This is Huge . . . California Dismantling the State Board of Equalization . . . and there is very little news about it

The California Board of Equalization administers taxes that account for about a third of the state’s revenues: sales taxes, use taxes, excise taxes, even cannabis taxes.  It also serves as the state’s tax court: if you contest any audit performed by a state taxing agency (Franchise Tax Board or Board of Equalization), you would file a petition with the Board of Equalization.  Five members sit on the Board: the state controller, and four elected members who serve geographical districts.

Many of our clients owe taxes to this agency. The split will definitely affect attorneys who practice bankruptcy law

On Thursday, June 15, the California Assembly voted to dismantle the Board of Equalization and create two new agencies.  One will administer taxes, and the other will handle the tax appeals that the Board currently handles.  The change will take effect on July 1, 2017 – in two weeks.

It’s not quite true that no one is talking about it.  I learned about it in an obscure email from a law newsletter, and the Sacramento Bee has some informed reporting here, here, and here.  None of the state’s other large papers (Los Angeles Times, San Jose Mercury News, or San Francisco Chronicle) has yet run a story explaining this change.

I currently have at least one appeal in front of the Board of Equalization.  I do not know how the case will proceed.  Nothing on the Board’s website gives any notice of the change, nor how it will be administered.

The news reports I have read talk about an agency beset by scandal: elected officials interfering with the bureaucrats’ functions, corrupt political donations, cost overruns for office space.  The Legislative Analysts’ Office has recommended dissolving the Board since 1929 – almost 90 years.

The Board is the only elected tax board in the United States that hears disputes from taxpayers.  It makes for an odd hearing process: I will argue my case in front of the five members just as if I were arguing in front of a court.  However, I have also already called the member who represents the district in which my taxpayer lives, and lobbied him to find in my favor; the member employs staff that invites these comments.  I would suggest that my taxpayer make a campaign contribution, but the taxpayer is destitute and I don’t want to press my luck.

At some point in the future, the Office of Tax Appeals will hear appeals from the audit findings given by the Franchise Tax Board and whatever the Board of Equalization becomes.  These hearings will be held in front of three administrative law judges, and they can be appealed to the Superior Court in the taxpayer’s county. This sounds like a better system than we have today.

The shakeup is the right thing to do: far better to have a more judicial than electoral process for tax disputes. But it sounds far too rushed to be done well.

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