Dan Walters

By Dan Walters
Published: Friday, Jul. 27, 2012 – 12:00 am | Page 3A

If you and the Internal Revenue Service disagree about your federal tax bill, the path of resolution is clear – several layers of bureaucratic appeal and, if that process doesn’t do it, a trip to tax court.

Characteristically, California’s tax adjudication process is much more convoluted and, on occasion, much more political.

A three-member Franchise Tax Board – the state controller, the state finance director and the chairman of the Board of Equalization – administers income taxes, and appeals from that system go to the Board of Equalization.

The Board of Equalization – the state controller and four directly elected members from immense districts, each with nearly 10 million constituents – was originally created in 1870 to “equalize” local property tax assessments.

Over time, however, the Legislature gave the BOE jurisdiction over collecting sales and other commercial taxes and made it the appellate board on income tax cases. The only elected state tax administration board in the nation, it wields immense power over tax policy.

A board composed of politicians simultaneously deciding tax cases with multimillion- or even multibillion-dollar consequences while collecting campaign money is obviously fraught with potential for influence-peddling.

Financial journalist Laura Mahoney won prizes in 2010 for detailing the correlations between outcomes of appeals and contributions to BOE members, especially from accountants and lawyers who represent taxpayers in high-dollar disputes.

Those hired guns can, and often do, contact board members outside of formal meetings to plead their cases. As I laid out in a series of columns some years ago, some cases have been settled with no public action, as board members lean on agency staffers.

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