BILL ANALYSIS �
AB 2323
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Date of Hearing: May 7, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2323 (Perea) - As Amended: May 1, 2012
Majority vote. Fiscal committee.
SUBJECT : State Board of Equalization: administration:
opinions
SUMMARY : Requires the State Board of Equalization (BOE) to
publish and make available on its website a written formal legal
opinion or a written memorandum opinion for each case in which
the amount in controversy is $500,000 or more. Specifically,
this bill :
1)Requires each published opinion to include all of the
following:
a) Factual background;
b) The legal issue or issues presented;
c) Applicable law;
d) Analysis;
e) Disposition; and,
f) Names of concurring BOE members.
2)Authorizes any BOE member to write a dissenting opinion should
he/she disagree with the majority opinion.
3)Provides that the BOE shall determine the precedential value
of each formal legal opinion and each memorandum opinion at
its discretion.
EXISTING LAW :
1)Establishes the BOE, which consists of five voting members:
the State Controller and four members elected for four-year
terms at gubernatorial elections. The State is divided into
four BOE districts, with the voters of each district electing
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one member. �California Constitution Article XIII, Section
17].
2)Requires the BOE to keep a record of all its proceedings.
�Government Code Section 15606].
3)Provides that, by appealing a Franchise Tax Board (FTB) action
to the BOE, a taxpayer waives his/her right to confidentiality
with regard to all information provided to the BOE by the
taxpayer or the FTB, including information contained in a
hearing summary. �BOE Rules for Tax Appeals (RTA) Rule
5573(a)].
4)Provides that, by filing a written request for an oral hearing
before the BOE, a BOE taxpayer waives his/her right to
confidentiality with regard to information provided to or
obtained by the BOE that is actually disclosed on the
transcript of the taxpayer's oral hearing before the BOE or
included in the hearing summary prepared for the taxpayer's
oral hearing before the BOE. �RTA Rule 5573(b)].
FISCAL EFFECT : The BOE's fiscal estimate for this bill is
pending.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
BOE members hear appeals arising from the various tax and
fee programs the BOE administers. In addition, the BOE
serves as the administrative appellate body for final
actions of the FTB. Given the BOE's quasi-judicial role in
hearing and deciding taxpayer disputes, taxpayers must have
full confidence in the process by which the BOE renders its
decisions. AB 2323 would promote taxpayer confidence by
requiring the BOE to publish written opinions for each case
in which the amount in controversy is $500,000 or more.
These opinions would provide a formal record, for both the
taxpayers involved and other interested parties, of the
legal analysis applied to resolve significant cases.
The BOE does publish certain decisions. Indeed, the BOE's
website provides access to formal opinions dating all the
way back to 1930. It would appear, however, that the
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number of published decisions has decreased dramatically in
recent years. For example, during the 1980s, the BOE
published a total of 1,615 formal opinions, for an average
of 161.5 decisions a year. During the period from 2000 to
2010, however, the BOE only published 32 formal opinions -
an average of 3.2 decisions each year.
Thus, AB 2323 is needed to restore a very useful BOE
practice that will, in turn, promote the twin goals of
transparency and sound governance.
2)Committee Staff Comments
a) The BOE : The California Constitution establishes the
BOE, which consists of five voting members: the Controller
and four members elected for four-year terms at
gubernatorial elections. �California Constitution Article
XIII, Section 17]. Among its many duties, the BOE
administers the Sales and Use Tax (SUT) Law, sets property
values for state-assessees, monitors the property tax
assessment practices of county assessors, and serves as the
administrative appellate body for final actions of the FTB.
b) The BOE's appellate functions : As noted above, the BOE
is statutorily charged with administering the SUT Law,
along with a host of other special tax and fee programs.
If a BOE audit finds that a taxpayer has underpaid
applicable taxes or fees, the taxpayer will receive a
billing referred to as a Notice of Determination or a
Notice of Jeopardy Determination. If the taxpayer
disagrees with the amounts shown, the taxpayer may appeal
by filing a petition for redetermination. This petition
prevents collection of the amount determined.
