If the Board of Equalization (BOE) conducts a sales and use tax audit on your business, you may face a sales tax liability of tens of thousands of dollars or more. To make matters worse, the BOE can share information with the California Franchise Tax Board and the IRS, resulting in more tax assessments, penalties, and interest due to delinquent state and federal income tax debt.
Settlements with BOE Tax Auditors
You (along with your tax attorney) can first attempt to settle your outstanding sales tax debt with the BOE auditor and/or his supervisor. This can occur during an exit conference following an audit. If you are unable to reach a satisfactory settlement, you can ask to meet with the BOE Principal District Auditor to discuss your case.
If no agreement can be reached at this point, the BOE with issue a Notice of Determination for the sales tax assessment. You can appeal this decision, but you only have 30 days to do so. Once you have submitted your appeal, you can contact the Settlement Division to submit a settlement request. While you are attempting to settle your case, your appeal will continue as planned, so you will need to manage the settlement negotiations and prepare for an appeals hearing simultaneously.
The Settlement Division will consider settling cases where there is a legitimate legal or factual dispute. The risk of litigation will be evaluated when determining whether or not to accept a settlement offer. A taxpayer’s inability to pay the assessed tax will generally not be considered.
If you cannot negotiate a successful settlement, your appeal will be heard by the five-member BOE.
Upcoming Changes to California Tax Settlements
A new California law has transferred many of the duties of the Board of Equalization to the new California Department of Tax and Fee Administration and the Office of Tax Appeals. The current procedures for appeals to the five-member BOE will remain in place for hearings conducted before the end of 2017.
By January 1, 2018 the Office of Tax Appeals will need to develop new procedures for disputes related to personal income taxes, franchise taxes, sales and use taxes, and other special taxes and fees. It is not yet entirely clear how the new appeals procedures will differ from the current process, but the appeal will be heard by a panel of three Administrative Law Judges.
If you have questions about the California tax settlement process, contact a tax attorney.