Tax Tips for Businesses Q& A with George Runner

Q&A with George Runner

1.              What is the California State Board of Equalization?

California is unique in that it is the only state with a directly elected tax board.

Established in 1879 by a constitutional amendment, the Board of Equalization was initially charged with ensuring that county property tax assessment practices were equal and uniform throughout the state.

Today the Board also implements tax laws and administers more than 30 tax and fee programs, including sales and use tax.

Finally, the Board hears taxpayers’ appeals, including those relating to corporate and personal income taxes.

2.              How do you view your role as an elected tax official?

I see my role as a taxpayer advocate for the constituents I represent. My district is very large; it stretches from the Oregon border all the way to Los Angeles and includes much of the desert and mountain areas of inland California.

Each and every day my staff and I help taxpayers navigate bureaucracy that at times seem intimidating. Our goal is to ensure that taxpayers are treated fairly. We want them to pay the right amount of tax owed—not too little, but also not too much.

The best and way and most cost-effective way to do this is through voluntary compliance. Most taxpayers want to do the right thing, but sometimes they need our help to understand their obligations or to get through a difficult time.

Unfortunately, and as California businesses owners know all too well, it’s difficult to do business in our state. To be successful, businesses must navigate many complicated tax laws and regulations. Even the smallest mistake or oversight can result in significant penalties.

We don’t want taxpayers getting caught up in tax traps. We want them to be successful, and we’re here to help.

3.              What are some practical ways you’re able to help taxpayers?

There are a number of ways my office can ensure taxpayers are treated fairly and reasonably. These include engaging with staff, assisting with legal opinions, reviewing audit findings, expediting refunds, returning security deposits and reversing unfair penalties.

We also offer free personal tax consultations to those starting or operating a business in California to help them avoid tax problems in the future. It’s not always easy to determine which items in a store should be taxed and which are exempt. We want new businesses to get on the correct path from the beginning, and we’re also available to help all businesses who have questions.

To provide the best possible service, I have on my staff BOE’s former supervisor of the Computer Audit Specialist Program and a former manager from the Board’s Tax Policy Division.  Their expertise enables me to engage staff and address taxpayer concerns with respect to fairness and equity in audits, collections and many other matters.

In one instance staff had penalized a company in my district nearly $1 million for failure to pay about $8000 in taxes. I pressed staff to review this case. A close review of the underlying statute revealed that staff had misapplied the penalty formula. I met with our Chief Counsel, and we were able to reduce the penalty of almost $1 million dollars down to a more reasonable $2,000. As a result of our assistance, this company stayed in business, and its employees kept their jobs.

4.              What “tax traps” do taxpayers fall into most often? What, if anything, can be done to help taxpayers avoid these common mistakes?

Many cases that come before the Board involve disputes that taxpayers might have avoided if only they had known certain important facts sooner.

For instance, sometimes taxpayers fail to keep adequate business records. In these cases, BOE auditors may use industry norms to estimate a tax liability. When a business owner doesn’t retain adequate records, it is difficult to challenge staff estimates, even when they seem too high.

Sometimes business owners unknowingly inherit a large tax liability when they buy a business, because they don’t know that they ought to request a tax clearance from BOE prior to finalizing the sale. It’s often unfair, but under current state law these new owners can unwittingly get stuck with what’s called “successor liability.”

Another tax trap is that corporate officers can be personally liable for their company's outstanding tax liabilities.  These “dual determinations” can be issued to former employees even after a company goes out of business.

Last but not least, the under collection of sales tax can be a major problem for retailers because it may be years before the oversight comes to an auditor’s attention. The resulting tax liability, penalties and interest can be very large—and a business may have to absorb the full cost on its own.

The best way to avoid this tax trap is to request advice from BOE in writing (see www.boe.ca.gov/info/email.html) whenever there is any doubt about whether an item is taxable. Be sure to keep the written advice for your own protection.

Regardless of whether your business is large or small, please know you are more than welcome to contact my office at 916-445-2181 or 661-723-8469 whenever you need assistance.

George Runner represents more than nine million Californians as a taxpayer advocate and elected member of the State Board of Equalization. For more information, visit boe.ca.gov/Runner.