State Income Tax Procedures

1. State Income Tax Procedures Overview to various processes and issues

2. Tax Agencies in CA • Three agencies • Franchise Tax Board • Board of Equalization • Employment Development Department • Most states have 1 • June 2009 – Governor Schwarzenegger proposed merging the 3 (not the first time someone has suggested this) • Economies of scale • Coordinated technology and info sharing • Easier for taxpayers

3. Statute of Limitations • Many states follow federal rule • California – 4 years rather than 3 • Longer if no return filed, such as because company did not think it had nexus in the state

4. Amnesty • Some states and cities have amnesty programs as way to get more revenues • Usually very limited time period • Specific guidelines as to who and what time periods are covered + type of tax • If previously used an amnesty period, might not be eligible • If could have used amnesty but did not, might be an add’l penalty imposed by auditors

5. Tools for finding taxpayers • Info sharing and audit report sharing with IRS • Many states + IRS sharing info on tax shelters via MTC and FTA arrangement • http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Events/Annual_Conference/1993FTAUnifromExchangeofInformationAgreement.pdf • MTC Uniform Exchange of Information Agreement among signing states • Info sharing within the state, such as among state agencies. • EX - CA AB 3079 (Chap 306, 9/08) – authorizes the Industrial Relations Dept to let BOE know if it becomes aware of a retailer not registered for sales tax (“information available in the department’s records that indicates a retail establishment is operating without a seller’s permit required by the State Board of Equalization, to assist the State Board of Equalization in determining compliance with the Sales and Use Tax Law)”

6. Information sharing • Per IRC §6103(d), the IRS shares tax return information with all 50 states and comparable state statutes allows the states to share tax info with the IRS • http://www.irs.gov/govt/liaisons/article/0,,id=133087,00.html

7. What to do if IRS makes adjustments to federal return? 2008 CA Personal Income Tax Booklet

8. CA appeals Next goes to informal process with hearing officer at FTB

9. Next • If disagree with hearing officer determination, get final notice of findings • If disagree, have 30 days to appeal to BOE • Brief should be detailed as hearing is short • See FTB Pubs 81 and 985

10. Next – BOE ruling

11. Adjudication of state tax disputes • In some states, including California, the tax agency acts as auditor and adjudicator • Possible solution - Model State Administrative Tax Tribunal Act • Endorsed by the ABA • Article on the Act: “The Model Act would guarantee that every taxpayer who receives a state tax assessment gets a de novo hearing of record, before paying the tax, from a tax expert that is completely independent from the tax collector. An admittedly cheesy acronym—“BRIE”—may help you remember the Act’s four main goals, i.e., “B(efore payment),” a taxpayer who receive a tax assessment must be able to make his “R(ecord)” before an “I(ndependent body)” that has “E(xpertise in tax matters).”” • From: The State and Local Tax Lawyer, Vol. 10, 2005, p. 83 http://meetings.abanet.org/webupload/commupload/TX331000/otherlinks_files/taxlawyerart.pdf

12. Tax court in CA? • Final report (12/03) of the CA Commission on Tax Policy in the New Economy recommended a state tax court: • “Recommendation (unanimous): State Tax Court: California should establish a state administrative body to operate like the U.S. tax court. This body would resolve all tax disputes, including personal income tax, corporate income tax, sales and use tax, property taxes, payroll taxes, and excise taxes” • http://www.library.ca.gov/crb/catax/Docs/2003-12_FinalReport.pdf • In CA, must pay first before get to superior court