Most California state tax disputes begin with one of three central agencies: the Franchise Tax Board (FTB) for personal and corporate income and franchise taxes, the California Department of Tax and Fee Administration (CDTFA) for sales and use tax and dozens of special taxes and fees, and the Employment Development Department (EDD) for payroll and unemployment insurance contributions.
California has moved mainly to a “separate but coordinated” model of state tax litigation. FTB and CDTFA each run their own internal audit and administrative appeal systems. Above them sits the independent Office of Tax Appeals (OTA), created to hear income and business tax appeals that previously went to the elected State Board of Equalization. If a taxpayer still disagrees after exhausting these administrative remedies, they generally must pay the disputed tax, file a formal claim for refund with the agency, and then, if that claim is denied or deemed denied, file a refund lawsuit in a California superior court within a short statutory deadline.
The result is a multi-stage system where strategic choices at each point – during audit, in a protest or petition, at OTA, and in any refund litigation – can dramatically affect your bottom line. Interest continues to accrue, penalties can stack up, and positions taken in civil audits can, in the worst cases, be used in criminal tax investigations by the same agencies. That is why we at the Tax Law Offices of David W. Klasing consistently treat California state tax controversies as “high risk” matters that demand careful coordination across every phase.
From Audit to Assessment: How California State Tax Disputes Start
For income and franchise taxes, most FTB disputes begin with an audit that ends in a Notice of Proposed Assessment (NPA) if the auditor believes additional tax, penalties, or interest are due. The NPA is not yet a bill. It is a proposed assessment that you have the right to protest, typically within 60 days of the notice date or by the “Protest By” date printed on the front of the notice. If you do nothing, the NPA becomes final, and FTB will issue a Notice of Tax Return Change and a Statement of Tax Due. If you file a timely written protest explaining why the assessment is wrong and, if desired, requesting an oral hearing, the case moves into FTB’s Protest Unit, where a hearing officer who is supposed to be independent of the original auditor will review the file and any additional evidence.
For sales and use taxes and most other business taxes administered by CDTFA, the equivalent document is a Notice of Determination or similar billing notice issued at the end of a sales tax or special tax audit. Taxpayers usually have 30 days from the date of that notice to file a timely petition for redetermination, which triggers an administrative appeal inside CDTFA’s Business Tax and Fee Division and, if not resolved there, escalates to CDTFA’s Appeals Bureau. EDD uses a similar model, issuing assessments for underpaid payroll taxes that can be petitioned to the California Unemployment Insurance Appeals Board before they become final.
Across all these agencies, the pattern is the same: an audit or billing stage, followed by a very short window to file a protest, petition, or appeal. Missing those deadlines can permanently lock in an assessment and cut off administrative and judicial remedies.
Administrative Appeals and the Independent Office of Tax Appeals (OTA)
Once an FTB protest is fully considered, the agency will issue a Notice of Action that either affirms, reduces, or withdraws the proposed assessment. If you still disagree, you generally have 30 days from the date of the Notice of Action to file a formal appeal with the independent Office of Tax Appeals. FTB guidance and OTA’s rules emphasize that these timelines are strict. If you let the 30 days expire, the assessment becomes final, and your only remaining path is usually to pay the tax and pursue a refund claim and refund suit.
CDTFA appeals usually reach OTA in a slightly different way. First, you file a petition for redetermination or a claim for refund with CDTFA. If that petition or claim is not fully resolved in your favor, CDTFA’s Appeals Bureau issues a written decision. You then have 30 days from the date of that Appeals Bureau decision to request a hearing before OTA. OTA sits as a three-judge panel that is independent of both the FTB and the CDTFA and issues written opinions in both precedential and nonprecedential cases.
In both FTB and CDTFA cases, the OTA process looks and feels much more like a court than an internal agency appeal. A formal Request starts for an appeal filed through the OTA Portal, by mail, or fax. The parties file written briefs, can conduct limited discovery, may subpoena documents and witnesses, and present testimony and argument at oral hearings that are usually recorded and, in some cases, broadcast online. The California Attorney General has also confirmed that OTA has the authority to determine whether an agency regulation is inconsistent with the governing statute, a powerful tool in complex cases.
