TRICKY TAX RULES IN CALIFORNIA EQUALIZATION MEMBER TACKLES BUSINESS ISSUES.

Byline: Charles F. Bostwick Staff Writer

LANCASTER - California's business tax laws and regulations are overly complicated and aren't keeping up with changes in how businesses operate, a Board of Equalization member said.

Board of Equalization member Bill Leonard also said state government officials are often ignorant about business and regard it as ``evil, greedy and somewhat dirty.''

``It is really tough doing business in California compared to other states,'' said Leonard, who worked in real estate and property management before his election to the state Legislature and then the Board of Equalization.

Leonard spoke to local business people at a breakfast preceding the Antelope Valley Business Showcase hosted by the Antelope Valley Chambers of Commerce and the Palmdale Chamber of Commerce.

Also speaking was Lancaster City Manager Bob LaSala, who told the business people that the local economic outlook remains good, with Lancaster gaining nearly 4,000 residents last year, 150 subdivisions under construction and another 100 seeking approval.

``That creates more demand for shopping, for retail sales and the like,'' LaSala said.

More than 1.8 million square feet of new retail space is proposed in Lancaster, including a new shopping center called Lancaster Spectrum on 20th Street West and a new Wal-Mart Supercenter at the Valley Central Shopping Center.

Almost 1 million square feet of industrial space is also being built, most around Fox Airfield, LaSala said.

LaSala also agreed with Leonard that California's tax code is outdated, written for an economy structured around agriculture and manufacturing.

``Our economy isn't driven by that anymore. It's driven by information and by services,'' LaSala said.

A California assemblyman and state senator from 1978 to 2002, Leonard was elected in 2002 to the Board of Equalization, which administers the collections and appeals for sales, income and property taxes as well as 31 other taxes and fees.

As a board member hearing appeals of tax cases, he said, he encounters small-business people who run afoul of the state's business tax regulations. State officials don't realize the difficulty small-business owners have in understanding the state's complex tax laws, Leonard said.

``They expect every business to have a vice president of tax, and it doesn't work that way,'' Leonard said.

Leonard recounted the case of a grocery-store chain whose officials couldn't decide if they had to charge sales tax on a drink that contained fruit juice and vitamins.

Some bottles were labeled ``juice'' and some were labeled ``health nutritional supplement,'' although the contents were identical, Leonard said. The state's answer was that sales tax was owned on the nutritional supplement bottles, but not the juice bottles.

In another case, a woman operated a home-based Internet business as a food broker for thoroughbred owners, buying food from wholesale grocers and having it delivered to the Santa Anita racetrack.

The woman failed to pay sales taxes, not realizing that food is exempt from sales tax only when it is sold for human consumption, not for animals, Leonard said.

``We were after her for fraud. Our revenuers figured 'Nobody would not know that.' What do you mean, nobody would not know that? Nobody knows that,'' Leonard said.

The woman pleaded no contest to misdemeanor tax fraud because she was afraid of going through a jury trial, Leonard said. She agreed to pay the back taxes but didn't want to pay interest and penalties, he said. The board voted 3-2 against her appeal.

Another case involved a Los Angeles liquor store owner who bought a fire-damaged store after the 1992 riot. The purchase included about $5,000 worth of liquor, which the owner was later told he couldn't sell because the labels were damaged by fire, which might have damaged the contents as well.

The man hauled the bottles to a landfill and dumped them. Three years later, a state auditor discovered the absence of $5,000 worth of liquor and accused the man of selling it without paying taxes on it. The man had no way to prove he threw out the liquor and didn't sell it, Leonard said.

The equalization board voted 3-2, with Leonard dissenting, to order the man to pay the taxes on the missing liquor.

``Under our laws, the burden is on the taxpayer to prove the government wrong. You have more rights as an accused criminal than as a taxpayer,'' Leonard said.

Leonard walked into the breakfast at the Essex House hotel with the aid of a crutch. He explained that he tore a muscle Tuesday night falling down stairs.

``I got to know the emergency room at Antelope Valley Hospital very well - good service there,'' he joked.