Report 95022 Summary - January 1996

Board of Equalization: Policies and Cost Assessment Methods for Special Tax Jurisdictions Need Reconsideration

HIGHLIGHTS

The board:

The Board of Equalization (board) is responsible for administering 21 tax programs that generate a total of more than $30 billion in annual revenue. Among the taxes that the board administers are sales-and-use taxes (sales taxes) which the board administers for the State and for cities and counties, and transactions-and-use taxes (transactions taxes) which the board administers for special tax jurisdictions (STJ). Our review focused on whether the board's charges to STJs for the administration of their tax program were reasonable and equitable. The board uses a cost model comprised of direct costs, shared costs, and central agency costs to calculate assessments for STJs. We describe each of these cost elements in Chapter 1. We noted the following key impacts associated with the board's application of the cost model:

Notwithstanding the impacts identified above, we noted the following concerns during our review of the costs the board assessed STJs:

Recommendations


Because the cost model used by the board reflects a significant policy decision to allocate infrastructure costs to the entities that benefit from the board's tax administration system and because of the impacts caused by the application of the cost model, the State's policy makers should examine whether STJs should bear a percentage of the infrastructure costs associated with the board's administration of sales taxes.

To ensure reasonable and equitable assessments to the STJs, the board should:

Agency Comments


The board states that it has no conceptual disagreement with our findings, the report's recommendations are worthy of further consideration, and it will follow the direction of the Governor and Legislature with regard to any changes in policy.