California Attorney General Opinion 23-701

TO BE PUBLISHED IN THE OFFICIAL REPORTS

OFFICE OF THE ATTORNEY GENERAL

State of California

ROB BONTA

Attorney General

_______________

:

OPINION :

: No. 23-701

of :

: July 31, 2025

ROB BONTA :

Attorney General :

:

KARIM J. KENTFIELD :

Deputy Attorney General :

The HONORABLE MYRIAM BOUAZIZ, DIRECTOR OF THE OFFICE OF

TAX APPEALS, has requested an opinion on a question relating to the Office’s

authority.

QUESTION PRESENTED AND CONCLUSION

When adjudicating a taxpayer appeal, does the Office of Tax Appeals have the

authority to issue a written opinion in which it concludes that applying a particular tax

regulation—promulgated by a different state agency and approved by the Office of

Administrative Law—to that taxpayer’s circumstances would conflict with governing

statutes and to decline to apply the regulation to the taxpayer on that basis?

When adjudicating a taxpayer appeal, the Office of Tax Appeals has the authority

to issue a written opinion in which it concludes that applying a particular tax regulation to

that taxpayer’s circumstances would conflict with governing statutes and to decline to

apply the regulation to the taxpayer on that basis. In making this determination, the

Office must afford appropriate deference to the agency that promulgated the regulation.

The Office has no authority to remove a regulation from the California Code of

Regulations, or to enforce its view of a regulation’s validity or applicability outside the

context of adjudicating a particular taxpayer appeal.

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BACKGROUND

This opinion concerns several administrative bodies that collectively administer

numerous state taxes and fees. The California Constitution establishes the Board of

Equalization (Board) as a state administrative agency. 1 The Board consists of five voting

members, including the state Controller and four members elected by district. 2 The

Constitution and state statutes require the Board to administer certain tax programs,

including taxes on property, insurers, and alcoholic beverages. 3

Relevant here, the Board was previously charged with several additional statutory

duties. For decades, the Board administered dozens of business taxes and fees, including

the State’s sales and use taxes. 4 The Board also acted as an administrative appeals body,

hearing taxpayer challenges to its tax and fee assessments. Taxpayers who disagreed

with a Board assessment could receive two levels of review: first before the Board’s

Appeals Division, and then before the Board itself. 5

The Board also previously heard appeals concerning taxes administered by a

second administrative body, the Franchise Tax Board (FTB). Located within the

Government Operations Agency, FTB administers the State’s franchise and income

taxes. 6 Taxpayers who disagreed with an FTB tax assessment could appeal to the Board

for an independent adjudication of the dispute. In such appeals, the Board allowed

taxpayers to argue that FTB regulations that affected their tax liability were inconsistent

1

Cal. Const., art. XIII, § 17; see Gov. Code, § 15600, subd. (a); Cal. State Board of

Equalization, About BOE, https://www.boe.ca.gov/info/about.htm (as of July 30, 2025);

93 Ops.Cal.Atty.Gen. 70, 76 (2010).

2

Cal. Const., art. XIII, § 17.

3

See Cal. Const., art. XIII, §§ 11, 18-19, 28; id., art. XX, § 22; see also Gov. Code,

§ 15600, subd. (b).

4

See Cal. State Board of Equalization, History & Milestones of the State Board of

Equalization, https://www.boe.ca.gov/info/milestones.htm (as of July 30, 2025);

108 Ops.Cal.Atty.Gen. 12, 14 (2025).

5

See former Cal. Code Regs., tit. 18, § 5260 et seq. All references to the Board’s former

regulations are to the regulations in effect in 2017 when the Legislature established the

Office of Tax Appeals.

6

See Gov. Code, § 15700 et seq.; Rev. & Tax Code, § 18401 et seq. The Government

Operations Agency is an executive agency that “oversees and supports the work of 13

departments, boards, and offices.” (Cal. Government Operations Agency, About the

California Government Operations Agency, https://www.govops.ca.gov/about-the-

california-government-operations-agency/ (as of July 30, 2025).)

