Second life for state tax program

State tax authorities defied lawmakers Monday by reviving ReadyReturn, a program that allows some taxpayers to have the state do their returns for them, and expanding it from a tiny pilot project to a service for 1 million Californians.

The move was engineered by outgoing Controller Steve Westly and his successor, John Chiang, both champions of the program. Intuit, the Silicon Valley manufacturer of TurboTax, spent $1 million trying to defeat Chiang on Nov. 7 and stop the program.

ReadyReturn is designed to ease the burden of filers with the simplest returns: single taxpayers with one employer and no complicated deductions. Despite rave reviews by most of the 11,000 taxpayers who used it last year, the Legislature over the summer yielded to an intense lobbying campaign by Intuit and let the program die.

But Chiang, Westly and Department of Finance Director Mike Genest, who make up the state’s Franchise Tax Board, made the move after receiving legal opinions from legislative and tax board staff suggesting that they have the authority to implement the program on their own. Chiang has a seat on the tax board by virtue of his leadership of another tax panel, the state Board of Equalization.

Officials at Intuit denounced the Franchise Tax Board’s move, calling it an attempt to circumvent the law. Legislative leaders said they will not try to block the board from moving forward.

“I absolutely have come to believe that ReadyReturn is the right thing to do,” Westly said just before the board voted Monday morning.

The controller said that when the program was launched in early 2005, he did not know what to expect. But he said he was stunned by the response from taxpayers who used the program as part of last year’s pilot project, about 96% of whom said it is a service government should provide and one they would use again.

The board’s action Monday will give about 1 million Californians the opportunity to receive a return from the state that is already completed. They may sign it and return it with their check or refund request, or discard it and do their taxes on their own.

Tax officials argue that the program not only takes the headache out of tax season for those filers, but also gives them the opportunity to see the financial information the government already has about them.

Intuit and other industry critics, including the California Taxpayers Assn. and the California Chamber of Commerce, describe ReadyReturn -- the country’s most ambitious government filing assistance initiative -- as Big Brother run amok.

Opponents ran a full-page advertisement in the Sacramento Bee last summer featuring a bulldog with a big steak in its mouth.

“Would you send him to the butcher to pick up your steak?” the ad asked. “Of course not! So why would you let bureaucrats in Sacramento fill out your taxes?”

Business groups say California should follow the lead of 21 other states and work with industry to make software such as TurboTax available free to low-income taxpayers through an IRS-backed effort known as Free File.

“ReadyReturn is a costly example of government redundancy in an area already served by a competitive private industry through the Free File Alliance, at no cost to the state and no cost to the taxpayer,” a statement released by Intuit on Monday said. “Better choices are available than to expand the role of the [Franchise Tax Board] in the lives of California taxpayers.”

Intuit officials would not say whether they plan to challenge Monday’s board action in court. But if they do, they will probably have plenty of company. Concerned that ReadyReturn will spread to other states and perhaps even the federal government, business groups across the country have joined Intuit in fighting the program.

The alternative they advocate is running into problems. A congressional report released in April said taxpayers who used the Free File service often got stuck paying fees for government forms, resetting passwords and other services.

Despite promises by industry to address the concerns, U.S. Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance Committee, said this month that the program continues to exploit taxpayers and he suggested that the IRS consider ending the partnership with the software companies.

Intuit officials, for their part, say ReadyReturn could prove far more expensive for taxpayers than Free File. They are skeptical of tax board projections showing costs averaging only $215,000 per year to run the program.

Intuit has spent many times that amount battling the program. It has hired some of the capital’s best-connected lobbyists and consultants to advance its cause and made a $1-million contribution to aid Tony Strickland, Chiang’s opponent in the race for the controller’s office.

A company spokeswoman said Intuit had no regrets about the donation.

Chiang said the reason Intuit got so involved in his contest was “absolutely” because of his support for ReadyReturn. “They want someone in that office who does not support us providing these kind of enhanced services to taxpayers,” he said.

Chiang wasn’t the only ReadyReturn supporter to come up against Intuit’s bank account. Stanford University law professor Joseph Bankman, who worked with the tax board to create the program, grew so discouraged when Intuit’s lobbyists were able to derail it in the Legislature that Bankman hired a lobbyist of his own to try bring it back to life. He used the $30,000 his family had set aside for a kitchen remodeling to pay the bill.

After Monday’s vote, Bankman said: “I’m thrilled.”

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evan.halper@latimes.com