Monday, November 20, 2017
State Should Work Smarter to Recover Lost Revenue
By Jerome E. Horton
Published September 25, 2013

Who would walk past a $20 bill lying on the ground without picking it up? The State of California, which does the functional equivalent by not going after approximately $9 billion in revenue lost annually to criminal tax evasion. This small fortune is what California loses annually to the “underground economy”—a shady world of crooks, con-artists, bootleggers, counterfeiters, and slave peddlers who operate “off the books” to avoid the taxes that you, me, and the rest of California’s law-abiding citizens pay.

Assembly Bill 576 will help California capture billions in uncollected revenue!

Had the state recovered even a fraction of the lost tax revenue between fiscal years 2007-’08 and 2012-‘13, it would not have had to cut $4.62 billion from our little ones’ grade school education, or $1.84 billion from California’s public university systems, further breaking the state’s promise to our young people, not to mention the $2 billion swiped from the Department of Social Services. 

In fact, $9 billion would be more than enough to refund the recent pillaging of our social and educational networks. It is understandable that completely eliminating criminal tax evasion within the underground economy will be impossible but, reducing it by just twenty percent would generate an additional $1.7 billion for the state. 

Fortunately, there is a way to attack this criminal tax evasion, and that is with Assembly Bill 576, which currently awaits Governor Brown’s signature. This bill creates the Revenue Recovery and Collaborative Enforcement (RRACE), a strategic partnership consisting of the California State Board of Equalization, Franchise Tax Board, Employment Development Department, and Department of Justice. This team will collaborate to pool existing agency resources to prosecute criminal tax evasion to force those who operate illegally to pay what they owe the state, with penalties and interest.

AB 576 passed overwhelmingly in both houses of the California State Legislature, receiving bipartisan support from the entire political spectrum—from labor unions to chambers of commerce. This is not just another level of state bureaucracy, but rather a more efficient mechanism for information-sharing. These various agencies would continue their independent surveillance, but with the intent of sharing information on underground operations that evade state taxes. By working together, these agencies will develop innovative ways to combat criminal tax evasion, thereby reducing the size of the underground economy and generating critical new revenue for the state.

California’s employers cannot compete against those who skirt state tax laws by avoiding excise taxes on tobacco products and fuel, and not paying the sales, use, income, and business taxes that is owed to the state. This cheating to compete often forces legitimate business owners to shut down, eliminating much-needed jobs.  Many of us are concerned about American jobs going overseas when we should be equally concerned with the jobs that are lost as a result of the  illegal businesses here in America.

This bill is not a panacea, as underground economic activity will always continue to exist. However, it represents a first step with the potential for a giant leap towards redirecting some of that $9 billion back into our state’s coffers, where it belongs.

The Governor has expressed an interest in recapturing the monies lost to the underground economy, leveling the playing field for California businesses, and protecting legitimate California jobs. Signing AB 576 accomplishes all three of these objectives and encourages government agencies to work together for the betterment of the state. What a novel idea!

Elected in 2010, Chairman Jerome E. Horton is the Fourth District Member of the California State Board of Equalization, representing more than 8.5 million residents in Los Angeles County. He is also the Board of Equalization’s Legislative Committee Chairman. He is the first to serve on the Board of Equalization with more than 21 years of experience at the BOE. Horton previously served as an Assembly Member of the California State Assembly from 2000-2006. The five-member California State Board of Equalization is a publicly elected tax board. The Board of Equalization collects more than $53.7 billion annually in taxes and fees supporting state and local government services. It hears business tax appeals, acts as the appellate body for franchise and personal income tax appeals, and serves a significant role in the assessment and administration of property taxes. For more information on other taxes and fees in California, visit









Categories: Opinion

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