Thursday, November 01, 2012

California Fraud?

(Added 11/13/12)

 Mea Culpa

I am leaving this post up, as evidence of my own error. After speaking first with someone from the Board of Equalization and then someone from the Franchise Tax Board and checking my own records, it is clear that the problem was due to my error, not theirs. My tax software showed me the sum including use tax, but I somehow managed to write a check that did not include it. The FTB never received the use tax from me, so they could not pass it on to the BOE, so the BOE, naturally enough, billed me for it.

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I recently received a bill from the California Board of Equalization (BOE) demanding that I pay them about three hundred dollars in use tax. That puzzled me, since I had already paid the use tax with my California state income tax return—my reporting it on that return is the only reason the BOE knew that I owed it. Just to be sure, I went online and checked my account with the Franchise Tax Board, the body that collects California income tax—it showed me owing nothing.

So I called the number for the BOE. The woman I spoke with told me that they had not received the money from the FTB and that if I did not want them to bill me for it I should call the FTB and have them take care of the matter. I called the number she gave me, got an FTB phone tree with no option of talking to a human being and no reference to use tax.

I checked my California form 540. Line 95 is use tax. Line 111, "Amount you owe," is the sum of line 94, line 95, and line 110. That is what I paid. The sum on line 95 is the same sum as on my "billing and refund notice" from the BOE—to which they added an additional penalty and interest. 

I made another phone call to the BOE. This time, after being bounced through several different people, I reached someone who said that she would get in touch with the FTB to find out why they had not forwarded my use tax money and get back to me.

My best guess is that what I am observing is deliberate fraud. California's state finances are a mess. Presumably the FTB failed to pass on to the BOE some or all of the use tax money that the FTB collects for them. Instead of (or in addition to) trying to get their money from the FTB, the BOE decided to double bill taxpayers—send them bills for the money they had already paid. Many taxpayers would simply assume they had made a mistake and pay a second time. 

What happens with taxpayers who notice that they are being charged for taxes they have already paid I do not know—presumably I will discover that when (and if) the person from the Board calls me back.

It is possible, of course, that I am misinterpreting incompetence as dishonesty—that at some stage in the process someone made a mistake, which will now be corrected. One reason I doubt that is that what the letter I received said was:
"According to information provided to us by the Franchise Tax Board (FTB), you reported a use tax liability on your state income tax return. However, FTB advised the funds were not available to be transferred to the State Board of Equalization (BOE), which is ultimately responsible for the collection of use tax."
"If the use tax was remitted with your FTB return, the use tax was either redirected to a FTB liability or refunded by FTB. Accordingly, the BOE is sending this letter to inform you that the use tax remains due (see enclosed billing notice)"

They do not say that I did not pay the money to the FTB, merely that the FTB did not pay it to them. And the final bit, which I missed in the initial draft of this post and have just added, makes it clear that  if I paid the money  but the FTB didn't pass it on, they want me to pay it again.

I am reasonably sure that if a private firm engaged in that sort of deliberate double billing it would be illegal, and I suspect there would be at least potential criminal liability.

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14 Comments:

At 1:18 PM, November 01, 2012, Blogger KPres said...

Hey! We're just "asking" that you pay your "fair share".

[/Obama]

 
At 1:55 PM, November 01, 2012, Anonymous David O. said...

Aside from the weather, is there any reason why a sane person would every want to live in California? I say this as someone who left California in 1988.

Is the weather so fabulous that it makes up for the massive social and fiscal dysfunction?

 
At 2:06 PM, November 01, 2012, Anonymous Anonymous said...

I look forward to hearing the final resolution of this, including the nature of the error and who ultimately created it.

These are serious charges that you're leveling, have you considered legal action?

 
At 2:33 PM, November 01, 2012, Blogger David Friedman said...

David O: California also has a lot of interesting people in it.

Anonymous: I don't think it is worth my trying to take legal action. It is possible that, by calling other people's attention to the situation, I can get someone else to.

 
At 2:56 PM, November 01, 2012, Anonymous Anonymous said...

Hanlon's Razor:
Never attribute to malice that which is adequately explained by stupidity.

Elasiat's Corollary:
Never attribute to stupidity that which is adequately explained by poor communication.

And governments are notoriously bad at communication. They may be assuming that if they didn't get their money, it was refunded to you, and you still owe it.

 
At 3:02 PM, November 01, 2012, Blogger David Friedman said...

"They may be assuming that if they didn't get their money, it was refunded to you, and you still owe it."

