Analysis of the 2007-08 Budget Bill: General Government
California has for decades primarily relied on three different state agencies to administer and enforce its taxes—the Board of Equalization (BOE), the Franchise Tax Board (FTB), and the Employment Development Department (EDD). While this system has performed reasonably well in many respects, the multiagency nature of the system is prone to certain inherent problems, difficulties, and inefficiencies. One particular area of concern is the challenges that California’s tax agencies face within the multiagency framework in sharing the tax-related information and data they need to effectively and efficiently administer the overall tax system.
Given this situation, the Legislature adopted supplemental report language in conjunction with the 2005-06 Budget Act requiring our office to examine (1) the extent of information and data exchange among the state‘s three main tax administration agencies, and (2) the impediments to, and opportunities for, increasing the current level of cooperation in this regard. The language placed an emphasis on how additional cooperation could serve to improve overall tax compliance as well as aid in tax enforcement activities. Our completed report—A Report on Tax Agency Information and Data Exchange (January 2007)—was prepared utilizing data and other information provided by the tax agencies.
The tax agencies identified a number of short-term steps that could be taken to facilitate the exchange and use of certain tax-related data and information.
Specifically, the tax agencies identified a variety of data items which are now being collected by state agencies but which are not being shared. They also highlighted various other sources of information collected by the federal government as well as by private entities that would be of use in improving tax compliance.
Over and above a greater sharing of data that are already collected, our report identified several programs that could be established that would enhance the ability of the agencies to develop, obtain, and share data. Virtually all of these programs would entail additional budgetary funding, primarily for the purpose of addressing technological constraints of existing data systems.
The Legislature specifically asked that our report consider the value of developing a single taxpayer identification number to help ease the difficulties tax agencies have in sharing and cross-matching data.
Although the use of a single taxpayer identification number could greatly simplify things for the taxpayer, our report found that it raises a number of significant administrative issues, as well as identity-theft concerns. We thus concluded that a single taxpayer identification number may not be the most appropriate means of linking the ability of the tax agencies to share data. Instead, increasing the ability of the agencies to cross-match taxpayer information using their existing systems in conjunction with an alternative technology approach—with the flexibility this would maintain for each of the agencies—seems most appropriate.
Based upon our above-cited report and in order to ensure that timely progress is made in the area of information and data sharing, we recommend that the Legislature direct the state’s main tax agencies—BOE, FTB, and EDD—to appear jointly before the budget committees when the 2007-08 budget is being reviewed to report on:
Those cost-efficient, data-sharing actions they are planning to undertake or could undertake immediately (that is, which require no additional funding or statutory changes).
Relevant information and recommendations regarding other initiatives that may require legislative actions (such as statutory changes or added funding).
An alternative technology approach, such as using software overlays, to link existing independent tax information systems— including its costs, benefits, and time requirements.
In discussing these matters, the agencies should also collectively identify their preferred means for coordinating data-related decisions and activities amongst themselves, such as use of the already established Strategic Tax Partnership or other alternative approaches.
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2007-08 Budget Analysis