California Tax Board Should Be Stripped of Duties: Controller

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By Laura Mahoney

State Controller Betty T. Yee (D) is calling on the Legislature and Gov. Jerry Brown (D) to strip the California State Board of Equalization of its tax administration duties in the wake of a troubling audit.

Yee, who is an ex-officio member of the elected board, told Bloomberg BNA that the level of member interference in the tax agency’s daily operations revealed in the audit is cause for drastic changes.

“All points of oversight and accountability are broken,” she said.

The audit from the Department of Finance Office of State Audits and Evaluations, released March 30, found that elected board members intervene in daily operations of the tax agency, use staff to promote personal events and threaten senior managers if they don’t go along. The audit focused on the activities of the other four elected members of the board, who represent geographic districts with in the state.

“Board members have dedicated staff and operating budgets to implement their individual board member duties; however, these duties do not include directing the daily operations of BOE,” the audit said.

Final Audit

The final audit was released to lawmakers late March 30, but obtained by Bloomberg BNA in draft form March 24. The OSAE’s findings are unchanged between the draft and the final version, which adds the SBOE’s official response and a brief evaluation of the SBOE’s response from the auditors (see related story, this issue).

Yee called for the changes two days after SBOE member Fiona Ma (D) asked Brown to appoint a trustee to oversee the agency’s operations. Brown said at a March 29 news conference that he will look into Ma’s request but believes the problems at the SBOE are driven by board member personalities and not with the agency’s staff.

Yee serves on the board as a statewide officer alongside four members who are elected by geographic district. She also served as a board member for 10 years representing one of those four districts before she was elected controller in 2014.

Under Governor

She is asking lawmakers to strip the SBOE of all statutory functions related to audit, compliance and administration. Those duties and the staff who perform them should be permanently moved to a separate, new department under the governor.

The controller said the board’s appellate function—under which it adjudicate disputes between taxpayers and the state—should remain with the board for now. Changing that role could be part of a longer-term discussion, she said.

Yee told Bloomberg BNA that she tried to audit the SBOE’s activities when she was a regular member of the board, but couldn’t get a majority of members to approve such a move. She chaired the SBOE in 2007, and again in 2009 and 2010.

“I tried to be sensitive to the board members’ needs but didn’t get into the day-to-day operations,” she said of her tenure as chair. “That changed when I stepped down.”

Mishandling Funds

As controller, Yee released an audit in November 2015 that found the SBOE had been mishandling millions of dollars in various funds for at least two years. The agency is still correcting those problems, Yee said.

In addition to Ma and Yee, the board members are Chair Diane Harkey (R), Vice-Chair George Runner (R) and member Jerome Horton (D).

The OSAE audit is expected to be the subject of hearings on the SBOE’s budget scheduled for April 5 in the Assembly and April 20 in the Senate.

The audit also found that board members are undermining their own claims about the effectiveness of the SBOE’s programs because they are improperly hiring and assigning staff to jobs not related to collecting tax. At the same time, the SBOE’s own data show the tax agency’s cost-benefit ratio has been declining in recent years.

The five-member board is the only elected tax board in the country. The board oversees the sales and use tax and more than 30 other tax and fee programs, and adjudicates disputes between the state and taxpayers over its tax programs as well as income taxes administered by the Franchise Tax Board.

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif., at LMahoney@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

For More Information

Text of the audit is at http://src.bna.com/nx6.

Copyright © 2017 Tax Management Inc. All Rights Reserved.

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