On June 15, 2017, the California State Legislature passed Assembly Bill (AB) 102, The Taxpayer Transparency and Fairness Act of 2017, which makes substantial changes to the California State Board of Equalization (BOE) and how certain taxes are administered and adjudicated. The changes are endorsed by Governor of California, Jerry Brown, who signed the bill into law on June 27, 2017.
The new legislation removes many of the powers currently held by the BOE and transfers them to two new departments: The Department of Tax and Fee Administration and the Office of Tax Appeals. The BOE will retain its constitutional duties, including oversight of property taxes and the assessment of state-assessed properties.
California’s New Tax Departments
Department of Tax and Fee Administration
The BOE will no longer administer sales and use taxes, excise taxes, and certain fees starting July 1, 2017. The responsibilities to administer these taxes and fees will be transferred to the newly created Department of Tax and Fee Administration. A director, to be appointed by the governor, will oversee the operations of this new department. It’s anticipated there will be no change in how the sales and use taxes, excise taxes, and certain fees are currently administered other than in the name of the department that administers them.
Office of Tax Appeals
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, effective January 1, 2018. 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 also 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 doesn’t 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 the federal- and California State-level. 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 doesn’t specify whether the written opinion must be precedential or not. 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 authorized person who is at least 18 years old, whether that authorized person is an attorney or not. 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 department.
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 do so.
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If you’d like to learn more about how this legislation could affect you or your business, contact your Moss Adams professional or email email@example.com.