Single Parents on Welfare Eligible for Full Tax Credit

In a ruling likely to cost the state at least $10 million--and conceivably as much as $200 million--the State Board of Equalization decided Wednesday that hundreds of thousands of single parents on welfare are entitled to the state’s maximum tax credit for renters.

State officials said the ruling means that at least 97,000 welfare recipients who filed for renters’ credits in the last four years stand to become eligible for refunds of up to $308 each. Another 200,000 to 400,000 welfare recipients who have never filed income tax returns could be eligible for up to $548 each, officials said.

In the future, all single parents on welfare who claim the head of household renters’ credit on their state income tax forms will be allowed to collect the annual $137 credit at an additional annual cost to the state of $2 million.

The precedent-setting decision came in a 7-year-old case involving two welfare mothers who were forced to repay the state when they collected the full $137 renters’ credit after claiming the head of household designation on their state income tax return. The women appealed the order to the Board of Equalization.

Citing several federal income tax cases, the Franchise Tax Board had determined that the women, Juanita Diaz of Bakersfield and Constance Watts of Hayward, must furnish more than half of the costs of maintaining their families before they could qualify as the head of household. Since the majority of their income came from welfare payments, the board said, the women were not actually heads of household and were only entitled to the $60 renters’ credit given single people without children.

Ruling on their appeal, the Board of Equalization voted 4 to 1 to reverse the tax board’s decision and grant the women the full $137 credit with interest.

Officials said it would now cost the state about $10 million if it has to distribute refunds to the 97,000 welfare recipients who have applied for them in the last four years. If the estimated 200,000 to 400,000 recipients who have never filed income tax returns also apply for refunds for the past four years, the cost would range between $108 million and $220 million.

Board member Conway Collis said that while he did not believe the tax board had intended to be “hard hearted,” its decision had the effect of “discriminating against single parents who receive” welfare payments.

“It is unconscionable for the state to tell a parent that they cannot be head of their household simply because they are on welfare,” he said.

John Davies, who represents Controller Gray Davis on the board, said he believes that the Legislature had made it clear in 1978 that it wanted the head of household renter credit extended to welfare recipients.

Under a state law intended to give renters some of the same tax breaks afforded homeowners, renters can apply for a tax credit on their state income tax returns. Renters such as welfare recipients who show no income are then entitled to a payment from the state that would equal the credit.

Richard Rothschild, a lawyer with the Western Center on Law and Poverty in Los Angeles who represented the two mothers, said the decision will have “significant” effect on welfare recipients.

“These are people who are living on the margin, and even those people who only might get $77 more per year, that can often mean paying the utilities in a month or . . . having food on the table,” he said.

But Therese Stewart, a San Francisco lawyer who also represented Watts and Diaz, said she was disappointed that the board refused to consider the case a class action.

She said that would have meant that the board would have automatically sent refunds to welfare recipients who had filed income tax returns but had not been given the full $137 renters’ credit. Most of them will have to formally apply for the refunds, she said.

Jim Reber, a spokesman for the Franchise Tax Board, said the three-member panel will decide the refund question at its next meeting Sept. 20.

“Our big concern right now is that thousands of people will begin to flood our phone banks and write letters wanting to know where their money is,” he said.

He said the refund process cannot begin for at least 120 days--the time allotted lawyers for the two welfare mothers to decide it they want to appeal any portion of the Board of Equalization’s decision to the courts.

If there is no appeal, he said he expected the tax board--which includes Davies and Board of Equalization Chairman Paul Carpenter--to order refunds for 56,000 welfare recipients who requested the $137 credit and were granted only a $60 credit.