At this point, BOE staff will often ask the taxpayer to
provide evidence supporting the taxpayer's position. If
the taxpayer's dispute cannot be resolved through
discussions with BOE staff, the taxpayer's case may be
referred to the Appeals Division for conference by an
Appeals Division attorney or auditor with no prior
involvement with the case. The Appeals Division will
thereafter issue a Decision and Recommendation (D&R) in the
appeal based on all relevant arguments and evidence. The
D&R contains an analysis, conclusion, and recommendation
for the case's resolution. If the taxpayer disagrees with
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the D&R, the taxpayer may request a public hearing before
the members of the BOE. The BOE's "order or decision" on a
petition for redetermination becomes final 30 days after
service upon the petitioner of notice thereof. �See, e.g.,
Revenue and Taxation Code (R&TC) Section 6564].
It should be noted that the five BOE members also serve as
the administrative appellate body for final actions of the
FTB, issuing opinions and rendering decisions interpreting
and defining California's income tax laws. �R&TC Section
19045].
c) What types of "orders and decisions" does the BOE
issue? : At the conclusion of an oral hearing, the BOE may
vote to decide the matter, take the matter under submission
and decide it later, or continue the hearing to a later
date. Decisions are reflected in the BOE's Meeting
Minutes, often with a simple notation of the action taken
(e.g., 'Redetermine as recommended by the Appeals
Division'). In many cases, the BOE's Appeals Division will
also prepare a "Letter Decision," which contains a short
explanation of the reasons for the BOE's decision, and
provide one copy "to each party" to the case. �RTA Rule
5450]. Letter Decisions may not be cited as precedent in
any appeal or proceeding before the BOE.
The BOE does, however, have the discretion to adopt a
"Formal Opinion," "Memorandum Opinion," or a "Summary
Decision." �RTA Rule 5551(a)].
d) What are "Formal Opinions," "Memorandum Opinions," and
"Summary Decisions"? : A "Formal Opinion" is defined as a
written decision that contains the findings of fact and
conclusions of law that form the basis of the BOE's
decision on an appeal and which is intended to set
precedent. �RTA Rule 5452(a)]. In determining whether a
Formal Opinion should be issued, the BOE considers whether
the opinion would:
i) Establish a new rule of law, apply an existing rule
to a set of facts significantly different from those
stated in published opinions, or modify or repeal an
existing rule;
ii) Resolve or create an apparent conflict in the law;
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iii) Involve a legal issue of continuing public interest;
and,
iv) Make a significant contribution to the law by
reviewing either the development of a common law rule or
the legislative or judicial history of a provision of a
constitution, statute, or other written law. �RTA Rule
5452(e)].
It would appear that Formal Opinions are adopted only for
franchise and personal income tax appeals. �RTA Rule
5551(a)]. "Memorandum Opinions," in turn, appear to serve
the same function as Formal Opinions, but are adopted in
connection with disputes arising from taxes administered by
the BOE itself. �Id.].
Any Formal Opinion or Memorandum Opinion may be cited as
precedent in any matter or other proceeding before the BOE,
unless the opinion has been depublished, overruled, or
superseded. �RTA Rule 5551(a)].
Finally, a "Summary Decision" is similar to both Formal and
Memorandum Opinions, but may not be cited as precedent.
�RTA Rule 5451].
e) What would this bill do? : This bill would require the
BOE to publish and make available on its website a written
"formal legal opinion" or "memorandum opinion" for each
case in which the amount in controversy is $500,000 or
more. Each published opinion would have to contain the
following:
i) The case's factual background;
ii) A statement of the legal issue(s) presented;
iii) Applicable law;
iv) Analysis and disposition of the case; and,
v) The names of concurring BOE members.
