Candidate for
Member; California State Board of Equalization; District 3

The following article was reprinted with permission from the Cal-Tax Digest. No further republication without copyright owner's permission.

Cal-Tax Digest Q & A

BOE Chair-elect Claude Parrish

Claude Parrish, a picture of persistence, comes across as sort of the Will Rogers of the California tax scene. He never met a taxpayer he didn't like. And taxpayers are innocent until proven guilty.

He set his political sights on the State Board of Equalization in 1986, and he ran every four years. In 1998, his fourth try, he won the Third District seat that encompasses part of Los Angeles County and all of Orange, San Diego, Riverside and Imperial counties, an area that had been represented for some 20 years by term-limited Ernest J. Dronenberg Jr.

As he prepares for his third year on the board, Mr. Parrish is also slated to serve in 2001 as the board's chair, which also places him on the three-member Franchise Tax Board. (The BOE chair normally rotates among the four members elected by district. The fifth vote on the board is the state controller.)

The Los Angeles County Republican, a former Los Angeles County insurance commissioner, is a native Californian who has worked in the private sector as controller of a securities firm. He also is a former director of real property for the ABC television network.

Following is a Q&A session with Cal-Tax staff:

Cal-Tax: In your two years as a BOE member, what is your proudest accomplishment?

Mr. Parrish: That's sort of like saying, Which child do you like best? There is a lot that I'm proud of. But I'm most proud of my efforts on behalf of Scholastic Book Club, Incorporated. This decision reaffirms that the bonus point system they were using, which I compared to S&H Green Stamps, is not subject to sales tax. They're just a book entry form of trading stamps that teachers use. Not only would the staff's decision have subjected all of those gifts redeemed by the bonus points, shall we say, to sales tax but it would also subjected the teachers to state income tax. It would have been a disaster for every classroom in California if that program would have been stopped. I said at the time that kids wouldn't have the little globes of the world. They wouldn't have the little books about trains. They wouldn't have the little books about boats. They wouldn't have the overhead projectors. They wouldn't have all of the little things that they'll remember throughout their lives. I was the deciding vote. And I also worked behind the scenes to get the California Teachers Association representative to sit in the audience, and I announced to all the board members that I had a California Teachers association representative here keeping an eye on what we were doing. It was the most important vote of the last two years. And, thus far, I think it's probably the most important vote of my career. It affects more children in California than any other vote I've made, and so now School teachers throughout California are able to collect these bonus points, which are just a few pennies for every bonus point. And so we have all these nice bonus gifts for the classrooms. Of course there are other things I'm very proud of, but I'm most proud of that.

Cal-Tax: You're in line to become BOE chair in 2001, and with that comes a seat on the Franchise Tax Board. Do you have anything specific that you want to accomplish as a member of the FTB?

Mr. Parrish: I think the most important thing I can do is try to change the perception of the national business community that California is a tough tax state and that we're unfair. So that's going to be a major goal. I think it's the most important, single thing we could do. We have an image, like it or not, in many circles. We've all seen the articles that say California is tough and is somewhat unfriendly toward business. My goal is to try and make us as friendly as I possibly can within the existing framework and regulations. And that will translate into jobs. It is tragic when a company has just closed down and they leave California and these people sell their houses, and the children are uprooted. It's a very sad thing when you have to uproot and you have to leave the state. And that's not good for our economy. We've been very blessed that we have a good economy but I don't take it for granted at all.

Cal-Tax: Is this also the single largest issue facing the BOE?

Mr. Parrish: Yes. We need to convey to businesses that we are fair and that we do welcome them. We do have high tax rates, and that's a matter for the state Legislature to address. Businesses need to know they will be treated with absolute fairness. That should be our goal. I was so pleased at the Taxpayers' Bill of Rights hearing (October 31), that (BOE Taxpayer Representative) Jennifer Willis reported on all the positive things about the new policy on liens. You never read about this in the newspapers, sad to say, even though we issue press releases. You don't read how we now ask county recorders to remove tax liens, how we've raised the threshold so that liens won't be filed on small delinquencies. There also is so much information you can get off the BOE Website on the Internet. There's been a lot of progress made, no two ways about it, so I don't want to cast any aspersions on the past. But I think the board's image and perceptions are most important. Let's have concrete policies that are fair, not just talk. And there are some that I think are very serious.

