A modest proposal? California performance review says California Tax Commission needed.

CalCPA's Committee on Taxation recently discussed a proposal by the California Performance Review that noted California's tax collection system is divided between four different agencies: the Board of Equalization administers the state's sales taxes, state assessed property taxes and a variety of excise taxes; the Franchise Tax Board collects income taxes; the Department of Motor Vehicles collects vehicle license fees; and the Employment Development Department collects employment taxes.

The Performance Review found that taxpayers are paying for multiple tax agencies to perform identical functions in areas ranging from return processing and collections to information processing.

The proposal is to retain the Board of Equalization, but consolidate the other revenue agencies into one California Tax Commission. The elected members of the Board of Equalization would serve as ex-officio member of the California Tax Commission, with the state controller serving as the commission's initial chairperson.

CalCPA's position is neutral on the report's recommendation, but the Franchise Tax Board is supportive. No definitive action has been taken by the state as of this writing.

TaxTalk Listserve Discussions

Separate elections for federal and California tax purposes. This discussion began when someone asked if it's possible not to elect Sec. 179 for federal income tax purposes, but elect it for California income tax purposes.

The answer is yes, and the applicable California Rev. & Tax Code sections are 17255, 17268, 24356 and 24356.8.

There is a handy reference beginning on Page 243 of the 2004 edition of Analysis & Explanation of California Taxes, published by Spidell Publishing. It lists about 200 distinct federal elections and whether or not California allows a separate election.

California sales taxes and nonprofit organizations. There often are large discrepancies between what tax statutes actually say or require, and the public's perception of what they say.

One example, which applies to both the Internal Revenue Code and California's Revenue and Taxation Code, is personal charity. Folk wisdom holds that if "A" gives something to "B," who is in need, then "A" is entitled to a charitable deduction. That simply isn't correct.

Sales taxes are an area of confusion because much of the general public think tax-exempt organizations don't pay sales taxes. Adding to the confusion is the fact that some states actually have such a provision.

In California, nonprofits pay the same sales taxes as everyone else. They only get a break on real estate and business personal property taxes.

In the early 1990s, a large Pasadena-based nonprofit left California because it was required to pay sales tax on all materials (books and tapes) that it provided to donors and others who requested them, but could not make a donation.

FTB and residency. Determining whether a taxpayer is a full or part-time California resident is the thrust of a lot of FTB audits nowadays, according to TaxTalk participants. Just look at a standard reference work on California taxes, such as the RIA California Tax Handbook, and you'll notice truckloads of rulings and cases on the subject.

One participant pointed out that the September issue of Spidell's California Tax Letter discussed the FTB's emphasis in this arena; and another participant told of a second auditor ruling that was the opposite of the original auditor in one case.

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A third participant told of spending three hours with an FTB auditor regarding his client who had moved to Florida, bought a house and began a new job. The auditor's supervisor said that getting a job there was not enough to prove residence in another state.

A 1997 case in Spidell's showed how a taxpayer did everything wrong in trying to establish Nevada residency.

The taxpayer moved to Nevada, but maintained and continued to use a prior California residence; continued to claim homestead exemption on that residence; obtained medical care from California providers; used a California checking account for 166 transactions with California merchants, including department stores, dentists and drug stores, but only used a Nevada checking account for 17 transactions.

Consumer sales tax refunds from the Board of Equalization. A discussion arose about recourse consumers may have if they have been overcharged for sales taxes or charged (and paid) sales taxes on an exempt item.

The experience of many was that the BOE took the position that a consumer's only recourse was against the seller, because the sales is levied on the seller for the privilege of selling in California.

However, one experienced old hand said that he had received refunds under those circumstances from the BOE by filing Form BOE-101, which can be obtained at www.boe.ca.gov/pdf/boe101.pdf.

Which tax agency is the most rigid when it comes to abating penalties caused by mistakes? Some felt that the FTB was considerably more inflexible than the IRS, but others maintained the reverse. A non-scientific review of the postings concluded that the results in penalty abatement largely depended on whom one dealt with. Some personnel in each agency were very understanding, while others were inflexible.

Thanks to the following TaxTalk participants for their input on these items: Dual licensees Ed Melia and Don Yamagishi, and CPAs Keith Plottel, Larry Pon, Reuven I. Rubinson, Bill Sturgeon, Melody Thornton and Bill West.

By Leonard W. Williams, CPA 

Leonard W. Williams, CPA is a Sunnyvale-based sole practitioner. A member of CalCPA's Committee on Taxation, the AICPA Tax Division and a former Peninsula Chapter president, you can reach him at [e-mail].