California Governor signs Legislation creating new Office of Tax Appeals and New Department of Tax and Fee Administration

Multistate Tax alert | June 27, 2017

This Tax Alert provides some background on the BOE’s historical function and summarizes the more notable changes made under AB 102.


On June 27, 2017, the California Governor signed Assembly Bill (AB) 102, known as “The Taxpayer Transparency and Fairness Act of 2017.”1 Generally, AB 102 reduces the functions of the Board of Equalization (BOE) to the core responsibilities granted to it under the California Constitution and creates two new tax agencies–the Office of Tax Appeals (OTA) and the California Department of Tax and Fee Administration (CDTFA)–which would take over many of the responsibilities previously handled by the BOE. The CDTFA will administer certain taxes and fees that were once administered by the BOE, including the sales and use tax and business and excise taxes.2 The OTA will take over the appeals function from the BOE members and hear appeals of taxes and fees administered by the CDTFA and appeals of Franchise Tax Board (FTB) determinations relating to the income and franchise tax. California will now have five state tax agencies–the FTB, BOE, CDTFA, OTA, and the Employment Development Department.

This tax alert provides some background on the BOE’s historical function and summarizes the more notable changes made under AB 102.

Background on the historical function of the BOE

The California Constitution provides for the establishment of the five member Board of Equalization, consisting of the Controller and four members who individually represent four distinct geographic districts in California and are elected by California voters for four-year terms.3 Under the California Constitution, the BOE was granted various duties, powers, and responsibilities which included: (1) review, equalization and adjustment of property tax assessments, (2) measurement of county assessment levels or adjustment of secured assessment rolls, (3) assessment of pipelines, flumes, canals, ditches, and aqueducts lying within two or more counties, (4) assessment of property owned or used by regulated railway, telegraph, and telephone companies, car companies operating on railways in the state, and companies transmitting or selling gas or electricity, (5) assessment of taxes on insurers, and (6) assessment and collection of excise taxes on manufacture, importation, or sales of alcoholic beverages.4

Over the years, California statutes had expanded the BOE’s duties, powers, and responsibilities to include the administration of various taxes and fees, including sales and use taxes and business and excise taxes, as well as administrative appeals relating to the assessment and collection of those taxes and fees and the California personal income tax and corporation franchise and income tax.5 The BOE also administers the motor vehicle fuel tax and is required until July 1, 2019 to annually modify the motor vehicle fuel tax rate in accordance with California law.6


Summary of the more notable changes made under AB 102

AB 102 creates the OTA and the CDTFA, both of which will be headquartered in Sacramento, California.7 For each of those agencies, the Governor will appoint a Director (subject to senate confirmation) as well as a Chief Deputy Director and a Chief Counsel, all of whom will manage and supervise their respective agencies.8 The CDFTA and the OTA may also adopt regulations as necessary or appropriate to carry out its duties, powers, and responsibilities and maintain emergency regulations until January 1, 2019.9
Office of Tax Appeals. Within the OTA, there will be tax appeals panels that each consist of three administrative law judges (ALJs) designated by the OTA’s Director.10 Each ALJ must be an active member of the State Bar of California for at least the preceding five years, possess the knowledge and experience with regard to the administration and operation of the tax and fee laws of the United States and California, and subscribe to the Code of Judicial Ethics adopted by the California Supreme Court.11 Beginning January 1, 2018, the BOE is prohibited from conducting any appeals and that function is transferred solely to the OTA.12 As of that date, the OTA will have the duties, powers, and responsibilities of the BOE necessary or appropriate to conduct appeals hearings,13 and the tax appeals panels will conduct all appeals, including hearings related to the following:



Although the two PLRs issued by the Texas Comptroller reached different sourcing results (i.e., sourced based on the location of the customer versus sourced based on the location of the software), both PLRs are in force. Taxpayers providing services should closely analyze the specific actions they have been contracted to perform and consult with their tax advisors to evaluate their sourcing conclusions in light of the recent guidance provided by the Comptroller.

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If you have questions regarding the proper sourcing for online receipts in Texas or other Texas tax matters, please contact any of the following Deloitte Tax professionals:

Russell Brown, partner, Deloitte Tax LLP, Dallas, +1 214 840 7533

Andrew Robinson, partner, Deloitte Tax LLP, Houston, +1 713 982 2960

Pamela Downs, partner, Deloitte Tax LLP, Dallas, +1 214 840 7572

Robert Topp, managing director, Deloitte Tax LLP, Houston, +1 713 982 3185

Brad Brookner, managing director, Deloitte Tax LLP, Houston, +1 713 982 4897

Lauren Rothman, senior manager, Deloitte Tax LLP, Houston, +1 713 982 2462

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The Multistate Tax alert archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate developments relevant to taxpayers, tax professionals, and other interested persons.

View the list of archived Multistate Tax alerts.

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1 For example, effective January 1, 2014, Texas statute provides for customer or market-based sourcing for internet hosting receipts. See Tex. Tax Code § 171.106(g).

2 Tex. Tax Code § 171.103(2); see also 34 Tex. Admin. Code § 3.591(e)(23). If a service is performed both inside and outside Texas, some proration of the receipts associated to Texas is necessary relying on the facts and circumstances.

3 See Private Letter Ruling No. 163050613, Accession No. 201703005L (March 15, 2017), available here: https://star.cpa.texas.gov/view/201703005l?terms=163050613; see also Private Letter Ruling No. 142830363, Accession No. 201604750L (April 12, 2016), available here: https://star.cpa.texas.gov/view/201604750L.

4 Private Letter Ruling No. 163050613, Accession No. 201703005L (March 15, 2017).

5 In Hearing No. 104,224 (2013), the Comptroller determined that revenues generated from the sale of cable satellite television programming to Texas-based customers should be sourced to Texas because the signal descrambling activity that completed the transaction and produced the cable satellite television programming receipt—the activity for which the customers contracted—occurred in the receiver at the customer’s location. Hearing No. 104,224, Accession No. 201305715H (May 17, 2013), available here: https://star.cpa.texas.gov/view/201305715h?terms=104,224. However, it should be noted that this matter is the subject of ongoing litigation before the Texas District Courts.

6 Private Letter Ruling No. 142830363, Accession No. 201604750L (April 12, 2016).

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