Bank That Made Campaign Gifts Wins Tax Fight : Politics: Firm had donated money to two Board of Equalization members. The decision revives a long-simmering controversy.

Overruling its own staff and a sister tax agency, the State Board of Equalization has erased a $3.5-million tax debt assessed against a Northern California bank that contributed to the campaigns of two board members.

The 3-2 decision on Tuesday has revived a long-simmering controversy over the acceptance of campaign contributions by members of a board who often must sit in judgment on sensitive tax issues involving those contributors.

Paul Carpenter of Lakewood and Conway Collis of Santa Monica, the two members who received donations from the Walnut Creek-based Central Bank, contend that the contributions did not influence their decision and, in fact, they were not aware of them when they cast their votes.

But Bill Bennett, a San Francisco board member who does not accept contributions and who frequently clashes with Carpenter and Collis over issues, insists that the decision is “flawed” because of the contributions and has asked the board to set it aside.

Both sides agree that the decision not only involves a substantial amount of money for the bank but sets a precedent for the way income taxes are computed by banks and other businesses that lease automobiles.

Collis insists it is so important that, had the board ruled differently, automobile leasing firms might not be able to continue to operate in California.

Both Carpenter and Collis accuse Bennett of grandstanding and complain that he is trying to hold them to standards that have not even been contemplated by the Legislature. Several legislators have introduced bills to prevent Equalization Board members from voting on any cases involving individuals who have contributed to their campaigns within the previous year.

According to campaign reports, Carpenter received $2,500 from the Central Bank over a three-year period ending in 1988. Collis--who is running for state insurance commissioner--received $500 from the bank in 1987.

“As usual, Mr. Bennett is on the losing side and he’s annoyed because the taxpayer has won a case. It’s his custom every time he loses to cry fraud,” Carpenter said.

Bennett, however, said board members should either refuse contributions or decline to vote on any case involving contributors.

“I just think it’s a common-law conflict of interest,” he said. “When a company makes a contribution, it’s doing that to buy influence. If it isn’t, then it’s serving no corporate purpose.”

In the decision, the board majority held that the Franchise Tax Board was wrong when it disallowed deductions for depreciation on a fleet of automobiles that the bank leased out. The Franchise Tax Board, citing a federal decision, had determined essentially that the bank’s lease agreements were not “true operating leases” because they placed most of the burden of ownership on the customer. As a result of the tax board’s decision, the company had been required to pay $3.5 million in back taxes for the years 1977 through 1980.

The bank then appealed the decision to the Board of Equalization. Voting with Collis and Carpenter was board member Ernest J. Dronenburg Jr. of San Diego. Controller Gray Davis sided with Bennett in voting for the tax.

In several memos, the board’s staff had recommended that it uphold the Franchise Tax Board. “Based on further review of the matter, the staff believes even more strongly on the merits of sustaining the action of the Franchise Tax Board,” staff lawyer Robert J. Brenner wrote the board Feb. 28.

But Carpenter and Collis said they decided to vote against the recommendation on the advice of their own staff of lawyers and accountants and not because of any influence they might have received from contributions.

Both men said they based their decisions on a change in California law. They said that in the past, at the end of a lease period, a customer was required to pay any difference between the “book value” of his leased car and the actual value. Often the difference was substantial, particularly if the car had been damaged.

Collis said, however, that under the new law, if there is a difference between the two values, companies could charge their customers only the equivalent of three lease payments. He said he considers that an additional burden for businesses that should be reflected in the way their income taxes are computed.

“You wouldn’t have any auto leasing in the state of California if the board had not ruled for Central Bank,” he said.

If the board decides to consider the issue again, both men said they would vote the same way.

“This board cannot be held hostage to ridiculous charges,” Collis said. “ . . . To vote against this taxpayer is a vote against giving consumers the benefit of auto leases in California.”