Major changes to California’s tax policies got a step closer after the California Legislature passed Assembly Bill 102, the Taxpayer Transparency and Fairness Act of 2017 (Act) on June 15, 2017, as part of the state budget. The Act divests the California State Board of Equalization (BOE) of several key functions and creates two new government tax agencies—the California Department of Tax and Fee Administration and the Office of Tax Appeals—to perform many of the BOE’s previous duties.
Under existing law, the BOE administers various tax and fee programs, including the sales and use tax; adopts rules and regulations to clarify tax laws; acts as an appellant body for the review of property, business and income tax assessments; assesses and allocates the property tax values of railroads and specified utilities; and oversees the property tax assessment practices of all 58 counties.
Effective July 1, 2017, the Act confers all of the BOE’s collection and administrative responsibilities related to various taxes and fees, such as tobacco taxes, cannabis taxes, and sales and use tax, on the California Department of Tax and Fee Administration. The Act also grants the Office of Tax Appeals the authority to perform the BOE’s appellate duties. The BOE would maintain its duties as provided in the California Constitution, which include reviewing and adjusting certain property tax assessments and setting certain tax rates.
The Act establishes that within the Office of Tax Appeals there will be tax panels consisting of three administrative law judges with knowledge and experience in the administration and operation of the tax and fee laws of the United States and California. The scope of the appeals that the tax panels will hear includes: “(1) A petition, including, but not limited to, a petition for redetermination, petition for reassessment, petition for reconsideration of successor liability, or petition for rehearing. (2) Administrative protest. (3) Claim, including a claim for refund. (4) Appeal from an action of the Franchise Tax Board. (5) Application, including, but not limited to, an application for administrative hearing. (6) Any other item that may be scheduled for a hearing, interest, or penalties.” Essentially, the Office of Tax Appeals will hear the same types of appeals previously heard by the BOE.
Notably, only the person filing the appeal may further appeal the decision of the tax appeals panel to the Superior Court, and the Act specifies that the Superior Court will apply a de novo standard of judicial review. The tax panels would begin conducting appeals January 1, 2018.
The Act was included with several budget-related bills that the Governor has until July 1, 2017, to sign.
Eversheds Sutherland Observation
The Act represents a major—and long needed—change in California tax policy that has been considered many times over the last century. California is the only state where elected officials decide taxpayers’ appeals. The Act changes California law to be more consistent with other jurisdictions. The Act retains certain practices, such as the Franchise Tax Board’s inability to appeal a taxpayer-favorable decision.