Annual Report 2010-2011
Total BOE Revenues Increase
Fiscal year 2010-11 revenues totaled $53.7 billion. This amount is 6 percent higher than the $50.7 billion collected in 2009-10. Sales and use tax receipts, which totaled $42.2 billion in 2009-10, rose to $42.5 billion, an increase of 0.8 percent.
2010-11 BOE Revenues
Billions of dollars
Fuel Tax Swap Re-enactment
Assembly Bill 105 (Statutes 2011, Chapter 6) re-enacted the fuel tax swap of 2010 (ABx8 6 and SB 70) to enable the state to comply with the two-thirds vote requirement of Propositions 22 and 26 of 2010. Without the re-enactment, provisions in current law that imposed an additional excise tax of 17.3 cents per gallon on gasoline and an additional sales and use tax of 1.75% on sales and purchases of diesel fuel would have expired in November 2011. The fuel tax swap re-enactment did not change the 17.3 cent excise tax on gasoline or the rate adjustment mechanism that seeks to balance the revenues related to this fuel tax swap. AB 105 did, however, make changes related to diesel fuel. To offset the newly enacted sales and use tax rate increase of 1.87% (instead of 1.75%), effective July 1, 2011, the bill lowered the diesel fuel excise tax rate to 13 cents (from 13.6 cents) per gallon, which would take effect at the same time. Additional changes in the sales and use tax rate on diesel fuel for fiscal years 2012-13 (2.17%), 2013-14 (1.94%), and 2014-15 and thereafter (1.75%) would continue to be balanced by the annual adjustment, by the BOE, to the excise tax rate for diesel fuel, as specified.
Suspended or Revoked Cigarette and Tobacco Products Retailer
Assembly Bill 2733 (Statutes 2010, Chapter 607) made the following changes to the Cigarette and Tobacco Products Licensing Act (Licensing Act):
- Requires all cigarettes and tobacco products to be removed from clearly and easily visible retail stock during a period of suspension or after a license has been revoked.
- Requires a suspended or revoked retailer to post a notice of that suspension or revocation at each public entrance and each cash register, as provided.
- Prohibits licensees who purchased cigarettes or tobacco products for resale under their license from gifting such products during the period of suspension or after a license has been revoked.
Use Tax Reporting on Income Tax Forms
Senate Bill 858 (Statutes 2010, Chapter 721) reinstates the provisions that allow for the reporting of use tax liabilities on the state income tax returns filed with Franchise Tax Board (FTB). This provision was set to expire December 31, 2009.
Senate Bill 86 (Statutes 2011, Chapter 14) allows the use of a "look-up" table when eligible purchasers elect to report their use tax obligations on their state personal income or corporate or franchise income tax returns with respect to individual non-business purchases of less than $1,000.
Enhancing Tax Compliance
Use Tax Webpage Redesigned on the BOE Website
The California Use Tax Information webpage was redesigned to be reader-friendly. The new webpage offers different tabs to navigate easily through the various use tax topics such as Use Tax Basics, Filing a Return, and Resources. The user-friendly format allows taxpayers and other online users to quickly find the information they are seeking.
Using only existing resources, the BOE expanded the Digital Audits Project to include audit functions at the field offices. A digital audit is an audit that can be managed, tracked, and processed electronically. Digital audits benefit taxpayers by improving efficiency in audit processing and providing the ability to receive electronic audit reports.
Expanded Online Services
The BOE continues to expand eServices for our customers.
- In April 2011, the BOE began accepting electronic payments through a process called ePay which allows payments for current and past due taxes and fees using the Automated Clearing House Debit (ACH Debit) process. ePay makes it easier to make a payment for returns or prepayments as well as accounts receivable and audit liabilities.
- The BOE created a new mobile application to access BOE tax information from the iPhone. iPhone users can conveniently access a BOE office or verify a permit. When searching for a BOE office, taxpayers can find the location on a map as well as access "turn-by-turn" directions. The mobile app provides a free, customized access to BOE tax information.
- Additionally, the BOE created a web application, Find Your Board Member, that allows taxpayers to find their specific Board Member by only entering a street address, city, and ZIP code. This feature enables taxpayers to easily access the contact information for their elected representatives.
eFile programming was updated to accommodate the changes for the 1% state sales tax decrease and the 1.87% increase in the state tax on diesel fuel sales which became effective on July 1, 2011.
Green IT Award
The Sales and Use Tax Department’s Tax Policy Division won the Center for Digital Government’s Green IT Award for implementing the BOE’s eFiling Transition Project.
