On a 3-2 vote, the State Board of Equalization on March 17 approved asking the state Department of Finance for $250,000 for a one-year position to study the chemical composition of flavored malt beverages.
The new employee would be paid approximately $74,000 in salary plus $26,000 in benefits, and would be responsible for overseeing and implementing the requirements of BOE regulations approved last year to tax flavored malt beverages at the same rate as distilled spirits ($3.30 per gallon), rather than at the beer rate (20 cents per gallon). The job would include executing contracts for laboratory services, so the BOE could study individual beverages to see whether they meet the board's definition of those that should be taxed at the higher rate.
A report prepared by board staff indicated that the new employee would lead to additional general fund revenue collection of just $38,500.
The BOE's staff report also says: "Without the requested resources, the BOE cannot address the necessary audit, compliance and administrative functions required to implement the Regulations."
Board Members Bill Leonard and Michelle Steel voted against the budget request. Ms. Steel questioned the decision to spend $250,000 without knowing whether the BOE will be able to collect that much in taxes on the beverages.
When the board passed regulations to tax the flavored malt beverages as distilled spirits, it estimated that it would collect $38 million in new revenue. That figure proved to be substantially off the mark, as manufacturers changed the composition of their beverages to avoid the huge tax increase. The regulations took effect in October, and in the first two months, the board collected just $6,451 in new revenue.
Board Member Dr. Judy Chu, who has been the primary supporter of the regulatory changes, said the new employee is needed to check the beverages to make sure manufacturers are telling the truth about their products. She said she is concerned about the veracity of the manufacturers' claims that reformulations have made them exempt from the tax hike.
Board Chair Betty Yee called the budget request a modest proposal that is very manageable. Deputy State Controller Marcy Jo Mandel, representing Controller John Chiang, joined Dr. Chu and Ms. Yee in voting for the budget request.
Cal-TaxReports, March 23, 2009
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