California creates new tax collection agency

In April, California Governor Jerry Brown asked the state Department of Justice to investigate the California State Board of Equalization (BOE) for gross mismanagement, misusing public resources, and other charges. Two months later, on Tuesday, June 27, he signed AB 102, transferring most BOE operations to the newly created California Department of Tax and Fee Administration (CDTFA) and a new Office of Tax Appeals (OTA). The new department is set to assume the BOE’s duties on July 1.

Starting Saturday, the CDTFA will assume “the various duties, powers, and responsibilities of the State Board of Equalization relating to the administration of various taxes and fees except for those duties, powers, and responsibilities imposed or conferred upon the board by the California Constitution, as specified, and the duty to adjust the motor vehicle fuel tax rate for the 2018–19 fiscal year.” As the collection and distribution of sales and use tax was one of the BOE’s primary jobs, those duties will now fall under the purview of the CDTFA.

Unlike the BOE, which is run by elected officials, the new agency will be headed by a governor-appointed director who must be confirmed by the Senate.

As of July 1, 2017:

• BOE employees transfer to the CDTFA
• BOE rights and property transfer to the CDTFA
• Unexpended BOE balances of appropriations and other funds transfer to the CDTFA
• Many BOE debts and liabilities transfer to the CDTFA

A separate Office of Tax Appeals, also led by governor appointees, will take over the tax appeal system currently administered by the BOE. Although it will be established on July 1, it has a bit more breathing room — it’s tasked with conducting appeals and issuing opinions starting January 1, 2018. Those seeking an appeal prior to December 31, 2017 should follow current BOE practices.

Once the OTA is up and running, three Administrative Law Judges will hear each appeal and issue written decisions for each appeal decided. The process for filing appeals as of January 1 will be announced in the future.

The BOE isn’t being entirely disbanded. It is, however, significantly shrinking — instead of about 4,800 employees, it will have closer to 400. On Saturday, it will revert to managing “its core constitutional responsibilities,” which include overseeing, reviewing, and equalizing property tax assessments, and assessing and collecting excise taxes on alcoholic beverages. It will also continue to assess “pipelines, flumes, canals, ditches, and aqueducts lying within two or more counties and properties.”

It will remain an independent agency headed by a five-member board. And it will continue to hear appeals on matters relating to taxes and fees through the end of the year, even those relating to sales and use tax as well as those taxes it will cease to administer July 1.

The California Department of Tax and Fee Administration may not have had much time to get up and running, but it is inheriting most of the BOE’s staff and should be well-positioned for a smooth transition. Already, the BOE website alerts taxpayers of the July 1 restructuring and links to the new CDTFA website, which for the moment sends users back to the BOE to make payments and access information.

Before users are rerouted, this message pops up: “You are now leaving the CDTFA website and are being directed to the Board of Equalization website to complete this activity. As of July 1, 2017, CDTFA will perform most tasks formerly performed by the BOE. All activities will continue to be accomplished on the BOE website until they’re fully migrated to the CDTFA website.”

Starting July 1 and until the CDTFA is fully functional, tax and feepayers “should continue to file and make payments to the Board according to their regular schedule using current processes and forms. There will be no changes to any processes at this time and future changes will be announced as they are determined. There should not be any disruption of services.”

Individuals and businesses that collect and remit California sales and use tax may be understandably concerned about what the future will bring. Avalara’s Professional Services Team stands ready to help you understand your options. Learn more.