/24/16)
Support : BOE Member George Runner, California Common Cause,
California Public Interest Research Group.
Opposition : BOE Member Jerome Horton.
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