California State Board of Equalization Gutted

By Jeffrey D. Davine

The Taxpayer Transparency and Fairness Act of 2017

Established by the California Constitution in 1879, the California State Board of Equalization (the “BOE”) has been the agency charged with administering most of the taxes imposed by California.  In addition, the BOE was the tribunal whose function was to decide taxpayer appeals of decisions by the California Franchise Tax Board (the “FTB”) concerning income tax matters.  All of this is about to change with the passage of AB 102.  AB 102, which is named the “Taxpayer Transparency and Fairness Act of 2017” (the “Act”), was signed into law by Governor Brown on June 27th.  The Act effectively cuts the legs out from underneath the BOE.


In March of this year, the California Department of Finance issued a derisive report asserting that the BOE misallocated tax revenues, used BOE employees to assist elected BOE members with political activities, and attempted to improperly affect BOE audits.  In response, and at the urging of the Governor, the Act was passed by the California Legislature.

The BOE – Then and Now

The BOE was a unique entity.  It was the only governmental agency in the country with elected members who decided tax cases.  As a result of the Act, these duties will now be assumed by two new government agencies- the California Department of Tax and Fee Administration (the “CDTFA”) and the Office of Tax Appeals (the “OTA”).  The BOE’s duties will be limited to the administration of only a few taxes.  These include property tax assessments, insurance company taxes, and taxes on alcoholic beverages.

Changes Effected by the Act

As of July 1st, the CDTFA began overseeing and administering sales and use taxes, business and excise taxes, and certain fees.  The OTA is scheduled to begin hearing tax appeals at the beginning of 2018.

The Governor will appoint a director, a chief deputy director, and a chief counsel, to manage OTA.  The OTA will be charged with hearing appeals from the FTB (with respect to personal and corporate income tax matters) and from the CDTFA.  The OTA will have tax appeals panels staffed by three members.  Each tax appeals panel member will be an administrative law judge who will be designated by the director of the OTA.  Panel members will be required to be active members of the California Bar for at least five years and have knowledge and experience with respect to the administration and operation of U.S. and California tax laws.  The OTA will be headquartered in Sacramento and will have hearing offices in Sacramento, Fresno, and Los Angeles.

Similar to the OTA, the Governor will appoint a director, a chief deputy director, and a chief counsel, to manage the CDTFA.  Its principal obligations will be to administer California sales and use taxes, fuel and tobacco excise taxes, and a certain other taxes and fees.  It will also be headquartered in Sacramento.

At present, it’s unclear if the stripping of the BOE of most of its core functions and the creation of the CDTFA and the OTA will ultimately be beneficial to residents of California.  What is clear, however, is that the Act will provide a radical departure from the tax administration and appeal processes that most Californians have been accustomed to for many years.

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