This bill would also authorize any BOE member to write a
dissenting opinion should he/she disagree with the majority
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opinion. Finally, the BOE would be granted full discretion
to decide the precedential value of each published opinion.
f) This bill's purpose : The author notes that the number
of published BOE decisions has decreased dramatically in
recent years. A review of BOE's website, which provides
access to Formal Opinions dating back to 1930, bears out
this point. During the 1980s,
the BOE published a total of 1,615 Formal Opinions, for an
average of 161.5 decisions a year. During the period from
2000 to 2010, however, the BOE only published 32 Formal
Opinions - an average of 3.2 decisions each year. Thus,
the author has introduced AB 2323 to restore a BOE practice
that will promote taxpayer confidence in the process by
which the BOE decides cases.
g) Suggested amendments : The author may wish to consider
the following amendments to this bill:
i) This bill would require the BOE to publish a written
"formal legal opinion" or a written "memorandum opinion"
for each case in which the amount in controversy is
$500,000 or more. This bill also vests the BOE with
discretion to determine the precedential value of each
opinion. As noted above, however, the BOE uses the terms
"Formal Opinion" and "Memorandum Opinion" to designate
those opinions that will have precedential effect. Thus,
to prevent potential confusion, the author may wish to
amend the language in subdivisions (a) and (d) as
follows:
(a) The board shall publish and make available
on its Internet Web site a written formal legal
opinion, or a written memorandum opinion, or a
written summary decision for each case in which the
amount in controversy is five hundred thousand
dollars ($500,000) or more.
(d) The board shall determine the precedential
value of each formal legal opinion and each
memorandum opinion published opinion at its
discretion.
i) This bill does not currently specify a timeframe for
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publishing opinions. The author may wish to amend the
bill to require the BOE to publish a written opinion
within 90 days of rendering a decision.
ii) This bill requires each published opinion to
contain, among other things, the case's "�f]actual
background." It may be more appropriate to instead
require "findings of fact."
g) Prior legislative efforts : As amended June 23, 2005, AB
1655 (Horton), of the 2005-06 legislative session, would
have required the BOE to make public and readily available
on the Internet all BOE decisions and determinations.
According to the analysis prepared by the Senate Committee
on Revenue and Taxation, Assemblymember Horton's office was
concerned that "the lack of publication creates a culture
of inconsistency."
On July 7, 2005, AB 1655 was amended to delete the
reference to BOE decisions and determinations and to
require, instead, the BOE to make public all staff
decisions and recommendations "for which a decision is
rendered by the �BOE]." The BOE's staff analysis of AB
1655, however, cited certain privacy concerns with
publishing staff D&Rs, which are prepared as part of BOE's
internal appeals process, and which often contain
confidential and proprietary information. To this end, the
BOE staff analysis drew a clear distinction between staff
D&Rs and cases appealed to the full BOE for hearing.
Specifically, the BOE analysis noted:
Although the Revenue and Taxation Code prohibits the
�BOE] from releasing any information regarding the
business affairs of taxpayers reporting tax
information to the �BOE], when a taxpayer appeals a
tax matter to the �BOE] at a public hearing, the
taxpayer has, in essence, waived his or her right to
privacy.<1> Thus, following a �BOE] hearing, the
�BOE] has for several years publicized on the Internet
----------------------
<1> To this end, it should be noted that all BOE hearings are
recorded by a certified court reporter. BOE hearings are also
"streamed" over the Internet so the public can listen to the
proceedings live. Shortly after each BOE meeting, recordings of
that meeting are made available on the BOE's website at
www.boe.ca.gov .
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the minutes of every �BOE] hearing it holds. This
includes specifying the �BOE's] action on each item
for discussion on the agenda before it, including,
among other things, all decisions the �BOE] has made
on taxpayer appeals.
The BOE's staff analysis of AB 1655 also noted that the
bill's publication provisions seemed premature, given that
the BOE was then engaged in a "comprehensive review" of its
Rules of Practice. Specifically, the BOE analysis noted:
This review includes, among other things, developing
criteria for publishing �BOE] decisions. In this
regard, the Legal staff is researching the California
Rules of Court for requirements the Courts of Appeal
use in publishing decisions. This review will also
involve an interested party meeting process, in which
all stakeholders can have their concerns addressed.
All BOE-related provisions were subsequently amended out of
AB 1655 on September 5, 2005.
It does not appear that BOE increased its publication rate
following its comprehensive review of its rules of
practice. For the years 2006 through 2010, only 10 Formal
Opinions are listed on BOE's website.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098