Recently enacted legislation Assembly Bill 102 (AB 102) strips the State Board of Equalization (BOE) of two of its core functions: collecting and administering numerous taxes and fees, as well as hearing and deciding tax appeals.
The bill establishes two new tax agencies: the Office of Tax Appeals and the California Department of Tax and Fee Administration. The changes affect all companies doing business in California and create a lot of uncertainty for taxpayers, particularly with respect to how tax appeals will be handled by the new Office of Tax Appeals.
The BOE will retain its constitutional duties, including oversight of property tax assessments, setting the rate for gas taxes, and assessment of taxes on pipelines, insurance companies, and alcoholic beverages. These limited duties will still be overseen by the elected BOE members and the State Controller.
Department of Tax and Fee Administration
As of July 1, 2017, the BOE no longer administers sales and use taxes, excise taxes, and certain fees. These responsibilities were transferred to the newly created Department of Tax and Fee Administration. It is anticipated there will be no change in how the sales and use taxes, excise taxes, and certain fees are currently administered.
Office of Tax Appeals
Beginning January 1, 2018, the new Office of Tax Appeals will assume the adjudicatory powers of the BOE for all taxes and fees except for state-assessed property taxes, insurance taxes, and alcohol taxes. The BOE—which is comprised of four elected officials and the state controller—will continue to adjudicate all matters on its calendar through December 31, 2017.
The governor will appoint a director to oversee the Office of Tax Appeals, as well as a deputy director and the new department’s chief counsel. The new law does not specify the duration of these appointments, which will be at the discretion of the governor. Tax appeal panels within the Office of Tax Appeals will consist of three administrative law judges designated by the director. Each administrative law judge will have at least five years of experience being an active member of the State Bar of California and have knowledge of, and experience in, tax and fee laws at both the federal and California levels. Tax appeal panels will be located in Sacramento, Fresno, and Los Angeles.
New Tax Appeals Process
A written opinion will now be issued by the administrative law judge for each appeal. This is a change from current law that requires written opinions only if the amounts in dispute exceed $500,000. Opinions are to be published within 100 days after the date the decision becomes final. The new law does not specify whether or not the written opinion must be precedential. The previous law allowed the BOE to decide whether its written decisions can be cited as precedent.
The new law also provides that the person filing an appeal can be represented by any person authorized by the taxpayer, who is at least 18 years old, whether or not that authorized person is an attorney. By January 1, 2018, the Office of Tax Appeals will adopt regulations as necessary or appropriate to carry out the purposes of the legislation. Since non-attorneys are now authorized to represent taxpayers, it appears that the same informal hearings that exist today within the BOE will also occur within the new Office of Tax Appeals.
AB 102 also continues current law that prevents the California State Franchise Tax Board from appealing an adverse decision to the Superior Court of California. Only taxpayers who lose their appeals case may appeal to the Superior Court.
If you have questions or would like more information, please contact Jeff Fields at jfields@windes.com or 844.4WINDES (844.494.6337).