The Department of Tax and Fee Administration (CDTFA) is replacing the Board of Equalization (BOE) in the administration of California sales and use taxes – A big move in a short period of time for broad sweeping reasons.
Effectively the BOE has been replaced by the CDTFA with some important administrative changes.
After 138 years the Legislature has stripped the BOE of the bulk of their duties. Due to a number of growing issues and audits (Board of Equalization Evaluation March 2017) the California BOE effective July 1, 2017 will no longer be in charge of administering sales and use taxes. AB 102 was passed by the legislature on June 15, 2017 and signed into law by Governor Brown on 6/27/2017.
The Department of Finance’s Office of State Audits and Evaluations (OSAE) released an evaluation of the Board of Equalization (BOE) in March 2017 that found “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”. Like the State Controller’s Office found in an earlier audit, OSAE also identified significant errors in the BOE’s allocation of sales and use tax revenue totaling in the hundreds of millions of dollars. The BOE has so far provided 11 different versions of what it purports to be the correct allocations. Effective July 1, 2017, the Budget reorganizes tax administration in the state. The BOE will retain its constitutional duties, as the new California Department of Tax and Fee Administration (CDTFA) will perform the statutory duties formerly performed by the BOE, excluding the adjudication of tax appeals. The CDTFA will operate under the Government Operations Agency and its Director will be appointed by the Governor and confirmed by the Senate. The Budget reforms ensure civil servants will not be subjected to political influence as they perform their tax administration duties. The reforms also entrust tax appeals to impartial administrative law judges who are experts in tax law, and who will fairly and uniformly apply the law to all taxpayers. The BOE will continue to exist, but its authority will be limited to those duties specified in the State Constitution. These are the equalization of county property tax rates, assessing specified inter‑county and business property, assessing taxes on insurers, and assessing and collecting alcohol excise taxes. Board Members, Board Members’ staff, and the approximately 200 current BOE civil service employees who perform the aforementioned functions will remain part of the BOE. The Board Members will appoint an Executive Director to administer the BOE. The Budget creates the Office of Tax Appeals (OTA) effective July 1, 2017, and appropriates $5 million General Fund for start‑up costs. The OTA Director will be appointed by the Governor and confirmed by the Senate. Beginning January 1, 2018, the OTA will adjudicate the tax appeals formerly assigned to the BOE, except for those related to the constitutional duties performed by the realigned BOE. The OTA will adjudicate tax appeals using panels with three administrative law judges selected through the civil service process. Taxpayers unsatisfied with OTA rulings may appeal to the Superior Court. The state may not appeal OTA rulings.
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