New Encrypted Cigarette Tax Stamp Introduced
During the fiscal year 2010-2011, the Special Taxes and Fees Division introduced a new cigarette tax stamp in conjunction with their contractor, SICPA. The new encrypted excise tax stamp includes multiple covert and overt security features BOE enforcement officials can read and decipher through the use of a hand-held scanner. The features contained in both new stamp and stamping machinery capture product information as packages of cigarettes are affixed with tax stamps. The new technology allows cigarette distributors to work in tandem with the Tobacco Product Manufacturing Directory during their stamping process.
No Cash Pilot Program
The BOE began a pilot program to no longer accept cash in its field offices. The pilot began on June 1, 2011 and is proving to be successful. The BOE has decided to expand the pilot to extend beyond its targeted 90 days. The no cash pilot program is designed to reduce the costs associated with accepting cash such as armored car service, bank incurred charges, counterfeit currency, etc.
Collection Cost Recovery
The BOE now imposes a collection cost recovery fee on past due liabilities effective January 1, 2011. As provided by Senate Bill 858 (Chapter 721, Statutes of 2010), this fee is imposed on any person that fails to pay amounts due and owing within 90 days.
During the year, staff held informal meetings with interested parties and stakeholders to discuss proposed changes to the following regulations:
- Regulation 1506, Miscellaneous Service Enterprise
- Regulation 1533.2, Diesel Fuel Used in Farming Activities or Food Processing
- Regulation 1598, Motor Vehicle and Aircraft Fuels
- Regulation 1616, Federal Areas
- Regulation 1807, Petitions for Reallocation of Local Tax, and
- Regulation 1828, Petitions for Distribution or Redistribution of Transactions or Use Tax
Southern California Appeals and Settlement Unit Established
The Southern California Appeals and Settlement Unit was established to address and accelerate processing of significant new workload inventories created by an increase in taxpayers seeking settlements or appealing audit findings. Accelerated revenues to the General Fund, as well as local jurisdiction and special taxing districts, for fiscal year 2010-11 amounted to $11.4 million, twice the estimated amount of $5.1 million.
Expanded Training for Appraisers at the BOE and in County Assessor’s Offices
Training for appraisers expanded by implementation of the following:
- Online Training—BOE developed and successfully tested online training programs using a training platform hosted by the California Assessors' Association (CAA). Workshops were then developed and presented on the time value of money, furthering the BOE’s goal of providing mandatory training at a cost savings to the BOE and county assessors' staff.
- eLearning Courses—A second eLearning appraisal course was added and hosted through the Los Rios Community College District with BOE staff serving as the instructor. This course, on the appraisal and assessment of personal property and fixtures, including machinery and equipment, helps provide mandatory training at a cost savings to county assessors’ staff.
- Exam Proctors—BOE developed a network of proctors in support of the new online programs, allowing examinees to take BOE examinations locally, saving time and money for both the BOE and county assessors.
Electronic Distribution of Tax Information
The BOE eliminated mailing CD-ROMs containing the local jurisdictions’ allocation and registration data. Local tax jurisdictions now use a secure file transfer. The jurisdictions can now access their data up to two weeks earlier than they would have typically received the information in the mail.
Tax Appeals Assistance Program Expanded
Taxpayers and others with appeals before the Board Members are able to seek free legal assistance through the BOE’s Tax Appeals Assistance Program, which is overseen by the Taxpayers’ Rights Advocate. Qualified individuals appealing certain decisions of the FTB and BOE consumer use tax billings receive help with appeals from law students, who are supervised by BOE tax counsels. Starting in June 2011, free legal assistance also became available to those appealing BOE notices of cigarette and tobacco products licensing act violations.
Implementing Tax Gap Programs
Sales and Use Tax Department
During fiscal year 2010-11, the Sales and Use Tax Department continued its efforts to close the tax gap (the difference between sales and use tax revenue due under the existing laws and the actual amount that is reported and paid) through the continuation of the programs described below. These programs included education, outreach, and other efforts to promote voluntary compliance, as well as an enforcement component. Through these programs, voluntary compliance improved, revenues increased, and BOE continues to level the playing field for California businesses.
The sales and use tax gap programs included:
- Qualified Purchaser—As the result of Assembly Bill x4 18 (Statutes 2009, Chapter 16), Revenue and Taxation Code section 6225 was added requiring "Qualified Purchasers" to register with the BOE and report all purchases subject to use tax. The Qualified Purchaser Program employed a letter and outreach campaign. In this fiscal year, approximately 346,000 letters were sent resulting in the registration of 302,000 users. This program generated $48.6 million in revenue, which was an increase of $22.3 million from the prior fiscal year.
