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California’s elected tax board collects $60 billion for the state a year but is under a microscope about how much time and effort it spent in 2016 to bring in $156,000 from poor people.
In particular, State Board of Equalization member Jerome Horton (D) has caught the attention of state budget auditors, legislators and his fellow board members for driving a huge increase in the sales and use tax agency’s efforts to help low-income people file income tax returns through the Volunteer Income Tax Assistance program (VITA).
Horton’s efforts over the past few years include dozens of events that use SBOE offices and staff, as well as Franchise Tax Board staff in conflict with the FTB’s policies limiting employee participation in the program. The SBOE prints and mails brochures, fliers and posters to support his VITA events. Horton also funnels charitable contributions into the purchase of billboards featuring his photo and enticing people to use the services he is offering.
Horton says his events and advertising campaigns help people to claim the state and federal earned income tax credit and to boost use tax payments from Californians who buy items online from out-of-state retailers. Others say he is using the tax agency’s resources to promote himself with thin ties to the tax agency’s mission and little benefit to the state.
Controversy about the sales tax agency’s role in the income tax program is one element of a larger breakdown in the SBOE’s management, which has left board members pointing fingers at one another and prompted Gov. Jerry Brown (D) April 13 to call for a state Department of Justice investigation into the agency’s possible misuse of state resources.
The five elected board members, anticipating attention from lawmakers and the governor in recent months, changed their rules in January to limit use of the tax agency’s staff and resources for efforts like Horton’s.
His events account for most of the 800 percent increase in the SBOE’s participation in VITA events in recent years that is sparking questions from lawmakers. The SBOE participated in three events in the 2010-11 fiscal year and 28 in the 2015-16 fiscal year, according to a recent state audit examining SBOE activities.
Senior SBOE staff told lawmakers at an Assembly budget oversight hearing April 6 that the agency is no longer approving VITA events, but Horton has pressed ahead with VITA for the 2017 filing season. He sponsored and promoted 10 Saturday income tax preparation events at area schools and offered tax preparation help at four of his Los Angeles area offices on 38 weekdays between February and mid-April.
Horton is the only elected SBOE member who directed VITA events in 2017, although some members appear at VITA events sponsored by other groups such as the United Way.
Horton has claimed in public comments and to state auditors that tax preparation help offered through his office brought in $156,000 in use tax payments in 2016. The payments came from people earning less than $54,000 a year who had help filing their income tax returns and were able to claim the earned income tax credit.
Horton’s rationale for the sales and use tax agency to devote resources to VITA is the existence of a line on the state income tax return where taxpayers can enter an amount of use tax to pay voluntarily each year. At Horton’s request, lawyers for the SBOE have opined that the use tax line gives the agency nexus to be involved in VITA, which is run by the Internal Revenue Service and the FTB.
Horton also points to the SBOE’s role as the appellate body that decides disputes between taxpayers and the FTB, giving it some purview over administration of the state income tax.
The Department of Finance’s Office of State Audits and Evaluations (OSAE) found in its report released March 30 that the SBOE spent $124,000 in printing and postage alone in 2016 for mailers promoting VITA services, which Horton said brought in $156,000 in use tax. The potential revenue gain of $22,000 doesn’t take into account other expenses that the auditors said the SBOE wasn’t tracking.
Not included in the $124,000 for printing and postage are amounts the SBOE spent to host Horton’s VITA events on its website, handle registration, use SBOE offices or provide trained volunteers to do return preparation. It also didn’t include money spent on billboards in the Los Angeles area featuring Horton and promoting his VITA efforts.
The volunteers preparing tax returns on 38 different weekdays in February, March and April 2017 in four different offices in Horton’s district were from the FTB, in contradiction of the FTB’s own rules for working on VITA, an FTB spokesman told Bloomberg BNA April 11. Several FTB employees volunteered to work in rotating four-hour shifts, from 9 a.m. to 4 p.m. with a one-hour break for lunch, at Horton’s weekday VITA office hours.
The FTB, which administers the state income tax and sponsors VITA, encourages its employees to receive training to become VITA volunteers. However, it doesn’t allow its employees to receive VITA training or prepare returns during work hours “except on the rare occasion that a board member asks for help,” FTB spokesman Jacob Roper told Bloomberg BNA. Horton is the only SBOE member who has asked for FTB employees to staff VITA events.
All phone numbers posted for information about Horton’s 2017 VITA office hours and Saturday events on his SBOE website or other promotional materials, including billboards, are for his offices and are answered by his personal staff members.
In email responses to questions from Bloomberg BNA, Horton’s office said costs for his VITA events are minimal and comply with the SBOE’s new policy adopted in January. That policy limits all outreach expenditures—but not VITA—to $800,000 to be split evenly and spent only from the personal office budgets of each of the four board members elected by geographic district. Similar to the FTB’s policy, the SBOE said agency staff who don’t work directly for a board member can’t prepare VITA returns on the job because that work isn’t tied to the agency’s core mission of administering the sales and use tax.
