California Governor Jerry Brown signed AB 102 (“Taxpayer Transparency and Fairness Act of 2017”) on June 27, 2017 to strip much of the power of the State Board of Equalization (BOE).

BOE administers more than 30 tax and fee programs, such as tobacco taxes, cannabis taxes and sales taxes. It also equalizes property taxes between counties and decides tax disputes between California residents and tax collectors. The tax board collects about $60 billion a year, nearly a third of the state budget. It was created in 1879 to ensure that county assessors fairly collected property taxes across the state. Since then, it has grown to become one of three main tax-collecting agencies in state government and the only elected tax board in the country that hears disputes from taxpayers.

Two new departments will take over much of the BOE’s responsibilities:

– California Department of Tax and Fee Administration, will handle the tax and fee programs now under the BOE. It is scheduled to begin operations July 1, 2017. Its director would be appointed by the governor.

– An Office of Tax Appeals will be created by Jan. 1, 2018. It is intended to be a tax court staffed by administrative law judges who would be appointed from the state’s Office of Administrative Hearings. Taxpayer appeals would be heard by a panel of three judges instead of the elected board members beginning Jan. 1, 2018. Currently, taxpayers who disagree with a Board of Equalization finding about how much they owe in taxes can contest the decision with an appeal, which is heard by the elected board. Taxpayers who want to contest decisions from the administrative judges would have to file lawsuits against the state in civil court.

BOE has been recently hit with various reports about potential corruption and criminal activity. An audit in March by the State Finance Department showed that board members inappropriately intervened in the agency’s daily operations, created a climate of fear among its employees of retaliation from elected officials and allowed faulty accounting that misallocated tax revenue. A State Department of Justice criminal investigation alleged that board members may have misused public funds. And a 2015 report from the State Controller’s Office revealed that the tax agency had misallocated $47.8 million in revenue that was owed to local governments.