Brunoro Law Blog

Monday, August 7, 2017

New Tax Collection and Appeals Policies in Effect in California

In June, the California legislature passed the Taxpayer Transparency and Fairness Act of 2017 which dramatically altered the landscape for sales, use, personal and corporate-level taxes. The Act is designed to address longstanding problems with the State Board of Equalization (SBE), including the agency’s misuse and misallocation of revenues.


First, as of July 1, 2017, the newly created California Department of Tax and Fee Administration (TFA) assumed many of the SBE’s responsibilities for administering and collecting various taxes including sales and use, tobacco and cannabis taxes. Unlike the SBE, the TFA is overseen by directors appointed by the governor, rather than elected officials. Additionally, the TFA has the authority to create and implement regulations that may be necessary to perform its duties.


Further, the Act established the Office of Tax Appeals (OTA) which will begin conducting most tax appeals as of January 1, 2018. In particular, the OTA will be tasked with hearing petitions for redetermination, reassessment, reconsideration or rehearing in addition to taxpayer appeals from the California Franchise Board (FTB) for both personal and corporate franchise taxes. The OTA will also hear administrative protests, applications for hearing and claims for refund.


New tax appeals panels, comprised of three administrative law judges appointed by the TFA director, will hear all tax appeals. However, individuals filing an appeal with the OTA have the right also appeal its decisions to the superior court. The OTA is also authorized to adopt any regulations that are necessary to perform its duties. In short, changes to tax collection appeals process for personal and corporate franchise taxes will require new approaches to administrative remedies.


Finally, although the SBE will lose much of its authority and some of its funding, it will continue to have oversight and administration of property tax assessments and certain excise taxes such as insurance premiums taxes.


The Takeaway

While the legislation was passed with minimal public notice and taxpayer input, proponents believe it will lead to greater transparency and fairness in California’s tax system. On the other hand, others are critical of the replacement of elected officials with state and appointed directors and administrative law judges.


In any event, given the changes being ushered in by the Act, ambiguities in the new law, and inevitable regulatory clarifications and statutory amendments that will be implemented, you are well advised to engage the services of an experienced tax attorney to understand your rights and obligations under the new taxation and appeals scheme.

 


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