Cal-Tax: What do you mean? What are they?

Mr. Parrish: Fortunately, I can talk about some our victories, such as the Consolidated Freightways case. This is a Franchise Tax Board case where the State Board of Equalization, by a 4-1 vote, has finally determined that California is not into state capitalism or centralized planning, which is another term for communism. We are not going to micro-manage the business conducted by our corporations. You will be free, if you deal in business in California, to have your own cash management system and you will not be penalized for maximizing your yield no matter what the term of length of your instruments. Whether they're 30 days or 30 years, you will be able to ladder your investments and maximize your income without fear. But that fear was real as the policy was being exercised by the Franchise Tax Board.

Cal-Tax: And other examples?

Mr. Parrish: Now the negative side of this is very unfortunate. And I don't think it's yet to be resolved. It is the concept that if a corporation uses accelerated depreciation, the savings gained should be viewed as an increase in the assessed value of the corporation. It's the most outrageous stretch that I can imagine. It's not resolved. If you use an accelerated depreciation that increases your cash flow, therefore that's a benefit and it's argued that your cash flow differential now increases your valuation. That's just apples and oranges. That's a very unfriendly image for California to have. It's arbitrary and capricious.

Cal-Tax: One of the issues that came up at the October board meeting was that you can have a sales tax applied to a figure that's actually higher than the price you pay for the product. The board voted to look into the issue, but only prospectively.

Mr. Parrish: Yes. What the BOE staff has done is unfair. It involves the soft drink industry, as well as other industries. You Know, I'm probably the only sitting member of the board to ever have had a seller's permit. I used to sell Pepsi Cola and Coca- Cola, and you'd get these rebates. Call them volume discounts, rebates, buy downs, call them what you want. If you buy a certain quantity of some product, you'll get a rebate or a buy down in the mail. I got it from a candy company, when candy was taxable and I used to be in the vending business. It would have been outrageous to say that rebate was subject to taxation. You know cigarette companies are doing buy downs or rebates. It is unfair to say the 50 cents that you received from the tobacco company should be subject to sales tax. Because it's a specific product, it's unfair and discriminatory. It happens to be that's the practice in the tobacco industry, but it's also practiced in the soft drink industry. It's also a practice in the candy industry. It's also a practice in other industries.

Cal-Tax: The Automobile industry does it, too.

Mr. Parrish: Yes, the automobile industry. You know if you open this Pandora's box and you don't stop this here, a lot of dealers sell cars at very close to cost will be subject to a higher sales tax, because they know at a certain period of time they qualify for a volume discount, or bonus, from the manufacturer. Subjecting all of that to sales tax is very dangerous ground to be treading upon. I'm convinced, and I made this statement publicly when this very issue came up, that if we're ever in front of a jury and the jurors said, "You think it's right that you should be charged tax on $6 if the register rings up an item for $5? Like in a case of soda pop?" And everybody goes, "No, that's kooky, that's stupid." The taxpayer is going to say, "The price is $4.99, but you're charging me tax on six bucks." They're going to confront someone, I know they're going to confront the cashier. It's outrageous. And so, absolutely, we've got to clear the decks of that. I think it absolutely will lose in the courts. This will be just the same type of thing, if not worse, and it's more clear than the smog impact fees that we had to return. We've got to learn from our mistakes. This is an absolutely improper exceeding-the-envelope operation. If you don't make this retroactive, you're going to affect tens of thousands of small retailers. There are tens of thou-sands of retailers who don't understand this. It's a surprise to them. They never expected this. Every retailer in California that sells soda pop is going to be subject to this. Every retailer who sells cigarettes is going to be subject to this. Every car dealer is going to be subject to this. You have no idea. And retailers selling other tangible property that get bonuses or incentives or win prizes for volume--all of them will be subject to this literally unconstitutional application of the tax laws. So this is one thing we have yet to resolve. It's very important. Where do you start, where do you end?

