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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