Greater oversight of Board operations is needed

By Edward C. Streichman

Billions of dollars of tax revenue have not been collected due to tax evasion. The service station industry is a good example of this problem.

Estimated vs. Reported Taxable Service Station Sales
----------------------------------------------------------- Analysis shows that estimated taxable sales by service station retailers may have been understated by as much as 53.4 billion dollars during the last five fiscal years, which equals a tax gap of 4.1 billion dollars (Tax that should have been reported on returns vs. what was reported on returns by retailers). Reported taxable service station sales are published in the board's annual reports.

As startling as it may seem, the above figures indicate that the service station industry may not have reported approximately one out of four dollars (26.28%) in taxable motor vehicle fuel and mini-mart sales during this five year period.

Although the board is aware of the fact that service stations are understating their tax liabilities on returns, it is not aware of the potential magnitude of the understatement in taxable sales and sales tax. The current situation is grossly unfair to honest service station retailers throughout the state since a level playing field has not been maintained by State Board of Equalization.

The Sales and Use Tax rate will continually rise until the necessary oversight is provided by Members of the BOE.

What has caused this tax gap to occur?
----------------------------------------------------------- Reported taxable sales of gasoline and diesel fuels are commingled with other taxable merchandise such as liquor, beer, wine, cigarettes, tobacco products, carbonated beverages, automotive products, health and beauty aids, etc. Since taxable motor vehicle fuels are not separately itemized on sales tax returns, the BOE does not know if the service station industry is accurately reporting its tax liability to the state.

How are taxable service station sales estimated?
----------------------------------------------------------- Calculation for estimated gasoline and diesel fuel sales
----------------------------------------------------------- The federal government's Energy Information Administration (EIA) routinely compiles gallon selling prices of these fuels on a weekly basis throughout California and the nation. These sales figures are then applied against taxable gallons consumed, which are documented on the BOE website. BOE monthly figures are net consumption, which includes BOE audit assessments, refunds, amended and late tax returns, and the State Controller's Office refunds. This is a very accurate method for determining taxable motor vehicle fuel sales.

Taxable gasoline gallons used are also net of aviation fuel. Taxable aviation fuel gallons used represents less than 1% of taxable gasoline gallons used.

Calculation for estimated taxable mini-mart sales
----------------------------------------------------------- Taxable mini-mart sales were estimated by dividing estimated taxable gasoline and diesel fuel sales by 90%, which means that these sales represent 10% of total service station taxable sales. The percentage used intentionally understates taxable mini-mart sales due to the way that the BOE categorizes businesses that sell these fuels. Although the bulk of taxable fuel is sold via businesses that are coded as "service stations," there are a few businesses that sell motor vehicle fuel which are not coded as "service stations." This means that not all taxable sales of gasoline and diesel fuel are included in the reported "service station" sales figure per the Board's annual report.

Final Point
------------------------------------------------------------ The most alarming point here is not whether the tax gap would decrease or increase a little if actual data were available, but that a significant tax gap exists. Field audit staff are well aware of this phenomenon. Please remember that selling prices of gasoline and diesel fuel are tax-included. Many retailers in this industry are collecting the sales tax from their customers, but not remitting it on their sales tax returns. This situation cannot continue.

How can these problems with the service station industry be fixed?
----------------------------------------------------------- Solution: Elect Ed Streichman to the State Board of Equalization, District 2

Streichman knows what to do and how to do it!

The State, cities and counties desperately need this sales tax revenue. Too many jobs and programs are at stake if the tax revenue is lost due to the significant tax evasion which is occurring in the service station industry.

It is time to elect a candidate that is aware of these problems and is looking out for the best interest of the taxpayers.

Please vote for Ed Streichman on Tuesday, June 8, 2010.