Cal-Tax: You'll be a member of the Franchise Tax Board in 2001. What are your goals and plans as a member of the FTB?

Mr. Parrish: As you know, I will be one of three members. I will work with the state controller (Kathleen Connell) and the director of the Department of Finance. I want to give the impression wherever possible that California is tax-friendly. I don't have specific reforms. I'm not planning to go in and slash and burn. I think it'd a fine organization and just needs some fine tuning, and I believe that you'll get a lot more with honey than with vinegar and let's leave it at that. So I will go in with a positive attitude and just increase upon the gains they have already made through the fine efforts of the last chairman of the State Board of Equalization, just to build upon the progress, you know, in a positive manner. And as you know, my methods are to accentuate the positive; that's the way I do things. I'm different than other people. Other people are more forceful. I feel that being more cooperative will get more for the taxpayers.

Cal-Tax: you have a close relationship with county assessors. Does this reflect your honey-versus-vinegar approach?

Mr. Parrish: Yes. You know they're my good friends. Before I was elected, I campaigned up and down this state and met with my good friends - the assessors - and I tried to cultivate a positive rapport with every assessor I could. I think I've been somewhat successful. I go to their conventions. I hear their concerns. I've never had an assessor ask me to do anything that I didn't think they had a good justification for. I may not agree with it. And I think having a cordial relationship with the assessors in the long run will pay dividends. I may be wrong but that's my opinion and so I like to look at their concerns and address them. The bottom line is that by having a good rapport, I have seen assessors sit down with members of the business community. In particular, (then-Los Angeles County Assessor Kenneth) Hahn sat down with major aircraft companies. I arranged it. I suggested to the aircraft companies that they could only ask for three things to be addressed at this meeting. And I told the assessor that they're going to bring up three problems that they have and that's all, nothing else. So, Mr. Hahn kind of straightened it out right then and there. He was a great assessor, and he was very fair. Problems were resolved at that meeting. That would never have happened - I don't want to take credit because I couldn't have done it without Mr. Hahn - but I opened the door and help get problems resolved. And he's aware, or he was at the time, that if he was too harsh, these are companies that can relocate or can minimize their presence in this state and in Los Angeles County. I'm glad I was able to do that, but I don't think I'd have ever been able to do that if I had had a contentious relationship with that assessor. And I have done this again and again with assessors. I've helped people. Thirty-two disabled taxpayers moved from different counties to Riverside County. And I'll tell you this story real briefly. A lady called. She's 87 year's old. She's a psychologist. She says, "Claude I can't sleep. I have a terrible tax problem and I hear you help people." She says she moved under the inter-county transfer process that allows the disabled to keep Proposition 13 base-year values on comparable homes in Riverside County. She was told by the Riverside County Assessor's Office that she qualified. For two years, everything went along fine. She got her property tax bill of about $700 a year. Then she received this horrendous tax bill for $10,000. They wanted to back-assess all of the taxes because they said they had made a mistake and her the inter-county base-year value transfer was invalid. And she says, "I can't sleep at night. I don't know how I'm going to pay this $10,000, let alone the $2,700 a year thereafter." The first thing I had to do was go to Riverside County Assessor Gary Orso. He says, "Whoops, sorry, I made a mistake, but that's the law, and I have to follow the law. They've got to pay the $10,000 back assessment and that's the new value. I can't do anything with it." So he said, "Claude, you know no member of the BOE has ever come to my office, and you've been here dozens of times." And he says, "I'll tell you what I'll do, I'll just become neutral on this whole issue, okay?" So then I met with county Supervisor Roy Wilson. After meeting with the supervisor and the county counsel, Senator Ray Haynes stepped forward and introduced a bill (SB 383). It says if a county assessor accepts an inter-county base-year value transfer, and it's later found in error, then you don't have to pay the back tax for the period before the error is discovered. From that point forward you have to pay it. From that point backwards it's forgiven. This is now law, by unanimous votes of the Senate and Assembly. By the way, Assembly Revenue and Taxation Committee Chair Wally Knox gets a lot of credit for this, too. He helped work on the Haynes legislation because it was going to get stuck. Within weeks we got it through both houses unanimously, and signed by the governor. So that's one thing I did and the key to getting something done was convincing the county assessor, who came into the meeting with Supervisor Wilson and said his office was officially neutral, but it was unfair and these people should be helped. If he hadn't done that, this might have never happened So I look at the big picture and I think creating a good rapport with assessors has paid dividends that have benefited taxpayers, and that's my ultimate goal.

