United States

California: Appeals and tax administration duties removed from BOE

TAX ALERT  | 

On June 27, 2017, California Gov. Jerry Brown signed Assembly Bill 102, providing for significant changes to the California State Board of Equalization (BOE). The bill, The Taxpayer Transparency and Fairness Act of 2017, removes certain state tax functions from the BOE and creates two new agencies, the Office of Tax Appeals (OTA) – an agency to hear state tax appeals, and the California Department of Tax and Fee Administration – an agency to administer state taxes. The BOE will retain certain functions and state-constitutional duties related to the review, equalization and adjustment of property tax assessments. 

The BOE is the nation’s only elected tax commission, comprised of five board members serving concurrent four-year terms. Four of the members each represent a distinct district within the state. The fifth member is the state controller elected at-large. The BOE was created by the state’s constitution in 1879 and was originally mandated with oversight of state property tax assessments. The changes enacted by Assembly Bill 102 are some of the most significant in years. 

California Department of Tax and Fee Administration

Assembly Bill 102 establishes the California Department of Tax and Fee Administration, placing the new agency under the control of a governor-appointed director, chief deputy director and chief counsel. The Department of Tax and Fee Administration is vested with, and assumes, all the duties, powers and responsibilities as the BOE. Primarily, the new agency will administer sales and use taxes, excise taxes, tobacco taxes and dozens of other taxes and fees. State income taxes continue to be administered through the California Franchise Tax Board. The Department of Tax and Fee Administration is scheduled to become operative on July 1, 2017. 

Office of Tax Appeals

Assembly Bill 102 establishes the OTA to hear petitions for redetermination, reassessment, reconsideration of successor liability or petitions for rehearing, administrative protests, claims for refund, appeals from actions of the Franchise Tax Board, and other actions including requests for relief of taxes, fees, interest or penalties. The OTA will be under the control of a governor-appointed director, chief deputy director and chief counsel. The OTA will consist of various tax appeal panels, each consisting of three administrative law judges who are active members of the State Bar of California for at least five years and have the knowledge and experience with regard to tax and fee laws.

The OTA will begin hearing appeals on and after Jan. 1, 2018, at which time the BOE will no longer conduct appeals. Hearings will be conducted pursuant to and under the state’s administrative procedure act and a written opinion will be issued for each appeal decided. The opinions must be published within 100 days after the date of the decision becomes final. Broad representation is available to persons filing appeals, including attorneys, appraisers, accountants, employees or others. A decision of the OTA may be appealed to the state superior court, which shall conduct the review de novo. 

Takeaways

Assembly Bill 102 enacts substantial changes to the BOE that will impact most taxpayers. The BOE will retain certain functions related to property tax, assessments and appeals, but is essentially divested of authority to hear most state tax appeals and administer state taxes. The establishment of the OTA and the Department of Tax and Fee Administration on Jan. 1, 2018, and July 1, 2017, respectively, leaves little time for rulemaking and establishing procedures necessary for those agencies to function. The quick passage of the legislation and significant structural changes to the BOE has also caused concern among some assemblypersons. California taxpayers should expect future developments and speak to their tax advisors if they have pending tax appeals or anticipate filing tax appeals.

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