(May 10, 2010) The California Chamber of Commerce is opposing a bill that undermines taxpayer rights by making it substantially more costly and difficult to fight meritorious disputes with the state Franchise Tax Board (FTB).

SB 1113 (Wolk; D-Davis) gives the FTB the upper hand in disputes by allowing the state taxing authority to request an appeal in court of tax cases it lost on appeal at the administrative level before the Board of Equalization (BOE).

Moreover, SB 1113 would give FTB a “de novo” trial, which means the taxpayer has the burden of proof and the court does not look at the administrative record, but the entire case must be retried. Thus, FTB gets a second bite at the apple, and the taxpayer is on the hook for the cost of a full court trial of a case it just won.

Under existing law, FTB can appeal a case it has lost to the court, but it must do so through a writ of mandate process where the burden of proof rests on FTB.

By allowing the FTB to appeal BOE decisions to the county superior court, SB 1113 could result in the following:

• limiting taxpayer rights. Low-income taxpayers would not have an effective way to challenge an FTB position as they would not have the resources to continue their challenge beyond the BOE level.
• forcing many taxpayers to settle meritorious claims. Even taxpayers with sufficient resources to fight the FTB’s position beyond the BOE are likely to settle meritorious claims where the amount in dispute does not justify moving forward with litigation.
• eviscerating an important check on FTB action. SB 1113 creates an incentive for FTB to pursue non-meritorious appeals because the agency can use the appeal as leverage for taxpayers to settle, knowing that the costs of challenging FTB are a deterrent to the taxpayer’s fighting an appeal.

Action Needed

SB 1113 is awaiting action in the Senate Appropriations Committee. Contact committee members and your senators and urge them to oppose SB 1113.

Staff Contact: Kyla Christoffersen