This article is from Cal-Tax Digest, published
by the California Taxpayers' Association.
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BOE Acts on Power Plant Assessments

Urged on by environmental groups and a labor-backed lobbyist seeking higher property taxes on merchant power plants, the State Board of Equalization on June 20 voted unanimously to begin the process of regaining assessment authority.

State Controller Kathleen Connell said at the outset of the meeting of the board’s Property Taxes Committee, which she chairs, that the discussion “is not about raising taxes or denying (power plants) protections of Proposition 13” but rather to achieve correct property values. Particularly if the state gets into the business of owning electricity generation capacity, it makes sense to have a common assessment system, she said.

Two years ago, in the wake of electricity restructuring, the board adopted Rule 905, granting such assessment authority to counties over merchant power plants that investor-owned public utilities were required to sell.

Officials representing Huntington Beach, Long Beach and Victorville testified that they would prefer the certainty and predictability of revenue from locally assessed power plants to a new state law that might result in lower property values set by the state board. Assessors from Los Angeles, Kern and El Dorado counties also argued against a change.

Steve Davis, representing the Independent Energy Producers Association (members provide 40 percent of the state’s electricity), said Rule 905 was needed to provide certainty (a bright-line test to define what power plants would be locally assessed), consistency (with 75 years of legal practice), and the property tax revenue incentive for local governments to “host our facilities.”

Cal-Tax’s Greg Turner cautioned that part of the OAL process (the Office of Administrative Law, which must approve all regulations) is a consideration of the necessity of the regulatory action. He said Rule 905 was adopted based upon an interpretation of the Constitution that has not changed. “Much of the testimony today has been about the revenue effects of changing the board’s jurisdiction. How does that support the board’s flip-flopping the determination of its jurisdiction under the Constitution?”

Mr. Turner added: “We supported Rule 905 to begin with because it was consistent with the state Constitution and consistent with long-standing judicial interpretation of Article XIII, Section 19. Rule 905 as a regulatory act is important for taxpayers because a mere motion creates significant uncertainty for taxpayers. Moreover, it would appear from staff’s comments that the board’s intent is to expand its jurisdiction beyond its historic practices.”

The motion by Dr. Connell requires staff to start the regulatory process, including public hearings, to revise Rule 905 so that the board regains authority to place annual values on merchant power plants of 50 megawatts or more, excluding co-generation facilities. It may take until the end of the year to gain final approval.

Taxpayers Short-Changed. California taxpayers have been short-changed by at least $166 million in the amount of tax relief promised in 2000-2001 as part of last year’s budget tax package.

After passage of the budget last summer, Governor Gray Davis and legislative leaders were publicly taking credit for $1.519 billion in tax relief for 2000-01. However, a filing season update given at the Franchise Tax Board Advisory Board meeting on June 28 indicated that the tax relief from three specified tax credits enacted by the Legislature as part of last year’s budget compromise is
substantially less than originally estimated.

The three provisions with tax relief shortfalls are the teacher tax credit, the child-and-dependent care tax credit, and the long-term care tax credit. The teacher tax credit was estimated to provide $218 million in tax relief. Only $134 million in credits were actually claimed. The child-and-dependent care tax credit was estimated to provide $197 million in tax relief. Only $154 million has been claimed. The long-term care credit was estimated to provide $43 million in tax relief. Only $2 million in credits were claimed.

Rule 905 is needed to provide certainty (a bright-line test to define what power plants would be locally assessed), consistency (with 75 years of legal practice), and the property tax revenue incentive for local governments to “host our facilities.”  – Steve Davis

(Editor’s Note:
Items in FOR THE RECORD include news previously reported in Caltaxletter,
Cal-Tax’s newsletter that is published
40 times a year.)

From these three tax relief provisions in the bill, taxpayers actually got $290 million, rather than the advertised $456 million, a 36 percent shortfall. If the other provisions of the package are also 36 percent below what was promised, the 2000-01 tax relief would be less than $1 billion, rather than the $1,519 billion for which politicians took political credit.

There is also concern about fraudulent claims for the child-and-dependent care credit. According to the FTB, $141 million in credits were attributable to refundable returns, and only $12 million in credits were on returns that reduced the tax due. There were reports that claims for the credit had cited deceased persons as providers of the care.

Hahn Signs L.A. Business Tax Reforms. New Los Angeles Mayor James Hahn, in one of his first acts since taking office July 1, signed a number of business license tax reforms into law on July 12. Among the proposals was a one-time tax amnesty to allow taxpayers to come forward and pay taxes. The program will run from October 1 to December 31, and the city expects to generate $20 million in new revenue.

In addition to the amnesty program, other reforms in the package include business license tax appeals reform, equalization of the interest rate for over-and under-payments, and a settlement bureau to resolve disputes.

Smog Tax Claims: Thousands of Cases in Limbo. The Department of Motor Vehicles in the past year has issued 992,609 checks averaging $400 to motorists seeking refunds for being required to pay an illegal tax. Of the 1.25 million claims, about 20,000 have been rejected because the DMV determined no fee had been paid.

However, some 72,600 refund requests are in limbo because the DMV is dissatisfied with the applicant’s claim that a smog tax was paid on vehicles in question during the 1990s.

According to a July column by Ralph Vartabedian in the Los Angeles Times, one of the 72,600 is Byron McBride, who moved to California from Wisconsin in 1990 and was hit with $300 smog-impact fees on each of his three vehicles. In 1999, the courts finally ruled the tax unconstitutional – a legislative blunder signed by then-Governor George Deukmejian. In 2000, the Legislature and Governor Gray Davis ordered refunds, with interest, and set aside $665 million.

Mr. McBride has received a refund for one of the cars but has been asked to come up with information to verify his ownership of the other two. He lacks a vehicle identification number or license plate number for cars he sold long ago. He discarded the records, and so did his insurance company.

With some $800 at stake, he’s understandably perturbed. “It is this mindless failure to exercise any human intelligence to problem-solve that puzzles me,” Mr. McBride said in a letter to the DMV.

There are two more years for individuals to file claims for refunds, and the DMV figures it hasn’t heard from some 500,000 potential claimants of about $250 million.

Also in limbo: the squabble over legal fees from the lawsuit to overturn the tax law. A trial judge threw out an arbitration panel’s decision to give lawyers more than $88.5 million in fees.

Richard Nevins (1921-2001). A prominent figure in California tax history for nearly 30 years, Richard Nevins, died on July 30 after suffering a broken neck while body surfing. Mr. Nevins, who served 28 years on the State Board of Equalization, was 80. He was rushed to an Oceanside hospital from St. Malo Beach but never regained
consciousness after the July 29 accident.

Mr. Nevins, a native of Pasadena, was active in Democratic politics. He was elected to the BOE in 1958 and served through 1986, when he did not seek re-election.

Cal-Tax’s David R. Doerr, who was a legislative consultant during Mr. Nevins’ tenure, bemoaned the loss of a good friend. “Mr. Nevins was a fighter for property tax reform and relief, and played a key role in the development and implementation of assessor reforms in the wake of the assessors’ scandal of the 1960s,” he said.

A plaque below his photo at the BOE headquarters in Sacramento describes him as a supporter of property tax reform and senior citizens’ property tax assistance laws.