The California Office of Tax Appeals, made effective in July 2017, was created to provide increased transparency and an expedited appeals process for taxpayers in the state. To get an inside look at how the new agency was doing, we interviewed Douglas Bramhall, one of the administrative law judges who hear appeals.
Levin-Epstein: Tell us about the new California Office of Tax Appeals.
Bramhall: The Office of Tax Appeals was created effective July 1, 2017, by legislation called the Taxpayer Transparency and Fairness Act of 2017. The agency was created to hear tax appeals from final determinations of the Franchise Tax Board—the income franchise administrative agency—and the California Department of Taxes and Fees Administration—CDTFA, we call it fondly—which administers the sales and use tax and many other smaller tax programs and fee programs which had historically been administered by the California State Board of Equalization. The jurisdiction to hear appeals commenced January 1, 2018, so we are just getting started. We have had a few hearings in January and one in February, and there are more scheduled. The office was created to replace the Board of Equalization’s role as the tax appeals body for tax disputes from those two agencies. There are currently sixteen administrative law judges, and each appeal will be heard by a panel of three administrative law judges. I am one of those administrative law judges, assigned to our Los Angeles office. Appeals will be heard in Los Angeles, Sacramento, and Fresno, California. Taxpayers who are noticed of hearing have the option of selecting the location for their hearings among those three locations.
Levin-Epstein: Do other states have similar offices?
Bramhall: They do, more and more. Actually, California, prior to the creation of the Office of Tax Appeals, was unique in its tax appeal process in that it was the only state where tax administration and appeals was conducted by a body of elected officials. The Board of Equalization historically was comprised of the state controller, a statewide elected office, and four district Board of Equalization members elected from their respective districts around the state. So, California is more in line with other states now in terms of having an independent hearing body prepay appeal process. Each appeal is heard by a three-member panel and, in each case, the legal analysis is independently done within OTA. The panel decisions are the final administrative determination. A dissatisfied party may petition for rehearing, and a dissatisfied taxpayer may pay the contested liability and then file a refund suit in district court, where the case will be heard de novo.
Levin-Epstein: Tell us a little bit more about your background.
Bramhall: After twelve to thirteen years of private law practice and teaching—I taught for a couple of years at law schools in Wyoming and in Sacramento—I went to work for the Franchise Tax Board in 1988 and was in the counsel’s office there from ’88 to ’99. In 1999, I took a job with KPMG and have been in the private sector through 2016, when I retired. When I saw this opportunity to serve as an administrative law judge in this newly created agency, I thought my background, having experienced both sides of the puzzle, so to speak, qualified me and enticed me to put my hat in the ring to give it a try, this quasi-judicial process. We are, I want to be clear, an administrative agency; we are not a court, and given that we have the flexibility to have a certain level of informality in how hearings are conducted. We’re not judges per se, we’re administrative law judges.
Levin-Epstein: When did the California Office of Tax Appeals actually come into existence?
Bramhall: It came into existence July 1, 2017. The first employee was Kristen Kane. She is the chief counsel. Her appointment was effective October 2, and from then through today, she and the director Mark Ibele set up the infrastructure and employed the entire agency staff. The office does not report to an agency of government; it reports to the governor, and in that respect is wholly independent of the tax agencies and their reporting hierarchy through various agencies of the state. We are truly independent, more so than a lot of other state appeal processes, and that was the goal, to get the tax appeals dispute process independent of the administration of the tax system.
Levin-Epstein: The actual agency or department didn’t start hearing appeals until January, is that correct?
Bramhall: That’s correct. That was the legislative directive. So, as of January 1, 2018, the Board of Equalization’s authority to hear FTB and CDTFA tax appeals was terminated, and all of the jurisdiction was transferred to the Office of Tax Appeals, so that from January 1 forward, any pending cases that were sitting before the board were just transferred to the jurisdiction of the Office of Tax Appeals. The Board of Equalization still has jurisdiction over property tax and insurance gross premium tax matters. Cases that weren’t final were subject to the Office of Tax Appeals’ jurisdiction as well. There are some cases that are in a status called “petition for rehearing,” which can be filed within thirty days of a decision by either party to the appeal; those petitions for rehearing are actually sitting before the Office of Tax Appeals, even though the cases themselves might have been heard by the Board of Equalization. It was a clean cutoff as of January 1, 2018.
Differences From Board of Equalization
Levin-Epstein: Are there ways in which the process is going to be or already is different from the Board of Equalization, in terms of the hearings?