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with governing statutes. If the Board agreed, it would apply the statute, and not the

regulation, in determining the taxpayer’s liability. 7

In 2017, the Legislature expressed concern that the Board’s “operational culture”

had led to “inappropriate interventions by board members in administrative and appeal-

related activities.” 8 In the Legislature’s view, these problems had resulted in

“inconsistencies in operations,” “activities contrary to state law,” and “significant

errors.” 9 To “restore the public’s trust,” the Legislature transferred most of the Board’s

statutory responsibilities to two new state administrative bodies. 10

First, the Legislature created the California Department of Tax and Fee

Administration (CDTFA). 11 The Legislature transferred to CDTFA the Board’s statutory

duty to administer certain business taxes and fees, including the sales and use taxes. 12

Like the Board before it, CDTFA is authorized to enact regulations implementing these

tax and fee programs. 13 The Board remains responsible for the taxes that it is

constitutionally obligated to administer. 14

Second, the Legislature established the Office of Tax Appeals (OTA), an

“independent and impartial appeals body” located within the executive branch. 15 The

Legislature transferred to OTA all of the Board’s statutory “duties, powers, and

responsibilities . . . necessary or appropriate to conduct appeals hearings.” 16 A taxpayer

7

See, e.g., In the Matter of the Appeal of Save Mart Supermarkets & Subsidiary (Bd. Eq.

2002) 2002 WL 245682, pp. *2-*4 (agreeing with taxpayer that FTB regulation was

inconsistent with the statute and declining to apply it in determining taxpayer’s liability).

8

Stats. 2017, ch. 16 (AB 102) § 2, subds. (d), (e).

9

Id., subds. (e), (i).

10

Id., subd. (j).

Gov. Code, § 15570, subd. (a) (creating CDTFA within the Government Operations

11

Agency).

12

See Gov. Code, § 15570.22; Rev. & Tax Code, § 20, subd. (a); see also Cal.

Department of Tax and Fee Administration, About CDTFA,

https://www.cdtfa.ca.gov/about.htm (as of July 30, 2025).

13

Gov. Code, § 15570.40, subd. (a); see, e.g., Rev. & Tax Code, §§ 7051, 8251, 30451,

38701; see id., § 20, subd. (a).

14

See Gov. Code, § 15600, subd. (b).

15

Office of Tax Appeals, https://ota.ca.gov/about/ (as of July 30, 2025); see Gov. Code,

§ 15670.

16

Gov. Code, § 15672, subd. (a); see id., § 15674; see also Rev. & Tax Code, § 20, subd.

(b) (defining “board” “with respect to an appeal” as the Office of Tax Appeals).

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who disagrees with CDTFA’s assessment of taxes or fees can appeal to OTA and receive

an independent adjudication of the dispute. 17 A taxpayer who disagrees with an FTB

assessment can likewise challenge its determination in an OTA appeal. 18

In creating OTA, the Legislature sought to establish “an independent, objective”

appeals process before adjudicators with “a sole focus on tax issues.” 19 Taxpayer appeals

are generally decided by a three-member panel consisting of persons possessing

“knowledge and experience” concerning state and federal tax and fee laws. 20 Panel

members must agree to abide by “ethics standards,” “including rules governing conflicts

of interest and ex parte communication.” 21 And panels must operate independently,

deciding appeals free from involvement of the OTA Director. 22

The OTA appeals process allows panels to carefully adjudicate taxpayer disputes.

Both the taxpayer and the adverse tax agency—CDTFA or FTB—may file briefs

explaining their view of the relevant law and facts. 23 At the panel’s discretion, other

parties may file amicus briefs as well. 24 After briefing is complete, taxpayers are entitled

to a hearing, which the OTA panel must generally conduct in accordance with the

Administrative Procedure Act. 25 Taxpayers may be represented by an attorney or a non-

attorney, such as an accountant. 26 After considering the issues, the OTA panel must issue

a written opinion explaining its decision. 27 OTA opinions, which can be deemed

precedential, may include “findings of fact, a statement of the legal issue(s) presented,

applicable law, analysis,” and the panel’s holding. 28 Panel members may also issue

17

See Cal. Code Regs., tit. 18, § 30103, subd. (b).