Horton’s office told Bloomberg BNA the minimal costs include electricity used in rooms that otherwise would be dark as well as time SBOE’s web services and public affairs staff spent posting information on his website. The registration pages on the SBOE’s site were developed several years ago and don’t present ongoing costs, his office said. The tax preparation events are managed by a member of Horton’s staff, but a registration list isn’t maintained.
Horton continued his defense of his VITA activities in an April 17 letter to Brown alleging the agency’s senior staff failed to provide Brown’s OSAE auditors with evidence and documents needed for their report. He touted a doubling in the number of returns filed with EITC claims in 2016, and a reduction in tax fraud because the returns were filed electronically because of VITA.
“The BOE VITA initiative dates back to the late 1900s [sic], and the BOE legal department has consistently opined to have nexus with the BOE ‘major tax administration functions’ holding that it has a direct nexus to the board’s tax administration duties under Government Code sections 7081-7099.1,” Horton said in the letter.
Beyond staffing, office use, postage and printing, Horton places billboards in the Los Angeles area promoting his VITA efforts. Those billboards appear to be funded with charitable contributions made at Horton’s request, and not with SBOE funds.
Horton reported a $27,000 in-kind contribution March 7, 2016, for 20 VITA billboards from the California State Outdoor Advertising Association (CSOAA). The billboards were donated to the Golden State Opportunity Foundation—a nonprofit organization launched in 2016 when California created a state-level EITC. The foundation runs a statewide outreach and education campaign called CalEITC4me to boost claims for the credit
Similarly, Horton reported a Jan. 27, donation of $28,000 to the CSOAA for 2017 VITA billboards. The 2017 donation came from California Educational Solutions (CES)—a nonprofit organization founded by his wife, Yvonne Horton, who is the elected clerk of the City of Inglewood.
An undated image of a Horton billboard for VITA is featured on the CSOAA web site along with a testimonial from Horton. The billboard promoting free tax preparation includes a large photo of Horton, his name and the name of the Board of Equalization.
“The California State Outdoor Advertising Association is an excellent community partner who has empowered public servants by partnering with local nonprofits to advance various public education and empowerment campaigns,” his testimonial says.
Allen J. Wilson, a Republican activist and job placement coordinator for nonprofit organizations in Southern California, posted a photo on Twitter March 31 of a billboard he saw in Diamond Bar, Calif., that promotes free income tax assistance. It features a large photo of Horton, the name of the State Board of Equalization, a phone number that is answered in his office and the name California Educational Solutions.
Wilson tweeted a photo of the billboard the day after State Controller Betty T. Yee (D) asked the governor to strip SBOE’s tax administration duties in the wake of the OSAE audit.
Assemblyman Richard Bloom (D) quizzed senior SBOE staff about the billboards at an April 5 hearing of the Assembly Budget Subcommittee on Oversight. He asked SBOE Acting Chief Deputy Director Brenda Fleming how billboards such as those he has seen in Los Angeles with the likeness of a board member get reviewed or approved.
“Is there an issue if the board member’s likeness and name dominates the billboard as opposed to the event dominating the billboard?” he asked.
Fleming said the Revenue and Taxation Code prohibits the use of a board member’s likeness on billboards from the SBOE, and the tax agency hasn’t paid for any.
“I have no knowledge of this,” she said.
The contributions for the billboards at Horton’s request are part of a larger practice he has used in the seven years he has held his SBOE seat to solicit charitable contributions—often from entities with business before the SBOE—to or through CES, the nonprofit founded by his wife. VITA is frequently the purpose of the contributions he lists in disclosures he must file with the Fair Political Practices Commission, although he has recently revised his filings to reduce the amount used for VITA (see related story, this issue).
The SBOE’s use of its resources for VITA, as well as other findings in the OSAE audit, are the subject of ongoing legislative hearings. The OSAE audit also found that board members intervene in daily operations of the tax agency, use staff to promote other personal events and threaten senior managers if they don’t go along.
The Senate Budget Subcommittee on State Administration and General Government will discuss the agency’s budget and audit findings April 20, and the Assembly will take up the agency’s budget in May. Brown has also asked lawmakers to enact changes to the SBOE’s operations by June.
In his April 13 letter to the board members, Brown also suspended the agency’s ability to handle personnel, contracting or technology without approval.
The SBOE collects $60 billion in revenue a year, with most of that coming from the sales and use tax. The board also administers more than 30 other state taxes and fees.
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 email@example.com
Copyright © 2017 Tax Management Inc. All Rights Reserved.
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