EDITORIAL: STATE HOLDS CASH OWED TO 2,000 FIRMS

When taxpayers go months or years without paying taxes, it's certain the government will track them down, take the money from them and charge them interest and penalties in addition.

It doesn't seem to work the other way around.

Thanks to Board of Equalization member Michelle Steel, we learn the state tax collecting agency has failed to return $38 million belonging to 2,028 California businesses owed the money, in at least one case for almost four years. Ms. Steel discovered the problem when a business owner complained that the security deposit required of his new business was not returned as required by law after the state held the money three years.

The law requires security deposits ranging from $2,000 to $50,000 from new businesses that collect sales, use and other taxes. If after three years the business has made all tax payments on time, the law says the deposit must be returned. Ms. Steel discovered some businesses haven't received their deposits for years after they were supposed to be returned.

Ms. Steel's initial investigation found $4 million in security deposits that should have been returned to more than 600 businesses in her district, which includes Orange County and California's four other most southerly counties. She requested immediate refunds to those owners, and a statewide investigation to determine how widespread the problem is.

This week, a Board of Equalization staff investigation reported that as of December 2007 "there were a total of 2,028 accounts totaling $38,805,545 that were eligible for release" to businesses.

"Can you believe that? I know government is a thief, but I didn't think they'd take that much," Ms. Steel told the Register's Sacramento reporter Brian Joseph. She said the state checks whether businesses are owed refunds every six months, and conducts the review by hand.

Ms. Steel is calling for a computerized process, and for reviews to be done monthly. The Board of Equalization will consider the matter at its Jan. 30 through Feb. 1 meetings. As the nation's only elected tax commission, four board members are chosen by district, but the fifth is State Controller John Chiang, elected at large to serve in ex officio capacity.

Mr. Chiang, elected in 2006, last year experienced challenges to the controller's seizure of private assets under the "unclaimed property" law. A federal judge ruled that the state violated private persons' constitutional protections by seizing so-called dormant funds from bank accounts and safe deposit boxes without first notifying owners. Directed by a federal court order, the Legislature changed the law to require owners be notified before assets are seized, not after.

Regarding the Board of Equalization holding of business deposits, the Sacramento Bee last month reported Mr. Chiang saying, "I want to see what's the best policy on this particular issue."

We suggest Mr. Chiang learn from his controller's office experience. The best policy is to return to people what belongs to them, post haste. We also suggest the Board of Equalization and controller's office seek changes in the laws governing them to provide interest payments to private individuals and business for whatever length of time the government holds their money. Taxpayers deserve no less urgency and respect for what belongs to them than do tax collectors.