18

Id., subd. (a).

19

Stats. 2017, ch. 16 (AB 102) § 2, subd. (b).

20

Gov. Code, § 15670, subd. (c). Taxpayers with smaller amounts in dispute may choose

to have their appeals heard by a single adjudicator. (See id., § 15676.2; Cal. Code Regs.,

tit. 18, §§ 30209.05-30209.1.)

21

Gov. Code, § 15670, subds. (c)(1), (d).

22

Gov. Code, § 15670, subd. (b)(2).

23

See Cal. Code Regs., tit. 18, §§ 30301-30316.

24

See Cal. Code Regs., tit. 18, § 30302, subd. (g).

25

See Gov. Code, § 15674, subd. (a)(3); Cal. Code Regs., tit. 18, § 30216.

26

Gov. Code, § 15676; Cal. Code Regs., tit. 18, § 30211, subd. (a).

27

Gov. Code, §§ 15674, subd. (a)(2), 15675; Cal. Code Regs., tit. 18, § 30501, subd. (a).

28

Cal. Code Regs., tit. 18, § 30501, subd. (b); see id., § 30502.

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concurring or dissenting opinions, and either party can ask the panel to reconsider. 29 A

taxpayer who disagrees with the final decision may seek de novo review in superior court

by paying the disputed tax then suing for a refund. 30

OTA is authorized to issue regulations governing the appeals process. 31 In April

2023, OTA proposed a regulatory amendment providing that taxpayers could not

challenge the validity of a tax regulation in an OTA appeal, even if the regulation

affected the amount of tax owed (unless an appellate court had already declared the

regulation invalid). 32 The proposal would have reversed the Board’s prior practice of

allowing taxpayers to challenge the application of a regulation to their particular

circumstances. OTA ultimately withdrew the proposal after receiving public comments

arguing that it conflicted with governing law.

OTA then submitted this opinion request, asking whether its panels have the

authority to hear challenges to regulations promulgated by FTB or CDTFA. 33 The

request explains why, in OTA’s view, its panels do not have that authority. FTB and

CDTFA have taken the same position in litigation before OTA panels. 34 In contrast, we

received public comments arguing that OTA panels can hear challenges to tax

regulations.

29

Cal. Code Regs., tit. 18, §§ 30501, subd. (d), 30601-30608.

30

See Gov. Code, § 15677 (de novo review in taxpayer suit); see, e.g., Rev. & Tax Code,

§§ 19382, 19385 (refund suit against FTB); id., § 6933 (refund suit against CDTFA for

sales or use tax).

31

See Gov. Code, §§ 15679, 15679.5.

See Prop. Cal. Code Regs., tit. 18, § 30104, subd. (d), available at OTA’s Rules for Tax

32

Appeals, OAL File No. 2023-0526-02FP, Documents for First Notice of Proposed

Rulemaking, https://ota.ca.gov/regulations/ (as of July 30, 2025).

33

All references to CDTFA regulations include regulations originally issued by the Board

in areas that CDTFA now administers, such as the sales and use taxes.

34

To date, OTA panels have concluded that they cannot hear challenges to tax

regulations, over a dissent in one case. (Compare In the Matter of the Appeal of: Bed

Bath & Beyond Inc. (OTA 2022) No. 18011340, 2022 WL 1479162, p. *4 [“[OTA] lacks

the authority to invalidate FTB’s regulations”], with id., at p. *10 (H. Le, dis. and conc.,

in part) [“When a regulation is inconsistent with controlling law (existing statutes, court

decisions, or other law provisions), I believe OTA must follow controlling law”]; see

also, e.g., In the Matter of the Appeal of: Janus Capital Group, Inc. and Subsidiaries

(OTA 2023) No. 20096605, 2023 WL 5934944, pp. *2-*3 [OTA lacked authority to hear

challenge to FTB regulation]; In the Matter of the Appeal of: Alfredo J. Talavera (OTA

2020) No. 18011825, 2020 WL 3629619, p. *4 [same for CDTFA regulation].)

