On June 15, 2017, the California General Assembly approved legislation to significantly minimize the powers of the California State Board of Equalization (SBE) and to transfer most of its non-Constitutional powers to a new state department of tax and fees. The legislation is part of the budget package (trailer bill, AB 102, the "Taxpayer Transparency and Fairness Act of 2017") and, if signed by California Governor Jerry Brown before July 1, 2017, it will become law and set into motion sweeping changes to the SBE. In particular, the bill would relieve the SBE of its duties relating to the administration of many state taxes and fees, including the responsibility to hear appeals of personal income and corporate franchise and income tax matters. The SBE would retain its property tax authority under the California Constitution.

Under the bill, many of the SBE's responsibilities would be assumed by the newly created California Department of Tax and Fee Administration. Most of the SBE's employees would be transferred to this new agency.

If enacted, the bill would also create the Office of Tax Appeals, which would assume responsibility for the SBE's administrative tax appeals function. The Director, Deputy Director and the Chief Counsel of this new agency would be appointed by the Governor, with the Director subject to Senate confirmation. The Office of Tax Appeals would establish offices in Northern, Central, and Southern California. Each tax appeals panel would be assigned three administrative law judges. The administrative law judges would have to be attorneys actively practicing law for the last five years and have some experience in both state and federal tax law. An authorized person, which would include an attorney, appraiser, accountant, or bookkeeper, among others, would be permitted to serve as a representative before the Office of Tax Appeals tax appeal panels. The Office of Tax Appeals also would be required to publish a written opinion for each appeal decided by the tax appeals panel.

Implications

Although the Office of Tax Appeals would be created on July 1, 2017, the SBE would continue to hear tax appeals until January 1, 2018, to allow the Office of Tax Appeals time to employ staff and judges.

The bill also would add Gov. Cd. Section 15677, which provides that "[t]he person filing the appeal may appeal the decision of the tax appeals panel to the superior court in accordance with the law imposing the tax or fee … " Since FTB does not appeal matters to the Office of Tax Appeals,it appears, based on the aforementioned language, that the FTB would still, in effect, be precluded from appealing adverse decisions to the California superior courts. Taxpayers would retain the right to challenge an Office of Tax Appeals decision in court. If a taxpayer moves the tax matter into the court system, a new record would be created and the matter would be reviewed de novo, similar to the current process for SBE appeals.

It is not known at this time if appeals that have been filed with the current SBE and are fully briefed but not heard by the SBE before the end of the year will simply convert over to the new tax appeals system or if new briefing will be required.

Even with the additional six months to staff and implement procedures for the new agencies, taxpayers can expect to experience delays in service. We will continue to monitor developments as the budget package makes its way to Governor Brown's desk.

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