I don't think so. Note the final "redirected to an FTB liability" part of what I quote.

 
At 3:12 PM, November 01, 2012, Anonymous Laird said...

I don't think Hanlon's Razor applies in this case because of the modifier "adequately". I would go back to its antecedent, Occam's Razor, and agree with David's original assessment: the simplest answer is usually correct. This is likely simple fraud.

As to legal action, this has all the earmarks of a class action suit. Surely you can find some hungry attorney anxious to take on the state for an outsized (contingent) fee, with you serving as the lead plaintiff? Could be fun.

 
At 4:59 PM, November 01, 2012, Blogger John David Galt said...

I am a registered tax preparer and know something about this. The deal between FTB and BOE to forward tax has been in place for 10 years or so, but hardly anyone used it until the 2011 returns, both because they now have an "estimated use tax" table, and because BOE is now getting reports from package delivery companies and has begun using them to track down non-payers.

Anyhow, one of the key provisions of this deal is that FTB always takes any money they think you owe them (or a third party for whom they perform withholding, such as a child support agency) before they send any money to BOE. Therefore, if you include a $300 payment to BOE with your tax return, but FTB decides you owe them more than your return says you do, FTB keeps your $300 but still reports to BOE that you think you owe BOE $300. BOE then bills you.

I haven't seen your specific situation, since you should have first gotten some kind of notice from FTB saying that they didn't forward your $300, and where they applied it instead. In your shoes I would call or write FTB and demand those answers. But in the meantime you're still going to need to pay BOE the $300.

 
At 6:35 PM, November 01, 2012, OpenID hudebnik said...

Thanks, JDG. I was guessing that "redirected to an FTB liability" as meant "we're taking this money to pay off what we think you still owe us from last year."

Which of course raises the question of why they didn't tell you they thought you owed them money from last year, or more for this year than you say you do, or whatever....

I really think this is more likely bureaucratic incompetence and miscommunication than fraud. It could be, for example, that FTB has an incorrect address on file for you, they tried once to contact you, failed, and decided that rather than continuing to try, they would just take it out of your next payment. I don't know how plausible that specific scenario is, but it could be something like that.

Two years ago I tried to refinance my mortgage. I sent in all my documents and waited, and waited. A month later, when I contacted the bank, I found that they were waiting silently for some of my documents. Eventually it turned out that half of my documents had gone to one examiner, half to another, and each was waiting to get the missing half of the documents. Not malice but mere incompetence. (Eventually I refinanced with a different bank.)

 
At 9:17 PM, November 01, 2012, Blogger David Friedman said...

The problem with JDG's interpretation is that I checked my online account with the FTB, and it shows nothing owed. It would be a very odd coincidence if, for some reason, the extra amount I owed them was exactly the same, to the penny, as the amount of use tax I paid them.

I interpret "an FTP liability" as meaning a liability owed by the FTP, not to it.

 
At 7:30 AM, November 02, 2012, Blogger jimbino said...

It's good that California makes its own residents suffer from its incompetent socialism.

That always provides a good lesson that gives us Texans time to consider a different path.

 
At 8:23 AM, November 03, 2012, Anonymous Anonymous said...

A few months after I filed my 2009 return with the FTB, which included use tax, I received a refund check from the FTB in the amount of my use tax plus around 25 cents interest. I first called the FTB and they basically said that it was their mistake but since they sent me the money it was my problem now. I then called the BOE, and they said I could file a late use tax return with a letter explaining that it was the FTB's fault and asking to waive the penalty.

So, I did, including evidence that I'd timely paid the use tax to the FTB. I sent the BOE a check for my use tax plus around 50 cents interest and cashed the FTB's check. I'm sure the state lost more than the 25 cent interest difference in administrative costs, so it wouldn't make sense as a revenue scheme.

I never heard anything from the BOE, and it's been 2 years.

My situation might be different--the BOE didn't initiate contact with me so it's possible that the FTB didn't record my use tax owed at all.

However, you should probably check if the FTB thinks it sent you $300 or if it thinks it owes you $300. Would that show up online? I've never tried.

 
At 6:15 PM, November 05, 2012, Anonymous RKN said...

The state where I live pays me to live here. Arguably fewer interesting people here than in CA, but still.

 
At 3:22 PM, November 06, 2012, Blogger David Friedman said...

To RKN:

But then, you have to put up with the state bird.

Not to mention daylight nearly 24 hours of the day during the summer.

 

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