California – Bill shifts nearly all tax administration and appeal functions from the BOE to two new tax organizations

June 2017

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Update

On September 16, 2017, California Governor Brown (D) signed A.B. 131, a budget trailer bill that provides technical corrections to A.B. 102. The bill includes the following provisions:

  • A case may be decided by the Board of Equalization (BOE) only if the hearing, determination, decision, or any other action with respect to an appeal is placed on the calendar of a meeting of the BOE to be held before January 1, 2018 and the appeal is heard, determined, decided, or is otherwise final before January 1, 2018. Cases not finalized by that date will be transferred to the Office of Tax Appeals (OTA).
  • The OTA is not a judicial body or tax court.
  • Appeals from the OTA will be to the superior court and review by the superior court will be de novo.
  • The OTA will be subject to the BOE's appellate rules, subject to OTA review. The OTA is mandated to adopt regulations regarding presentation of evidence and preparation for hearings and proceedings before the OTA that do not require application of specialized legal knowledge.
  • The authorization for representation by an 'accountant' is amended to include 'certified public accountant, public accountant' into the list of parties eligible to represent taxpayers before the OTA.
  • The OTA must establish a process for taxpayers to request a closed hearing along with objective criteria for determining whether to grant a request. Authorized parties may represent taxpayers in closed hearings.

Update

On July 1, 2017, the Department of Tax and Fee Administration issued a Special Notice regarding the transfer of duties.  Of note, requirements to register, file, and pay taxes and to meet other obligations will be the same as required prior to July 1, 2017. Schedules, forms, and payments will generally be the same during the transition.

Update

The governor signed A.B. 102 on June 27, 2017.

Overview

On June 15, 2017, the California Legislature passed A.B. 102, which would shift nearly all tax administration and appeal functions from the Board of Equalization (BOE) to two new tax departments: the California Department of Tax and Fee Administration and the Office of Tax Appeals. The BOE would retain its constitutional duties, including oversight of property taxes and assessment of state-assessed properties. Both new tax departments would be under the control of respective directors, each appointed by the governor and subject to confirmation by the California Senate.

If enacted, starting July 1, 2017, the new Department of Tax and Fee Administration (DTFA) would administer sales and use taxes, business and excise taxes, and certain fees. The bill would also restrict ex parte communication in relation to a board adjudicatory proceeding, effective July 1, 2017. Additionally, the Office of Tax Appeals (OTA) would hear sales and use tax appeals from the DTFA and personal and corporate income tax appeals from the Franchise Tax Board starting January 1, 2018. Taxpayers may be represented at an appeal at the OTA by any authorized person or persons including, but not limited to, an attorney, accountant, employee, or business associate.

The governor is expected to sign the bill.

The takeaway

If enacted, this would be the one of the most drastic changes to California tax administration in the last seventy-five years and is a big shift in power from elected board members to the governor. Under A.B 102, the new DTFA would start administering sales and use taxes, business and excise taxes, and certain fees staring July 1, 2017.  The new OTA would start hearing tax appeals starting January 1, 2018. The sweeping changes would go into effect in a short period of time and there remains considerable uncertainty in how the changes will be implemented. If enacted, A.B. 102 would not alter current operations at the FTB, which would continue to administer personal income taxes as well as corporate franchise and income taxes under the oversight of the three-member Franchise Tax Board in the same manner as it does today.

Therefore, taxpayers that have a pending tax appeal with the BOE or taxpayers considering a tax appeal in California should reach out to the California tax specialists listed below to analyze the impact of this change based on their specific facts.

Contact us

Peter Michalowski
National SALT Practice Leader
Tel: +1 (646) 471 5259
Email

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