Controversial State Tax Collection Halted : Bureaucracy: The State Board of Equalization drops a levy on overseas purchases after a ‘comedy of errors.’

In a stormy session punctuated by snide exchanges among some of its members, the State Board of Equalization voted Wednesday to stop collecting a controversial tax on overseas purchases.

Reacting to pressure from numerous elected officials and hundreds of travelers, the board decided 4 to 1 that it would not resume the collection program unless the Legislature gives its specific approval when it reviews the agency’s enforcement budget later this year.

In the meantime, the board directed that $110,000 in refunds be made to 800 travelers who have already paid the tax.

“This is wonderful,” said Rita Carton, a Los Angeles resident who had filed protests when she received notice to pay the tax. “There is a way to work the system. You can be heard. This renews my faith that the little guy really can do something.”

The board’s vote ends weeks of controversy over a decision last month by agency administrators to begin imposing the state’s use tax on overseas purchases. The use tax mirrors the state’s sales tax and applies to goods purchased out of state for use in California. Although the tax has been on the books since 1935, state officials were not able to monitor overseas purchases until last year, when the U.S. Customs Service agreed to provide access to its records.

Without any warning to taxpayers, the agency mailed tax notices in January to 3,962 Californians who traveled abroad in 1989 and filed declarations with the Customs Service enumerating their overseas purchases. The initial mailing was to be the first phase of a program that was expected eventually to reach an estimated 58,000 Californians a year.

But in what Controller Gray Davis termed a “comedy of errors,” taxpayers were sent tax bills that overcharged them, included erroneous dates and failed to differentiate between items that were taxable and those that were not. Most bills included a quarter-cent tax increase to pay for earthquake relief that did not go into effect until Dec. 1, long after most travelers had returned from their trips.

“I think we’ve got a good agency with a long history but, just like everybody else, we were not infallible,” board member Ernest Dronenburg said. “I think we just had a mess-up . . . and now we’ve got to clean up that mess.”

Davis, who sits on the tax board, said the errors left the board no recourse but to suspend the collection program and return any payments that had been submitted. He said if the program is ever resumed, it will probably not be until next January, after an extensive publicity campaign.

The lone dissenting vote to his proposal was cast by board member William Bennett, who insisted that the panel has no legal authority to “suspend, ignore or rescind” the collection of any tax.

“While all of us would love to be beloved, popular, gentle figures admired by the body politic, we have an obligation to do that which at times can be personally difficult,” he said afterward. “This is absolutely contrary to law.”

During the meeting, Bennett exchanged angry words with board member Paul Carpenter after Bennett called for an investigation of the board’s executive director, Cindy Rambo, and its deputy director for business taxes, Judy Agan. Bennett said the two administrators had attempted to make subordinates the “scapegoats for this fiasco.”

He referred to a memo in which Rambo had complained that two lower officials had started the collection program before a publicity campaign could go into effect. “There is still a substantial lack of sensitivity by much of the staff to the importance of service to the public and proper advance notification to taxpayers before they are held accountable for taxes,” she wrote.

But Bennett said it was the executive director’s responsibility to make sure the program was put into effect properly.

Carpenter then interrupted, accusing Bennett of attempting to undermine Rambo because she had not been his choice for executive director.

“Unfortunately we don’t give medals or plaques for demagoguery or we’d give you one, Mr. Bennett,” Carpenter said.

The board ignored Bennett’s request for an investigation.

In other action, the board voted 3 to 2 to conduct another hearing in a precedent-setting case that could mean that hundreds of high school organizations that engage in fund raising will be liable for state sales tax.

The case that set the precedent involved the Monterey High School wrestling team, which sold thousands of dollars worth of fried calamari at a county fair to earn money for school activities. The board ruled last month that the wrestling team was not automatically exempt from state sales tax.