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ANALYSIS

We conclude that, in adjudicating taxpayer appeals, an OTA panel can evaluate

whether applying a tax regulation to the taxpayer’s circumstances would conflict with

applicable statutes. If so, then the panel can decline to apply the regulation in

determining the taxpayer’s liability. We first explain why OTA’s governing statute

confers such authority. We then discuss the requestor’s concerns that allowing panels to

adjudicate challenges to regulations would conflict with the California Administrative

Procedure Act (APA) and the state Constitution.

The Legislature Authorized OTA Panels to Adjudicate Challenges to Tax

Regulations.

“[A]dministrative agencies have only such powers as have been conferred on

them, expressly or by implication, by constitution or statute.” 35 Here, the Legislature

generally conferred on OTA panels all adjudicative authority previously held by the

Board of Equalization. 36 We must therefore determine whether, at the time of OTA’s

creation, the Board was authorized to consider whether a tax regulation may lawfully be

applied in particular circumstances.

The Board of Equalization was authorized to hear challenges to tax regulations.

As described above, the Board was previously authorized to hear administrative

appeals concerning both the taxes it assessed, and the taxes assessed by the Franchise Tax

Board. Both the Board and FTB were authorized to enact regulations implementing the

taxes each agency administered. In some cases, the Board or FTB would have relied on a

regulation to determine the tax owed. A taxpayer who believed that applying the

regulation to their circumstances would conflict with governing statutes sometimes

sought to challenge the regulation during an administrative appeal before the Board. We

conclude that, in hearing those appeals, the Board was authorized to adjudicate such

challenges to both its own regulations and regulations promulgated by FTB. That

conclusion is supported by the Board’s jurisdictional regulations, its longstanding

administrative practice, the California Administrative Procedure Act, and California

Supreme Court precedent.

To begin with, we read the Board’s regulations defining its appeals jurisdiction as

authorizing statutory challenges to tax regulations. As to the taxes and fees the Board

itself administered, the regulations placed no limits on the issues that could be raised

35

Ferdig v. State Pers. Bd. (1969) 71 Cal.2d 96, 103.

36

Gov. Code, § 15672, subd. (a) (vesting OTA with “all of the duties, powers, and

responsibilities of the [Board] necessary or appropriate to conduct appeals hearings” for

the taxes and fees at issue here).

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during an appeal. 37 The regulations stated, for example, that a taxpayer could “present

oral arguments regarding issues of fact and law relevant to the taxpayer’s appeal.” 38

Where a Board regulation was relevant to the taxpayer’s assessed liability, adjudicating a

statutory challenge to the regulation’s validity as applied to the taxpayer was therefore

within the scope of the Board’s authority.

As to FTB assessments, the Board’s “jurisdiction [was] limited to determining the

correct amount owed by, or due to, the [taxpayer] for the year” at issue. 39 If an FTB

regulation was determinative of a taxpayer’s assessed liability, adjudicating a statutory

challenge to the regulation’s application to the taxpayer was thus within the “Board’s

jurisdiction” as it would have “determin[ed] the correct amount owed by, or due to, the”

taxpayer. 40 Moreover, while taxpayers were specifically prohibited from challenging

FTB “regulation[s] . . . under the Federal or California Constitutions,” there was no

similar limitation as to challenges under the governing statute. 41 The fact that the

jurisdictional rules expressly contemplated challenges to FTB regulations—but only

prohibited those made on constitutional grounds—strongly suggests that the Board was

authorized to hear challenges made on statutory grounds. 42

Consistent with its jurisdictional regulations, the Board itself determined that it

could adjudicate claims by taxpayers that applying a tax regulation to their circumstances

would conflict with a governing statute. For more than half a century, the Board

entertained such claims across numerous appeals. 43 In most cases, it upheld the validity

37

See former Cal. Code Regs., tit. 18, § 5510 et seq.; e.g., id., § 5511, subd. (a) (defining

“appeal” without limiting available issues); id., § 5523.4 (same for briefing rules); id.,

§ 5551, subds. (a), (b) (same for rules governing how Board would “decide an appeal”).

38

Former Cal. Code Regs., tit. 18, § 5511, subd. (e).