Importantly, both FTB and CDTFA operate settlement programs alongside their formal appeals processes. FTB’s settlement authority is codified in the Revenue and Taxation Code section 19442, and CDTFA has its own refund and settlement mechanisms for sales and use and special taxes. Taxpayers who strategically combine protest rights, agency settlement programs, and OTA appeals often resolve their disputes without ever filing a lawsuit in superior court.
When and How California State Tax Cases Reach the Courts
Even after a loss at the OTA, state tax litigation may not end. For income and franchise taxes administered by FTB, a taxpayer who still disagrees with an assessment typically must first pay the tax, file a formal claim for refund with FTB, and wait for a Notice of Action on that claim. If FTB denies the claim or fails to act on it within the statutory period, the taxpayer may file a refund suit in a California superior court under Revenue and Taxation Code section 19382, generally within 90 days of the denial. Both the taxpayer and FTB then have the right to appeal a superior court decision to the California Court of Appeal, with the possibility of further review by the California Supreme Court.
For sales and use tax and other CDTFA-administered taxes, the judicial path is slightly different but follows the same basic pattern. Before any lawsuit can be filed, you must have fully paid the disputed tax and filed a timely claim for refund with CDTFA. If the claim is denied or deemed denied after six months of inaction, you may file a refund lawsuit, usually in superior court, within 90 days of the notice of denial. This “pay then sue” structure is mandated by statute and strictly enforced, so missing the refund claim or lawsuit filing deadlines can permanently bar judicial review even if you have strong arguments on the merits.
At each judicial level, California state tax cases blend substantive tax law, statutory interpretation, and, increasingly, constitutional questions involving voter-approved tax limits and local finance rules. This is especially true in high-profile refund suits challenging local taxes under Propositions 13 and 218. The practical takeaway for taxpayers is that state tax litigation is not something to “learn by doing” after an assessment has already become final. The groundwork for a successful court case is laid much earlier, in how you handle your audit, your protest or petition, and your OTA appeal.
Contact the Tax Law Offices of David W. Klasing if You Are Facing California State Tax Litigation
If you are under audit or have already received an assessment from the Franchise Tax Board, the California Department of Tax and Fee Administration, the Employment Development Department, or a county assessor, you are already inside California’s state tax controversy system, whether you realize it or not. Tight deadlines, complex jurisdictional rules, and the possibility of parallel federal and state enforcement make this a classic high-risk environment where experienced guidance can make the difference between a manageable outcome and a catastrophic one. At the Tax Law Offices of David W. Klasing, our nationally recognized dual licensed Tax Attorneys and CPAs focus on federal and California state tax controversies, including protests, administrative appeals, OTA litigation, and refund suits in superior court.
We routinely represent clients before FTB, CDTFA, EDD, local assessment appeals boards, and the Office of Tax Appeals, and we understand how to position a case from the audit stage onward to preserve your rights and maximize your leverage. Our services include responding to audit notices, drafting protests and petitions, managing settlement negotiations, briefing and arguing cases before OTA, and, where necessary, filing and litigating refund actions in the California courts while coordinating any related IRS or criminal tax exposure. Because the firm’s CPAs are employees of the Tax Law Offices of David W. Klasing and work as part of the legal team under the direction of our attorneys, their analytical work, consultations, and draft calculations are generally protected under the attorney-client privilege and work product doctrine, which is especially critical in high-risk civil and criminal state tax litigation.
We offer confidential, reduced-rate initial consultations in which we review your notices, explain exactly where you are in the California state tax controversy pipeline, and outline realistic options for moving forward. With a main office in Irvine and appointment-only satellite offices throughout California and across the country, we make it as convenient as possible to get the focused help you need before deadlines expire. To schedule a consultation, call the Tax Law Offices of David W. Klasing at (800) 681-1295 or contact us online HERE today.
