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California Creates Two New Tax Agencies and Reduces Powers of State Board of Equalization

Synopsis

California Governor Brown recently signed legislation (1) creating two new tax agencies – the Department of Tax and Fee Administration (DTFA) and the Office of Tax Appeals (OTA) and (2) reducing the role of the State Board of Equalization (BOE). 

Beginning July 1, 2017, the new DTFA assumed the role of administering California sales and use taxes while the OTA has jurisdiction over all California tax cases including those administered by the California Franchise Tax Board. 

Roles and Responsibilities 

DTFA

  • The DTFA succeed all duties, powers, and responsibilities previously administered by the BOE except those being retained by the BOE, as listed below. Unless stated otherwise, any reference to the BOE in any statute, regulation, contract, or other code related to the functions transferred to the DTFA will be deemed to refer to the DTFA.
  • The DTFA will be led by a director appointed by the governor subject to confirmation by the California State Senate.   

OTA

  • OTA will establish tax appeal panels consisting of three administrative law judges. Judges will be selected by the director of the office. 
  • Subject to Senate confirmation, the governor will appoint the director for the Office of Tax Appeals and select a chief deputy director and chief counsel.
  • The office will use the Model State Administrative Tax Tribunal Act adopted by the American Bar Association as a model for procedural functionality.

State Board of Equalization

The BOE will retain the following roles:

  • Property tax oversight, equalization, and measurement and adjustment of county assessments, including appeals 
  • State-assessed property taxes, collections, and appeals 
  • Insurance tax assessments, collections, and appeals
  • Alcoholic beverage tax assessment, collections, and appeals
  • Motor vehicle fuel tax inflation adjustment for fiscal year 2018-19

The role of BOE Members has been limited to:

  • Selecting an executive director. Each member will have two offices – one in Sacramento and one in his or her district. Any additional civil service staff must be approved by the legislature. Board members may not influence the BOE’s procedures or DTFA legislative analyses, revenue estimates, or other activities
  • Taxpayer communication on an issue being appealed – “ex parte” communication – is prohibited

The BOE executive director will have full autonomy over personnel decisions.

Government Operations Agency

  • Expanded to oversee the two new agencies – DTFA and OTA. 

What Does CohnReznick Think?

California legislation AB 102 was written just 72 hours before its passage. It will be extremely difficult to establish new taxing agencies in such a short period of time. Therefore, a number of significant policy issues will need to be addressed through future legislation and regulatory clarifications.

Contact

For more information, please contact Krista Schipp, Director, State and Local Tax Services, at krista.schipp@cohnreznick.com or 818-205-2616 or Eddie Delgado, Principal, State and Local Tax Services, at eddie.delgado@cohnreznick.com or 310-843-8246.

 

Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.