39

Former Cal. Code Regs., tit. 18, § 5412, subd. (b).

40

Ibid.

41

Former Cal. Code Regs., tit. 18, § 5412, subd. (b), (b)(1) (“The Board has determined

that it does not have jurisdiction to consider . . . [w]hether a California . . . regulation is

invalid or unenforceable under the Federal or California Constitutions, unless a federal or

California appellate court has already made such a determination”).

42

See generally In re J.W. (2002) 29 Cal.4th 200, 209 (under expressio unius principle,

“the expression of one thing in a statute ordinarily implies the exclusion of other things”).

43

See, e.g., In the Matter of the Appeal of Katherine M. Rockhold (Bd. Eq. 1942) 1942

WL 392, pp. *2-*4; In the Matter of the Appeal of Elizabeth Brown McCombie (Bd. Eq.

1951) 1951 WL 382; In the Matter of the Appeals of George French, Jr., and Mary E.

French (Bd. Eq. 1958) 1958 WL 1284, p. *2; In the Matter of the Appeal of Frank P.

Chiappara (Bd. Eq. 1979) 1979 WL 4174, pp. *1-*2; In the Matter of the Appeal of

(continued…)

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of the challenged regulation. But on at least two occasions, the Board concluded that

applying an FTB regulation to the taxpayer’s circumstances would conflict with a

statute—for example, because the regulation “alter[ed] and enlarge[d] on the words of the

statute”—and therefore declined to apply the regulation in adjudicating the appeal. 44

The Board explained the source of that authority in a 2005 decision, In the Matter

of the Appeal of: Safeway, Inc. 45 “The duty to hear and determine franchise tax appeals,”

it stated, “implies the duty to apply the appropriate law to the facts.” 46 That required the

Board to determine what law applied to the taxpayer’s circumstances by “interpret[ing]

statutes and [tax] regulations.” 47 And under Government Code section 11342.2, part of

the Administrative Procedure Act, a regulation is not “valid or effective” if it is “in

conflict with the [governing] statute.” 48 Accordingly, to determine the correct law to

apply to a taxpayer’s case, the Board concluded that it was necessary to adjudicate the

statutory validity of any relevant regulations. In making that determination, the Board

afforded appropriate deference to the view of the promulgating agency, just as a court

would do on judicial review. 49 But if the Board concluded that a regulation could not be

reconciled with the statute in the given circumstances, then it applied the statute and not

the regulation in adjudicating the appeal. 50

Willamette Industries, Inc. (Bd. Eq. 1987) 1987 WL 50176, pp. *2-*3; In the Matter of

the Appeal of Northridge Fashion Center, Inc. (Bd. Eq. 1989) 1989 WL 132763, p. *2; In

the Matter of the Appeal of: Mid-State Bancshares (Bd. Eq. 2011) 2011 WL 2440648.

44

In the Matter of the Appeal of Save Mart Supermarkets & Subsidiary, supra, 2002 WL

245682, at p. *3; see also In the Matter of the Appeal of Standard Oil Company of

California (Bd. Eq. 1983) 1983 WL 15454, pp. *18-*19.

45

In the Matter of the Appeal of: Safeway, Inc. (Bd. Eq. 2005) 2005 WL 3530181, p. *5.

46

Ibid.

47

Ibid.

48

Ibid., quoting Gov. Code, § 11342.2 (“Whenever by the express or implied terms of

any statute a state agency has authority to adopt regulations to implement, interpret, make

specific or otherwise carry out the provisions of the statute, no regulation adopted is valid

or effective unless consistent and not in conflict with the statute and reasonably necessary

to effectuate the purpose of the statute”).

49

See, e.g., In the Matter of the Appeal of Save Mart Supermarkets & Subsidiary, supra,

2002 WL 245682, at p. *3 (applying the deference framework articulated in Yamaha

Corp. of America v. State Board of Equalization (1998) 19 Cal.4th 1); In the Matter of

the Appeal of: Mid-State Bancshares, supra, 2011 WL 2440648, at p. *5 (same).

