This article originally was published by Law360 on December 7, 2018.

On Nov. 27, 2018, the California Department of Tax and Fee Administration, or CDTFA, issued its “second adopt notice” regarding emergency appeals regulations. This action is the latest step taken by the newly created CDTFA as part of the transition to it of the administration of a number of tax and fee programs previously under the jurisdiction of the California State Board of Equalization, or BOE.

CDTFA is a new state agency created under 2017 California legislation,1which stripped the BOE of the majority of its statutory powers to administer various tax and fee programs. The BOE’s powers regarding the administration of the sales and use taxes, as well as many special taxes, were transferred under the legislation to the newly created CDTFA effective on July 1, 2017. As part of this transition, and also effective July 1, 2017, well over 4,000 positions were moved from the BOE to the CDTFA.

The 2017 legislation authorized CDTFA to adopt emergency regulations until Jan. 1, 2019 to assist in this transition process.2 Emergency regulations are repealed by operation of law 180 days from their effective date, unless within that time the regular regulatory adoption process is completed and the formal rulemaking file is submitted to the Office of Administrative Law for final review and approval. Effective as of March 19, 2018, CDTFA had adopted emergency appeals regulations to implement provisions of the 2017 law regarding its new jurisdiction over the tax and fee programs it will administer and to separate its new regulations from the former BOE regulations which will continue to apply only to the BOE’s limited functions going forward, most of which involve property tax. The CDTFA’s March 2018 emergency regulations also provided rules for appeals from decisions of the CDTFA to the Office of Tax Appeals, or OTA, which is another newly created agency under the same 2017 legislation. By proceeding as “emergency” regulations, they became effective immediately upon filing with the California secretary of state, as opposed to first having to proceed through the regular notice and hearing procedures required under the California Administrative Practice Act — a formal process than can take many months.

Subsequent to the March 19, 2018 emergency regulations, the CDTFA held an informal interested parties meeting seeking comments on those regulations. By August 2018, when the 180-day period for the emergency regulations was about to expire, CDTFA had not commenced, much less completed, the regular regulatory adoption process. As a consequence, on Aug. 27, 2018, CDTFA issued a “readopt notice” for the large majority of the emergency appeals regulations adopted in March 2018.

That brings us to Nov. 27, when the CDTFA issued its “second readopt notice” for its emergency appeals regulations. Again, this regulatory exercise is largely devoted to transitioning from the former rules for tax appeals at the BOE over to the new, but similar, appeals regulations at the CDTFA with respect to the taxes and fees now administered by CDTFA. However, two items in the regulations, both of which are found in new Division 5,3 should be of particular interest to taxpayers.

The first item is how appeals conferences are to be conducted by the CDTFA’s Appeals Bureau. The CDTFA’s emergency regulations essentially track the appeals procedures in the prior BOE regulations, with no significant changes. Indeed, this is the expected result because the 2017 legislation provided that appeals conferences shall continue to be conducted by CDTFA in the same manner as before the duties, powers and responsibilities were transferred to it from the BOE.4

Accordingly, the emergency regulations provide that a taxpayer wishing to challenge an audit determination involving a sales or use tax matter (as well as most other taxes/fees administered) generally starts the process by filing with the CDTFA, within 30 days from the date of the notice of determination (with the audit findings), a “petition for redetermination.”5 The petition must be in writing, state the amounts in dispute, state the specific grounds or reasons, may request an appeals conference and be signed by an authorized person. A taxpayer “may,” but is not required to, submit supporting arguments or evidence as part of the petition.6 Upon receipt and review, the CDTFA may refer the petition to the office which issued the notice. Not only can such a referral be initiated by CDTFA, it also can be requested by a taxpayer.7 This is essentially a mechanism which allows for re-audit in the field and, in the author’s experience, can often be an effective method for efficiently dealing with documentation which, for a number of reasons, was not reviewed at the time of the (original) audit, e.g., newly discovered resale certificates. Any findings from such a referral are then reviewed by the assigned section for the petition.8 Unless the section agrees with the taxpayer’s arguments in the petition — a rarity — the next step is an appeals conference where a CDTFA Appeals Bureau auditor or attorney will hear and decide the matter.9 The conferences may be held live at a number of locations (with many of them held at CDTFA headquarters in Sacramento), or by video conference or by telephone. These conferences are informal — formal rules of evidence do not apply — and they are intended as an opportunity for a taxpayer to present oral and written arguments and documentary evidence.10 After the appeals conference, the Appeals Bureau will prepare and mail to the taxpayer a written decision with its analysis and conclusion for resolution of the case.11 The Appeals Bureau will include a letter which explains the available options for appealing the decision.12

A taxpayer who disagrees with the decision by the Appeals Bureau may submit within 30 days a request for reconsideration to the Appeals Bureau.13 Such a request must identify the specific issues for which reconsideration is sought and must explain the reasons why the taxpayer disagrees with the decision. As a practical matter, apart from a glaring factual or legal error in the decision, or newly discovered evidence, such a request is highly unlikely to lead to a different result.

That leads us to the second major item of interest in the regulations, which is how an appeal is taken from a decision by the Appeals Bureau. Previously, a taxpayer who disagreed with the decision by the Appeals Division of the BOE would request the appeal be heard by the five-member BOE. Under the 2017 legislation, that appellate function is now with the newly created OTA. Accordingly, the CDTFA regulations provide that a taxpayer may submit an appeal to the OTA, in accordance with the OTA’s regulations, within 30 days after the date of mailing of the letter from the Appeals Bureau explaining the taxpayer’s options.14

The final step in this process of creating new appeals regulations will be for CDTFA to complete the formal regulatory process in order to promulgate permanent regulations in lieu of these “second adopt notice” emergency regulations. That step commenced with the publication by CDTFA of a notice on Nov. 30, 2018 proposing to adopt its emergency appeals regulations through the regular rulemaking process, with the regulations to be operative Jan. 1, 2018.

However, the future always holds uncertainties. While quite unlikely, perhaps significant changes will be made to these emergency regulations as part of the formal process, or perhaps CDTFA will find itself responsible for administering additional taxes if the BOE is abolished, as is now being proposed under Assembly Constitutional Amendment 2.15 ACA 2, if passed and approved by the voters on the ballot in 2020, would eliminate the BOE and refer the last of its constitutionally held functions and responsibilities to the CDTFA and the OTA.


  1. AB 102 (Stats. 2017, ch. 16); AB 131 (Stats. 2017, ch. 252)
  2. Government Code sec. 15570.40.
  3. Division 5 (commencing with reg. 35001) to Title 18 of the California Code of Regulations.
  4. Government Code section 15570.50.
  5. Regulations 35005 et seq.
  6. Regulation 35008.
  7. Regulation 35017.
  8. Regulation 35017.
  9. Regulation 35060 et seq.
  10. Regulation 35064.
  11. Regulation 35065.
  12. Regulation 35065.
  13. Regulation 35066.
  14. Regulation 35065.
  15. See Assembly Constitutional Amendment No. 2, introduced on December 3, 2018 by Assembly Member Nazarian.