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By Altus Group | August 29, 2017

California’s legislature recently enacted, and the Governor signed, legislation that significantly changes the state tax appeals process, by removing much of the current functions of the State Board of Equalization (BOE) and creating two new agencies.


The BOE is unusual among the states in that it is perhaps the only state tax commission that is elected by the state citizens.  It consists of five voting members: the state Controller and four elected members that come from equalization districts.  The BOE currently administers the collection of many of California’s taxes as well as hears taxpayer appeals regarding the taxes administered by both the BOE and the Franchise Tax Board.

Pressure for legislative changes came in part from a March 30, 2017 audit of the BOE by the State Department of Finance.  The report outlined several issues regarding the BOE’s operations, and these issues received public criticism including by California’s Governor.  For example, the audit report’s executive summary stated:  “In performing this evaluation, we noted BOE’s operational culture impacts its ability to report accurate and reliable information to decision makers including, the Legislature, Finance, and the Board. Specifically, certain board member practices have intervened in administrative activities and created inconsistencies in operations, breakdowns in centralized processes, and in certain instances result in activities contrary to state law and budgetary and legislative directives.”

The Changes

Under California Assembly Bill AB 102, the Taxpayer Transparency and Fairness Act of 2017, the following changes are being made:

  • The BOE will retain only its constitutionally mandated duties, including administration and appeals of state property tax, insurance tax, utility tax, and alcoholic beverage tax.
  • Creation of a new agency on July 1, 2017, the Department of Tax and Fee Administration (DTFA), which will administer the other taxes and fees previously administered by the BOE, but will not handle taxpayer appeals.
  • Creation of a new agency, the Office of Tax Appeals (OTA) effective July 1, 2017. The OTA will conduct all appeals for the taxes that will not be administered by the BOE, starting January 1, 2018, i.e. sales/use tax, corporate income tax, personal income tax, etc.  The OTA will be comprised of several appeals panels, each consisting of three administrative law judges appointed by the OTA’s director.  The bill specifies that each administrative judge must have “knowledge and experience with regard to the administration and operation of the tax and fee laws of the United States and of the State.”

Note that on July 1, 2017 the DTFA issued its Special Notice explaining the above changes and specifying that “Requirements to register, file, and pay taxes and to meet other obligations will be the same as required prior to July 1, 2017. Schedules, forms, and payments will generally be the same during the transition.”

The full text of AB 102 can be viewed at:


Most taxpayers and practitioners are happy with the direction that these changes take the tax appeals process in California.  Important to the appeal process is that the entity adjudicating the appeal is independent of the entity that conducts the initial administration of the tax.  By separating the appeals process into the OTA, rather than the former BOE structure that both administered the taxes and heard the appeals, this independence now exists in California.

A “to-do list” item that still exists:  California is still one of states that has a “pay-to-play” rule, i.e. in order to appeal to the state’s appellate courts, after an OTA determination, the taxpayer must pay the contested tax and seek refund through the litigation.  Hopefully this too will change in California sometime soon.

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