50

See, e.g., In the Matter of the Appeal of Save Mart Supermarkets & Subsidiary, supra,

2002 WL 245682, at p. *4.

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The Board’s analysis of section 11342.2 is consistent with California Supreme

Court precedent holding that agencies can adjudicate challenges to regulations in an

administrative appeal. In Woods v. Superior Court, the Department of Social Services

had applied its regulations to deny an application for welfare benefits. 51 The Supreme

Court held that the disappointed applicants could “contest the validity of a regulation

which mandates the denial of [their] application both in the [administrative appeal] and in

the subsequent judicial review.” 52 The agency’s decision denying benefits “places in

issue the validity of the regulations pursuant to which relief was denied.” 53 And the

regulations could be challenged during the administrative appeal because the governing

statute “impose[d] no limitation, factual or legal, upon the issues which may be raised.” 54

The Court rejected the agency’s argument that allowing “an attack on the validity

of [its] regulations” in an administrative appeal would be futile because “an

administrative agency is compelled to enforce its own regulations.” 55 To the contrary,

the Court explained, both “precedent and common sense” confirmed that “an invalid

regulation should be vulnerable to attack at the administrative level.” 56 The Court

emphasized that under Government Code section 11342.2—the APA provision relied on

by the Board in Appeal of Safeway, described above—“no regulation . . . is valid or

effective unless consistent and not in conflict with the statute.” 57 Accordingly,

“administrative regulations which exceed the scope of the enabling statute are invalid and

have no force or life.” 58

On a practical level, the Court recognized that prohibiting agencies from hearing

challenges to regulations would “require the invocation of a judicial remedy in all such

cases.” 59 That result would be “ill-advised,” as the “courts should not be burdened with

matters which can be adequately resolved in administrative fori.” 60 Allowing agencies to

51

Woods v. Superior Ct. (1981) 28 Cal.3d 668, 671-672.

52

Id. at p. 677.

53

Id. at p. 676.

54

Id. at p. 674.

55

Id. at p. 680.

56

Ibid., italics in original.

57

Gov. Code, § 11342.2.

58

Woods v. Superior Ct., supra, 28 Cal.3d at p. 680, citing, e.g., Bright v. Los Angeles

Unified Sch. Dist. (1976) 18 Cal.3d 450, 459-464; Cooper v. Swoap (1974) 11 Cal.3d

856, 864-865; California Welfare Rights Organization v. Brian (1974) 11 Cal.3d 237,

239, 242-243; In re Jordan (1972) 7 Cal.3d 930, 939.

59

Woods v. Superior Ct., supra, 28 Cal.3d at p. 680.

60

Ibid.

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consider such challenges, the Court explained, “serves the twin goals of avoiding delay

and unnecessary expense in vindication of legal rights.” 61 And even where the validity of

a regulation must ultimately “be judicially resolved, the task of a reviewing court is

simplified by a narrowing and clarification of the issues in an administrative hearing.” 62

The Court therefore concluded that “[i]nvalid regulations need not be applied or

enforced” by the agency in its administrative hearings. 63 Applying Woods, the Court of

Appeal has similarly held that the California Air Resources Board can adjudicate

challenges to its regulations in an administrative hearing. 64

We see no persuasive basis to distinguish these authorities here. As in Woods, an

assessment of taxes by the Board or FTB would have “place[d] in issue the validity of the

regulations pursuant to which” tax liability was imposed. 65 And as in Woods, taxpayers

who disagreed with the application of such a regulation to their circumstances could

challenge it in an administrative appeal. To be sure, nothing in the regulations governing

such appeals expressly authorized challenges to tax regulations. But the same was true in

Woods. It was enough that the agency could hear challenges to its adjudicative decisions,

and that there was no relevant “limitation, factual or legal, upon the issues which may be

raised.” 66 Likewise, here, the regulations governing Board appeals did not preclude

statutory challenges to the application of tax regulations. 67

The requestor argues that Woods is distinguishable because the agency that

promulgated the regulation there also conducted the administrative hearing. But as to

appeals concerning the Board’s own tax and fee assessments, the relevant circumstances

were identical. And we see no reason why the Woods analysis would not also have

applied to appeals from FTB assessments. The Court reasoned that a regulation “in

conflict with [a] statute” is “invalid” under Government Code section 11342.2 and

therefore “need not be applied” in an administrative appeal. 68 That reasoning applies

61

Id. at p. 681.

