Recently, Gilbert Hyatt presented his side of a tax dispute case to the voter-elected Board of Equalization.
The state has been pursuing Mr. Hyatt for 26 years, alleging that he owes millions in back taxes and penalties from capital gains from a computer patent he owns. The dispute centers over whether Mr. Hyatt lived in California or Nevada at the time he made the profits. Despite facing a roughly $55 million tax bill, the Board voted to significantly reduce the amount he owes.
For years, the BOE has been an obscure board that administers several taxes and hears tax dispute appeals like Mr. Hyatt’s case.
Recent scandals have rocked the agency. One board member spent $118,000 on office furniture. A Department of Finance audit found that tax collectors were required to work as parking lot attendants at BOE events, while the Board spent lavishly on self-promoting outreach events. These findings rightfully outraged taxpayers. Most recently, we learned that there is an ongoing nepotism problem among the Board’s staff.
Former White House Chief of Staff Rahm Emanuel once famously said that, “you never let a serious crisis go to waste.” Governor Brown and Legislative Democrats took his advice recently in seizing the chance to neuter the scandal-plagued BOE.
But rather than responsibly reform the BOE, Governor Brown and lawmakers decimated it. Most of its tax authority and workforce were transferred to a new state bureaucracy, the Department of Tax and Fee Administration. The new authority was up-and-running in just 2 weeks. Another newly-created department to launch in January will act as the state’s tax court. Until then, the BOE will hear these cases.
As Cal Tax president Teresa Casazza wrote, “the changes would make the tax system less accountable to the public, and focused on revenue first, fairness second.”
Mr. Hyatt’s case shows why an independent BOE comprised of elected officials is important. He was treated so badly by state tax officials that he won a jury verdict against the State of California in a civil lawsuit he filed against the state over his treatment.
Right now, Californians can appeal their tax disputes directly to the elected Board. Under the new law, an administrative law judge who is accountable to no one will preside. Mr. Hyatt certainly would have never had the chance to get a fair hearing under the new system.
Assemblyman Sebastian Ridley-Thomas, who pushed for alternative BOE reforms, said that the Legislature “cannot call for greater accountability and transparency with a reform that is developed in a backroom.” He’s right.
By whacking the BOE (they will still oversee property and insurance taxes, and alcohol excise taxes), creating a massive new tax bureaucracy, and empowering bureaucrats, not much will have been done to stop the legitimate and troubling allegations of malfeasance. In the end, all taxpayers will have to show for it are higher costs and even less accountability.
Tim Anaya is Communications Director for the Pacific Research Institute.