Bramhall: There are some differences. The Board had exempted itself from the Administrative Procedure Act, so its procedures were by its own regulations—everything from the Board of Equalizations and its regulations in terms of the process. There were time constraints, and so on, but very informal. Our process, while we have the ability to keep it equally informal, which we try to do with unrepresented taxpayers especially, does follow either the informal or more formal processes under the California Administrative Procedure Act. So, things like evidence and discovery could be a bit more formal, although handled very informally. Beyond that, we’re trying to model the board’s procedures and processes pretty much the same, keeping it informal. There’s a three-judge panel. Before, there was a five-member panel to the Board of Equalization. Following more the Administrative Procedures Act would be the one difference people might see in the process. But that shouldn’t be perceived by taxpayers as having any effect on them. They can file—almost any kind of letter becomes an appeal; they can be represented by any party over the age of eighteen, doesn’t require a lawyer or CPA or any kind of designation to be a representative for a taxpayer. There are no time limits on the presentation time of an appeal. Our regulations, emergency regulations, have been published and are actually on the website for people to review in advance. In advance of a scheduled hearing, we do send out informational material. There’s a “frequently asked questions” tab on the website that can help people understand how to get started and so on. As they continue their appeal, the office does provide specific appeal information to taxpayers while they’re waiting for their day before the panel. We try to make it as informal as the board did, but we do have some guidelines, by statute, that we have to follow in terms of the Administrative Procedure Act.
Levin-Epstein: Are there any particular challenges that you think are going to be faced by this new office?
Bramhall: The challenge I see arises because people have become very used to the processes used in the past. The legislature and the governor sought to clarify and modernize the existing system by separating administration and appeals in an effort to create an impartial venue for tax disputes. Since some people were used to the old system, it will take some time for the new system to become familiar to them. And we are going to provide as much information as possible so that Californians know what the new system is. I think once people realize the independent authority and impartiality of the office, they will readily adapt to the change.
Levin-Epstein: When taxpayers appear before you, what advice do you have for them in terms of something that they should absolutely do and something they should absolutely not do?
Bramhall: I think the only thing that I would caution against is attempting to contact any of the panel judges on an ex parte basis. That could disqualify the panel member and would just be perceived as inappropriate. As far as what to do, for the unrepresented taxpayer, which your organization probably doesn’t have a lot of interest in, but for the unrepresented taxpayer, I would just say, “Relax. Just be prepared to tell us your story. Be prepared to document your story.” That, I think, is what we have found most often in the cases we have heard so far. Taxpayers come with reasonable explanations but without documentation to support those stories. So, good documentation. For the represented taxpayer, I don’t think much will change. Come prepared. We intend to have, in complicated cases, prehearing conferences where we will attempt to get the parties to stipulate facts, stipulate issues to the extent they can—we’re not forcing it, but that would make a clean record coming in—and to stipulate the exhibits and documents that will be relied upon in establishing their case. So, that part of preparing cases in advance, being open to these prehearing conferences to sort of work out the issues to make the appeal hearing itself as efficient as possible. Beyond that, just represent your clients well.
Levin-Epstein: Will there be some sort of a write-up of the case that is distributed or disseminated in some way?
Bramhall: Every case that we hear, by statute, will have a written opinion. Some will be precedential, some will just be non-precedential, but all will be in writing. The policy of OTA is that those opinions will be mailed to the parties within 100 days of their submission. Submission typically will be at the close of the hearing; sometimes hearings have to be continued for additional briefing or additional documentation to be provided, but typically, once the record closes, the goal is—and currently we’re well within the goal—of getting the decisions distributed within 100 days of that closure date.
Levin-Epstein: Are these decisions available to the public?
Bramhall: All opinions will be posted on the website. There’s actually a tab on the website now for them, and the initial decisions are being finalized as we speak, so they will start to be posted on the website. I’m sure that the tax services will also be incorporating those decisions in their databases, but our office will publish on our website all opinions.
Levin-Epstein: How many cases do you think will be adjudicated in a calendar year?
Bramhall: We inherited a backlog of about 1,400 cases. We anticipate, assuming things stay the same as prior to OTA’s existence, approximately 130 new appeals per month (a cumulative total of FTB and CDTFA cases). Historically, many cases either drop off the calendar or are resolved on the written record without an oral hearing. That leaves an anticipated load of approximately 140 hearings per year, maybe more as we work to reduce that backlog.