Cal-Tax: You and the board have been criticized by assessors in newspaper articles for reducing property values of state-assessed utility companies. Assessors have threatened to sue the BOE. Do you believe the board is properly setting these property values?

Mr. Parrish: Absolutely. They're based on sound accounting principles and, the fact is, the utilities' spin-offs as a result of deregulation created a reduction in the valuations. What the newspapers never tell you is that PG&E in one instance was being double-taxed on a facility that they'd sold. It was being assessed by the county assessor. And the county assessor was still getting payments under the settlement agreement. That was a double assessment. But, I had to vote against the utility on that because that was the agreement, even though it really wasn't fair. You've got to stand by your agreements. So, the board is absolutely fair and on my votes - I can't crawl into everybody's head - my vote is absolutely as fair and accurate as it can be. I believe in strict accounting principles, cost, less depreciation, less economic obsolescence. If I've said that once, I've said it a thousand times. I campaigned on that. I believe that's one of the reasons I was elected and that's the way they're doing things. Now you must remember, these so-called reductions, 96 percent of all reductions, were based on staff recommendations. I think there are only three cases where we went along with a very slight difference in the valuation for Pacific Telephone and I think two other telephone companies. And this wasn't a major decrease, it was a very minor decrease, based on the fact that fiberoptic cables are far less valuable than the copper cables that are now becoming obsolete. So that was taken into consideration. But, I think the value differential was 4 or 5 percent in the overall scope of things. It was the right thing to do and that's the only item that I recall on which we really disagreed with the staff. But the staff, of course, has direction to be fair and accurate and use the methodologies of basically cost, less depreciation. So it goes back to fairness, absolute fairness. I'm absolutely fair and we need to have this fairness and accuracy in our valuations. And the big picture, of course, is if you become outrageous with your valuations, it'll just be passed on and create higher utility rates for the consumer. That will make California unattractive for major industry to be in this state because electricity is a major component of production and we're going to lose jobs and business here. Can't anybody see that?

Cal-Tax: However, assessors are threatening to sue the BOE over utility values.

Mr. Parrish: I would like to sit and work out a compromise. Lawsuits are no way to solve a problem. And I also said publicly that they could sue, but most likely it'd be dismissed. So we've got to work out something where we all work together. We have to have people who have more respect of our government and not fight and sue each other. It looks real bad. I'm going to make a plea to assessors that they do not institute such a thing. Remember, I'm only one of the five BOE members, but where I can soften or get some compromise I'm going to try and do it. I don't think it benefits anybody if we go to court. But it may come to that.

Cal-Tax: What about the board do you think taxpayers would find most surprising?

Mr. Parrish: The thing you'd find most surprising is that the average small taxpayers probably could do just as good a job representing themselves at the board than if they hire professional help. I have seen some excellent cases - not every case, it's not universally true - but taxpayers need to know they can do an excellent job representing themselves if they will apply themselves to their presentation, and if they would contact their local representative on the BOE and ask what it is like at board meetings. Visit a board meeting. There also is a taxpayers' advocate office to help them.

Cal-Tax: You have strong feelings about how the board deliberates, and how important it is to have an elected, not appointed, State Board of Equalization. Can you share them?