- In-State Service Businesses—The In-State Service Business Program uses information from the Employment Development Department (EDD) to identify specified service businesses that may be purchasing items subject to use tax and works with these businesses to ensure proper reporting. In this fiscal year, the program sent 1,777 new letters and investigated numerous new audit leads, as well as some leads from the previous fiscal year. This program generated $31.7 million in revenue, which was an increase of $11.3 million from fiscal year 2009-10.
- U.S. Customs—The U.S. Customs Program reviews the Department of Homeland Security’s U.S. Customs data for California destined purchases to pursue use tax collection on imported items. This fiscal year, the program sent approximately 4,900 letters to businesses generating $14.4 million in revenue, which was an increase of $1.7 million from the prior fiscal year.
- Agricultural Inspection Stations—The Agricultural Inspection Program is a partnership between the BOE and the California Department of Food and Agriculture (CDFA). In fiscal year 2009-10, BOE staff received information from CDFA’s station located in Needles regarding trucks entering California. With the signing of the budget in October 2010, the program was expanded to include CDFA stations located in Hornbrook, Truckee, and Yermo. The information provided to the BOE by the CDFA is used to issue sales and use tax permits to those that need them, contact taxpayers for outreach and education on use tax, and to identify activities that may warrant further investigation. BOE staff reviewed 89,753 leads during this fiscal year and the program generated $19.3 million in revenue which is an increase of $4.3 million from the prior fiscal year.
- Statewide Compliance and Outreach Program—The Statewide Compliance and Outreach Program (SCOP) had seven teams located throughout the state during 2010-11. The teams conducted door-to-door visits and also had telephone contact with nonresidential businesses to verify whether or not each of these businesses held the applicable permits and licenses required by the BOE. During the fiscal year, SCOP team members visited or contacted 90,670 retail and service businesses. Of those businesses, 1,485, or approximately 1.6 percent, were found to be operating without a valid seller’s permit. In addition, 2,400 sublocation permits were also issued to businesses with existing permits during 2010-11. SCOP generated approximately $57 million in revenue, which was an increase of $1.4 million from the prior fiscal year.
- Collection Program Enhancement—The economic downturn contributed to an increase in the number of sales and use tax accounts with past due liabilities. The Collection Program Enhancement element of the Enhancing Tax Compliance (ETC) proposal approved as part of the 2010 Budget Act provided the resources necessary for the BOE to pursue collections on the increasing number of accounts receivable. This element exceeded the original fiscal year estimate of $11.9 million with $14.7 million in revenue through June 30, 2011.
Increased Interagency Cooperation
Underground Economy Investigation
The BOE's Investigations Division saw productive results in its continued collaborative investigation of tax evasion with the U.S. Attorney’s Office (USAO), the California Attorney General’s Office (AG), and the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) in fiscal year 2010-11. To date this task force has filed 11 criminal cases in the U.S. District Court for federal offenses related to California tobacco trafficking and tax evasion. This represents an estimated $35 million and a total of 333 separate violations. One of the criminal trials concluded in 2010-11 found the defendant guilty on all counts, resulting in a court ordered restitution of $3.7 million to the BOE.
Special Taxes and Fees Division Reorganization Completed
During fiscal year 2010-11, the Property and Special Taxes Department completed a reorganization of the Special Taxes and Fee programs into one division, known as the "Special Taxes and Fees Division." The reorganization resulted in four branches:
- The Compliance Branch
- The Program Policy and Administration Branch
- The Appeals and Data Analysis Branch
- The Audit Examination Branch
The reorganization aligned each branch based on function, improving efficiency and consistency in the functional processes, standardizing policies, and increasing customer service both internally and externally.
Procurement Contracts Accounting (PCA) System—Contract Database Rewrite Project
The Administrative Support Division, Financial Management Division, and the Technology Services Department completed the first phase of the Contract Database Rewrite Project which allows users to upload purchase orders to the BOE Financial Information System. This eliminates duplicative data entries and collection by Administrative Support and Financial Management Divisions.
Budget Change Proposal Training
Financial Management Division staff presented two sessions of Budget Change Proposal (BCP) training to BOE staff. The trainings provided, among other things, an overview of the State’s and BOE’s BCP process, and BOE’s cost estimate process. The objective of the training is to enhance the communication of resource needs.
Governmental Accounting Standards Board (GASB) 51—Intangible Asset Tracking and Reporting
As required by the Governmental Accounting Standards Board (GASB) 51 for the Fixed Assets Fund, staff coordinated the implementation of the expanded reporting requirement for intangible assets. This required expanding the BOE’s current database to include the financial tracking and reporting of all BOE-purchased software licenses, in-house developed software projects, and BOE’s website costs.