The California Board of Equalization (BOE), a state government agency that collects taxes (over $60 billion a year) and hears taxpayer appeals, has long been a controversial body. Though it has been debated for years whether or not it was the best agency to collect taxes, recent developments have spurred legislators to drastically change it and replace it with two new agencies. Namely, the BOE has been reported to have misallocated over $47 million of tax revenue that was earmarked for local governments, among other offenses.

What does this mean for business taxpayers and the accountants that represent them? Read on.

What Benefits Can We Expect From the New Structure?

The Governor’s office has promised that the new structure will be more transparent, efficient, and accountable. It does not promise to be cheaper than what was happening before. It is too early to tell from the taxpayer’s perspective how much faster or slower appeals will be processed, or what change, if any, the new panel of judges (replacing the current panel) will have on appeals that will become approved. Historically, the new structure will look more like how other states deal with the collection and appeal of taxes, so hopefully it will be a smooth transition.

The California Legislature Will Replace the BOE with Two New Agencies

Structurally, California is dividing most of what was the BOE into two separate agencies, The Office of Tax Appeals and the California Tax and Fee Administration. The Office of Tax Appeals will hear disputes from taxpayers regarding income tax, sales tax, or any other special tax or fee. The California Tax and Fee Administration will continue to collect taxes previously collected by the BOE. Also, the two new agencies will no longer be an elected Board (some feared this was politicizing the agency.) Both agencies will now report directly to the governor, a structure similar to how almost every other state collects taxes. California has set up the new agencies within two weeks of the decision on June 16, ostensibly up and running since July 1.

The existing BOE will not be completely gone—it will still retain the duties constitutionally assigned to it, including handling tax assessments (pipelines, insurance, alcoholic beverages), reviewing and adjusting property tax assessments, and setting the rate for gas taxes.

Existing Tax Appeals Will Still Be Processed

Though the appeals function of the BOE as we have known it will technically be dismantled, they will still hear existing appeals until January 1st, 2018. At that point a transition will happen where a panel of three administrative law judges from the new Office of Tax Appeals will continue to hear appeals. Should you want to contest the decision of the panel, you will have to file a lawsuit (civil) against the state. This is similar to the procedures of other states.

Do You Have More Questions About the New Tax Agencies?

If you are already in the process of a tax appeal, or you have more questions about how this might affect your business, we can give you more details and answer any questions you might have. PDM’s tax experts can help advise you on the best course of action. Contact us; with our years of technical experience, advanced training, and cutting edge technology, we are your financial partner.