Mr. Parrish: I think people would be surprised to learn that last year 39 percent of the taxpayers who appealed were granted some form of relief. Of that 39 percent, 8 percent were decided in favor of taxpayers by a one-vote margin. So in other words, if one of us goes the wrong way there would only be 31 percent granted relief. On 29 cases, I attempted to grant relief but failed. That's 9 percent of all cases. So, if I had my way, instead of 39 percent of the taxpayers getting some relief in 1999, that would have been 48 percent. Now, this is so dramatic compared to the IRS and their internal procedures. Some people in the IRS told me they have an internal procedure and it varies from year to year, but on average it's something like 3 to 8 percent of the taxpayers getting relief. Here, because you have an elected board, look at the difference. And that fact is probably 40 percent of all taxpayer who go through the IRS procedure probably deserve relief and would get it if they had a freely elected board of citizens to hear their appeals. I hope this spreads to other states. We should have a system where your tax officials are elected, and we have conflict-of -interest safeguards in the form of campaign finance limits. We are, by far, more strictly monitored than the state Legislature. The only way for the people to get redress is to have elected representatives. There's just really no other way, in my personal opinion.

Cal-Tax: You said at a recent meeting that the taxpayer is presumed innocent until proven guilty. You've also said you are sensitive to complaints that the board sometimes seems to rush too fast through its meeting agendas.

Mr. Parrish: The taxpayer should be presumed innocent and that's the way I see it. We had one guy who had been in jail. I said he's a nice guy now. Prove why he's bad. And so they did, they kind of brought it all out that he was bad, you know. But I liked him when I first saw him; that's my attitude. I'm sort of like Will Rogers. I never saw a taxpayer I didn't like. I never did. The staff has to convince me this guy is bad. They have to do it and sometimes they do. When I'm chairman I want everybody there to realize that indeed we are thoughtful. If you just whip through the agenda, it appears that we're not paying attention to your case. And that's very bad perception, because we are aware of these cases. We are aware of the details. We've read it. Our staff has read it. They've briefed us. They spend hundreds and hundreds of hours on these. It's an independent look - some staff members are more independent than others, I will say, and you know who they are - but mine for sure look at the taxpayer's side of the argument as much as possible and try to see their point of view. So what the taxpayer doesn't see is the briefing papers that we have that are right in front of us. Now, I've also said eye contact with taxpayers if very important. I'm very proud of the fact I don't have a laptop computer. I look right at the taxpayer. I have a book and then I look at the taxpayer and I refer back. Then I ask the taxpayer to explain. I'm always asking taxpayers what page they are on. Because I follow them. I want the perception to be that we are thoughtful and we do look carefully at each case. And you probably noticed, if you watch the hearings, I hold things up until I read what I'm voting on and I don't care if I hold things up.

Cal-Tax: Is it your impression that the board is more deliberate based on what you've heard than what it might have been 10 or 15 years ago?

Mr. Parrish: Well it's definitely a new board. You know I've been studying this for 12 years, because I first ran in 1986. But I studied back into the 80's or 70's and the percentage of taxpayers getting relief were - I hate to say this, but it has been said that the board used to just be a rubber stamp for the staff. That had been said in the past. It's definitely not so now and it hasn't been for many years. It's getting more and more taxpayer-responsive.

Cal-Tax: What about your political future. Are you planning to seek a second term on the Board?

Mr. Parrish: I'm very proud of the fact that I won by almost a quarter of a million votes in 1998. I'm hoping to win by a bigger plurality next time and I'm running for re-election in 2002. As you know, I'm termed out after two terms, no two ways about it and no reason to be bashful. I'll be forced to run for statewide office after I'm termed out, which most likely my supporters say that the best chance for me and the one I'm most qualified for, and I agree with them, is state treasurer. It seems that I've been treasurer of everything I've ever been involved in. I was elected treasurer of the Sunday School, the Echo Park Coin Club, the Republican Party of Los Angeles County and the Los Angeles County Insurance Commission. You name it, I was named treasurer of it, so I might be just a natural. We'll see.

Copyright December 2000 Reprinted with permission from The Cal-Tax Digest, on April 9, 2001. No further republication without copyright owner's permission.