New Law Creates a "Qualified" Mess, letter from George Runner State Board of Equalization

By George Runner

Two years ago, the California Legislature enacted an onerous law requiring business owners dubbed "qualified purchasers" to register with the State Board of Equalization for the purpose of reporting "use tax." Like many bad laws, this one was cooked up in an attempt to help balance the state's budget. As you might suspect, it hasn't worked.

I was serving as a senator at the time and voted against this legislation. Now, as an elected member of the State Board of Equalization, I'm seeing firsthand the mess this law has created.

The "Qualified Purchaser Program" was supposed to bring in $200 million in new revenue during its first two years; so far, it has yielded only a fraction of that total, barely covering related expenses, including new staff and other program costs.


The program has registered 500,000 California small business owners, including Avon sellers, dentists and real estate agents. Most of these registrations have been involuntary, meaning that if BOE staff thinks you meet the definition of a "qualified purchaser," then you're automatically registered, whether you like it or not. Under the program's terms, any "service enterprise" that grossed more than $100,000 in a single calendar year and had no prior relationship with BOE must now annually report its "use tax" on a new form.

By and large, Californians, including many of these business owners, are unfamiliar with "use tax." The use tax is similar to the sales tax, but it is the obligation of the purchaser to remit the tax directly to the BOE, instead of paying it at the point of sale. The use tax applies when you purchase items from a retailer who is not located in California and is not registered to remit tax to California. Purchases subject to use tax include those made on the Internet from sellers outside the state.

What's particularly frustrating about the Qualified Purchaser Program is that it isn't even necessary. There already were two different ways for Californians to report use tax: (1) BOE form 79b and (2) a dedicated line on state income tax forms. Now, an arbitrary but rather large group of small business owners must report use tax in a completely unique way. This serves only to make California a more confusing place for our state's most important job creators: small business owners and entrepreneurs.

Of the 500,000 business owners registered as qualified purchasers, more than 60 percent were so confused by the new program that they didn't return the paperwork that the BOE sent them. So in May of this year, without my prior knowledge or approval, BOE staff mailed "final" delinquency notices to 305,000 business owners, threatening an "estimated" tax bill for failure to respond.

Not surprisingly, BOE was flooded with thousands of phone calls from angry, confused and frustrated taxpayers, many of whom were forced to endure wait times of several hours or more to talk to a BOE representative. In the past year and a half, BOE has received more than 175,000 calls from qualified purchasers seeking assistance.

Of those qualified purchasers who actually submitted a return, an overwhelming 87 percent reported that they owe zero use tax. Of the few who did owe, the average amount was so small that they likely paid more to their accountant to comply with this program than they paid in tax. And that doesn't count the taxpayer's time and frustration.

Impacted business owners have been providing my office with helpful feedback, and I welcome more. I am inviting qualified purchasers to take a survey on my website at http://www.boe.ca.gov/Runner. I plan to share the feedback with my fellow board members and other interested parties.

In the meantime, I will be working with my colleagues on the board to ensure reasonable implementation of this law. But, to be clear, I also will be calling for a complete repeal of the program.

The Qualified Purchaser Program is wasting taxpayers' time and money with no benefit to the state. Like other Californians, these taxpayers should be able to pay use tax on their income tax forms or on Form 79b, which BOE has made available for years. The law makes no sense, and is yet another example of pointless government interference in the lives of Californians and our economy.

Elected in November 2010, George Runner represents more than nine million Californians as a member of the State Board of Equalization. For more information, visit http://www.boe.ca.gov/Runner.