Most California businesses and individuals are familiar with the California Board of Equalization (BOE) as the taxing authority that administers state tax laws, collects taxes, conducts audits and hears appeals. Unlike other states that have a Department of Revenue, the BOE is an elected tax commission composed of five board members who serve concurrent four-year terms. This unique structure was initially leveraged to create a unique and transparent agency. However, over the past few years, many issues and concerns have plagued the BOE resulting in the need for change. Restructuring came last month when Gov. Jerry Brown signed the Taxpayer Transparency and Fairness Act of 2017 into law. The law removes specific responsibilities from the BOE and creates the Office of Tax Appeals (OTA), which is designed to hear state tax appeals, and the California Department of Tax and Fee Administration (TFE), which is designed to administer state taxes. To help clients, prospects and others understand the changes and how it will impact them, JLK Rosenberger has provided a summary of changes below.
Why the Change?
There were several reasons cited by the legislature highlighting the need for change, ranging from administrative failures to more serious issues. The following reasons were provided in the Act itself:
- Reporting Issues – The BOE had demonstrated an inability to report accurate and reliable information to the public, the legislature and other parties. This led to a diminished trust in the information being provided and growing concern about the BOE’s effectiveness.
- Inappropriate Influence – There have been numerous complaints made about BOE members and their staff attempting to influence the audits, investigations and collection activities of the BOE’s civil service employees.
- Serious and Significant Errors – The BOE has acknowledged serious errors were made in the allocation of sales and use tax revenue among various state, county and city agencies, resulting in the inability to properly plan for the provision of public services.
Due to these issues and concerns, the Board’s responsibilities have been refocused on duties such as state property tax assessments as outlined in the California Constitution. Other responsibilities have been assigned to other agencies.
Office of Tax Appeals
The Act created the OTA to administer tax appeals, including petitions for reassessments, administrative protests, claims for refunds, appeals from Franchise Tax Board actions and other items such as relief of taxes, fees, interests and penalties. The OTA will be managed by an appointee of the governor, chief deputy and chief counsel. The OTA is scheduled to start hearing appeals after January 1, 2018 in accordance with the state’s administrative procedures act. As a result, the OTA will be required to publish opinions rendered within 100 days of the date the decision becomes final. In addition, taxpayers will be allowed broader representation in hearings, including attorneys, appraisers, accountants, employees and others deemed expert or relevant to the hearing.
California Department of Tax and Fee Administration
The Act also created the Department of Tax and Fee Administration to administer sales and use taxes, excise taxes, tobacco taxes and literally dozens of other state taxes and fees. The TFE will assume all powers, duties and responsibilities of the BOE in the administration, management and collection of these taxes. The new department will be managed by an appointee of the governor, chief deputy and chief counsel. The TFE is scheduled to become operative on July 1, 2017 and will immediately begin managing its new responsibilities.
The planned implementation of these changes are scheduled to occur at an ambitious pace, especially the July 1 effective date of the TFE. As California tax roles begin to shift, taxpayers should expect to experience some challenges in reporting and communication with the newly created agencies. If you have questions about the changes or need assistance with representation or other state tax matters, JLK Rosenberger can help. For additional information please call us at 818-334-8623, or click here to contact us. We look forward to speaking with you soon.