INFORMATION DEPARTMENT JUNE 2017 SPECIAL EDITION

Important California Tax Law Update

The California legislature has radically reshaped California tax law with its recent passage of the “Taxpayer Transparency and Fairness Act of 2017.”  The legislation impacts both pending and future tax appeals to the California State Board of Equalization (SBE or BOE).  It will introduce fundamental changes to California’s tax system, which Governor Brown is expected to sign into law.

Commencing July 1, 2017, the legislation will create two new California tax agencies, the Office of Tax Appeals, and the California Department of Tax and Fee Administration.  Although the SBE will still exist, the two new agencies will handle most of the historic functions of the SBE.  The Department of Tax and Fee Administration will administer sales and use taxes, business and excise taxes, and various fees. 

The biggest change is for tax appeals.  Historically, all tax cases—including income tax, sales and use tax, and property tax—could be appealed to the five-member (elected) SBE.  The SBE had the power to interpret California’s tax laws.  The SBE could even make equitable decisions about fairness, even if that conflicted with the letter of the tax law. 

Under the legislation, state tax appeals will go to the new Office of Tax Appeals, which will have administrative law judges appointed to handle tax appeals in three-judge panels.  It will be headquartered in Sacramento, with hearing offices in Sacramento, Fresno, and Los Angeles.  The SBE will wind down its tax appeals hearing process through the end of 2017. 

The Office of Tax Appeals will start hearing appeals on January 1, 2018.  It will be some time before we know how the new system will work in general, and as applied to individual cases. We have some concerns that the Franchise Tax Board (which has long bristled about the SBE) may become even more aggressive under this new system. 

If you want to read the text of this new law, it is Assembly Bill 102.  The new law could be challenged, as some state lawmakers believe it violates the California Constitution, and state laws on changes to state agencies.  

If you have questions about your individual circumstances, please contact us.  Thank you for your patience as we navigate these changes.

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