AB 102: Reorganization of California’s tax regime

California's State Board of Equalization has been under fire for the past year and a half. Critics have accused the powerful, but obscure, elected tax board of mismanagement, nepotism and employee mistreatment. This past June, Gov. Jerry Brown and the Legislature stripped the board of most of its power. Assembly Bill 102, called The Taxpayer Transparency and Fairness Act of 2017, gutted the BOE and created two new California taxing agencies.

For the past 138 years, the BOE has had broad authority over California taxation. Although originally responsible only for property taxes, the BOE's power grew as California added new revenue streams. Today the BOE is known mostly for administering sales taxes and hearing administrative tax appeals.

AB 102 limits the BOE's power almost entirely to functions enumerated under the California Constitution, plus any related statutory powers. The BOE will still have certain property tax responsibilities, and will continue assessing insurance and alcoholic beverage taxes. The BOE will also continue to set motor vehicle fuel tax rates and sit on the Franchise Tax Board.

While these duties are important, there is no mistaking that most of the BOE's authority is gone. As of July 1, 2017, the BOE stopped administering California's sales tax and over 30 other tax and fee programs. As of Jan. 1, 2018, the BOE no longer hears administrative tax appeals.

The BOE's former functions are divided among two new agencies. The California Department of Tax and Fee Administration began administering the tax and fee programs on July 1, 2017. The director of this agency is a gubernatorial appointee -- a change from the five BOE members, who are independent constitutional officers.

The Office of Tax Appeals, whose director is also appointed by the governor, will hear administrative appeals concerning income and business taxes. The OTA will conduct hearings under the Administrative Procedure Act. Appeals will be heard by panels of three administrative law judges, who will issue opinions in every appeal.