California has recently been ordered to undergo a significant reorganization of its tax system. On June 27th, Governor Jerry Brown signed Assembly Bill 102 into law, effectively resulting in the reorganization of the State Board of Equalization and the creation of two new California taxing agencies—the Department of Tax and Fee Administration and the Office of Tax Appeals. The new legislation, dubbed “The Taxpayer Transparency and Fairness Act of 2017,” removes immense amounts of power from elected tax officials and vests that power in political appointees and civil servants who answer to the governor.
The new law is expected to bring sudden and sweeping changes to California’s tax system and to have an immediate impact on many, if not all California taxpayers. California residents may have difficulty understanding the effects of the reorganization and may require help from an experienced tax attorney to maintain tax compliance. The tax professionals of the Tax Law Offices of David W. Klasing can deliver strategic guidance and aggressive advocacy on a broad range of California, Federal and International Tax Matters.
What Changes Were Made Under the Taxpayer Transparency and Fairness Act?
As discussed above, two new tax entities were born as a result of Assembly Bill 102. Each entity has or will assume some responsibilities previously held by the State Board of Equalization.
What Will the California Department of Tax and Fee Administration be Responsible For?
As of July 1st, The California Department of Tax and Fee Administration (“CDTFA”) is now responsible for the administration of sales and use business and excise taxes. Additionally, the CDFTA will oversee administration of particular state fees. For the past nearly 140 years, the State Board of Equalization (“BOE”) held these responsibilities, but AB 102 strips the BOE’s power down to only the functions specifically enumerated in the California Constitution. The BOE will remain responsible for assessing property taxes on public utilities; reviewing and adjusting local property tax assessments; assessing taxes on insurance companies; the administration of tax of taxes on alcohol; and setting motor vehicle fuel tax rates. However, the CDFTA will now handle intermediate review of business tax cases (appeals conferences) and the settlement of business tax cases in place of the BOE.
What Will the Office of Tax Appeals be Responsible For?
Beginning January 1st, 2018, the new Office of Tax Appeals (“OTA”) will hear appeals coming from the CDTFA related to sales and use tax disputes and Franchise Tax Board Appeals relating to income tax disputes. The OTA’s appellate panel will be comprised of three administrative law judges who are required to follow both the Administrative Procedures Act and the ABA Model Tax Tribunal Act to the extent possible. OTA appellate panels will be required to issue written opinions within 100 days of the finalizing of any tax appeal decision, a departure from previous BOE standards. OTA panels will maintain many qualities of the BOE, however. Hearing offices will remain in Los Angeles, Sacramento and Fresno; and appellants may still be represented by both lawyers and non-lawyers, including accountants, bookkeepers and employees.
What Questions Still Remain About the New Tax System in California?
Though a fair amount of information has been provided about California’s tax restructuring, there are many unanswered questions that remain. The OTA in particular faces numerous challenges and questions due to some ambiguity within the new tax system. These include:
- How will taxpayers with pending BOE appeals that will not have time to be heard by the end of the 2017 year be affected?
- How will the OTA regard previous decisions of the BOE?
- Will the new system make the appeals process more costly?
- Will taxpayers have to start the review and briefing of their case from scratch before the OTA?
- Will the OTA conduct intermediate level hearings formerly conducted by the BOE?
- Are lawyers with five years of experience competent to hear complex tax appeals?
- Will there be a specific timeframe, as currently applies to state court judges, for the issuance of a decision upon submission?
- Will the system be fair to taxpayers or just a rubber stamp for the taxing agencies?
The answers to these and many other questions remain to be seen. California tax officials have received widespread criticism about the previous state of the tax system and it is yet to be determined whether the restructuring will create a more clear and efficient process for taxpayers.
How Does the Taxpayer Transparency and Fairness Act Affect California Taxpayers?
Whether they realize it yet or not, all California taxpayers will likely be affected by the Act. The extent of the effects will vary, depending upon the taxpayer’s current place in the process. No answer will fit every situation, so it is essential to seek guidance from a tax attorney if you need to reevaluate your strategy and approach in light of the new procedures. It’s important to assess how far you are in the process and whether the new evidentiary rules will have an impact on your case, especially if you are at audit or protest. If your hearing is pending before the BOE, your attorney would be prudent to consider whether you can or should push the case to be heard by the elected members before the end of 2017.
New tax legislature can often make tax compliance a challenge for taxpayers. If you have failed to comply with your tax liabilities, you could potentially be facing an audit, criminal investigation, severe fines and even jail time. Tax evasion, whether intentional or negligent, is a serious crime with serious penalties, and unfortunately, ignorance of the law does not relieve taxpayers from liability. If you feel that you are at risk for falling below compliance, it is in your best interest to contact an experienced tax attorney to discuss your options for getting back in good standing.
Contact an Experienced California Tax Attorney Today
The restructuring of California’s tax system presents a number of questions and concerns for taxpayers. With some of the legislation not yet in effect, it can be difficult to predict the ultimate effect AB 102 will have and the difficulties it will create for tax compliance. Fortunately for California residents in Los Angeles and Orange County, the CPAs, EAs and tax attorneys of the Tax Law Offices of David W. Klasing can provide taxpayers with strategic, on-point guidance regarding the new administrative tax entities. Whether you have concerns about the restructuring or are facing an audit or criminal investigation, our tax professionals can help. Call us at (800) 681-1295 today or contact us online for a reduced-rate consultation.
