California Legislature Blows Up State Board of Equalization
Almost two weeks ago, the California Legislature voted to blow-up the State Board of Equalization, the only elected tax agency in the country. Done under the cover of darkness with a bill in print for only 72 hours, the Board was reconfigured so that its elected members will continue to administer and hear only property tax matters and other tax programs that are defined in the Constitution. All of its statutorily mandated programs (Sales & Use Tax Law, Motor Vehicle Fuel Tax Law, Hazardous Waste Taxes, etc.) will be under the jurisdiction of a new agency, the Department of Tax and Fee Administration (aka department of revenue) with a director appointed by the Governor. Appeals from determinations made by the new Department will go to a new tax appeal bureaucracy known as the Office of Tax Appeals (OTA) with administrative law judges (i.e. tax attorneys as opposed to independently elected Board members) hearing those appeals. The new Department goes into business on July 1, 2017 (yes, you heard correctly, July 1st) with the current Board of Equalization Members hearing appeals through December 31, 2017, at which time the new OTA will take over. Needless to say, this new and radical departure from 134 years of faithful and responsive tax administration is a shocking and very disturbing development that has left taxpayers in the lurch questioning the why? And very importantly, what happens next?
As for the why, ostensibly, this profound change in tax administration is the result of an audit by the governor’s Department of Finance that allegedly showed some shortcomings in administration at the Board. It also comes in response to allegations of some inappropriate dealings. But why not deal with those limited issues directly rather than destroy a taxpayer elected Board which was often the only place taxpayers could turn for a fair hearing without having to resort to expensive litigation? Was it really right to throw the baby out with the bath water especially when the shortcomings appear to be narrow, or was there some other political intrigue behind the scenes? At this juncture it is difficult to know as the investigation is ongoing. However, what is of greatest concern for those of us who toil and work the California tax system is, what happens next?
Many questions arise as a result of this precipitous action. For example, “I have a case in audit, what will happen? I have a matter that is currently on appeal to Legal Appeals Division, what is going to happen? I have a matter that is awaiting a hearing by the elected Board, what is going to happen? I am awaiting a potential change in regulation that will help me, what happens next? I am a small business owner and was audited previously and now my new auditor is telling me that what the prior auditor told me was incorrect. This isn’t fair and what does this change mean to me and my situation? Several years ago I had a problem in paying my taxes and the tax collector from the board was just unreasonable, in fact if he had gotten his way, I would be out of business. But I went to my elected Board member from my district and he was able to intervene and get me into a payment program that allowed me to work off my payment and stay in business. If this happens again (and I don’t expect it to), who do I talk to?”
The questions are an endless string of scenarios, but all boil down to: “What now?” As tax professionals we are going to face this question; and at this early juncture, no one really knows how to answer because the Governor and the Legislature has reset the gameboard. Taxpayers are rightfully skittish about losing their opportunity to be heard by an elected representative. This is not only bad tax policy for Californians, but bad for the state’s already poor business climate. What’s done is done, but now California must act to put in place a tax system that is fair to the taxpayer and provides a true means of administrative redress from aggressive taxation and not just a means of further revenue generation. If not, Sacramento will have destroyed a Board which existed, in part, to protect everyday Californians from overzealous tax authorities, leaving them vulnerable to the vicissitudes of the unelected tax infrastructure with no real redress…
Written by: Joseph Vinatieri, Esq. & Jason DeMille, Esq.
Bewley, Lassleben & Miller, LLP