62

Ibid.

Id. at p. 682; see also Green v. Obledo (1981) 29 Cal.3d 126, 143, fn. 12 (reiterating

63

Woods’ holding).

64

See Harris Transportation Co. v. Air Res. Bd. (1995) 32 Cal.App.4th 1472, 1479.

65

Woods v. Superior Ct., supra, 28 Cal.3d at p. 676.

66

Woods v. Superior Ct., supra, 28 Cal.3d at p. 674; see also, e.g., Harris Transportation

Co. v. Air Res. Bd., supra, 32 Cal.App.4th at p. 1477.

67

See ante, fns. 37-42.

68

Woods v. Superior Ct., supra, 28 Cal.3d at pp. 680-682, citing Gov. Code, § 11342.2

(regulations that are “in conflict” with the enabling statute are not “valid or effective”);

(continued…)

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equally whether the agency adjudicating the appeal promulgated the challenged

regulation or not. The same is true of the Court’s analysis of “practical effect[s]”:

allowing challenges to regulations at the administrative stage can “avoid[] delay and

unnecessary expense,” while aiding judicial review by “narrowing and clarif[ying]” the

issues. 69 Indeed, the latter concern is particularly salient in the highly technical tax

context, where the Court has emphasized the importance of administrative exhaustion to

“obtain the benefit of the [agency’s] expertise, permit it to correct mistakes, and save

judicial resources.” 70 As in Woods, adjudicating challenges to tax regulations fell

squarely within the Board’s area of expertise as it required construing the same statutes

and regulations the Board regularly administered. 71

Finally, Newco Leasing, Inc. v. State Board of Equalization, cited by the requestor,

is not relevant here. In Newco, the Court of Appeal stated the background principle that

the Board, when performing tax assessments, must reasonably interpret tax statutes and

“be faithful to its own announced regulations.” 72 But Newco did not involve a challenge

to a regulation’s validity, so it does not speak to the issue here. Rather, the Supreme

Court’s holding in Woods—that “[i]nvalid regulations need not be applied or enforced” at

the administrative stage—is controlling. 73

In transferring the Board’s duties to OTA, the Legislature did not eliminate the

authority to hear statutory challenges to tax regulations.

In 2017, the Legislature transferred the Board’s statutory authority to hear

taxpayer appeals to OTA. We see no evidence that, in doing so, the Legislature intended

to eliminate the authority to consider challenges to the application of tax regulations. To

the contrary, for the taxes and fees at issue here, Government Code section 15672

provides that OTA “is the successor to, and is vested with, all of the duties, powers, and

responsibilities of the [Board] necessary or appropriate to conduct appeals hearings.” 74

The Legislature also mandated that the Board’s jurisdictional regulations would

see also Verdugo Hills Hosp., Inc. v. Dep’t of Health (1979) 88 Cal.App.3d 957, 963

(applying predecessor to § 11342.2 and concluding that an agency did “not proceed[] in

the manner required by law” where it “[p]roceed[ed] pursuant to an invalid regulation”).

69

Woods v. Superior Ct., supra, 28 Cal.3d at pp. 680, 681.

70

Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1127.

71

See Burlington N. & Santa Fe Ry. Co. v. PUC (2003) 112 Cal.App.4th 881, 889.

72

Newco Leasing, Inc. v. State Bd. of Equalization (1983) 143 Cal.App.3d 120, 124.

73

Woods v. Superior Ct., supra, 28 Cal.3d at p. 682; see Harris Transportation Co. v. Air

Res. Bd., supra, 32 Cal.App.4th at p. 1479 (“a challenge to the legality of . . . regulations

is cognizable” in an administrative hearing).

74

Gov. Code, § 15672, subd. (a), italics added; see also id., § 15674, subd. (a)(1).

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“continue in force and apply to all appeals hearings.” 75 As explained above, we read

those regulations to authorize statutory challenges to tax regulations. And the Board

itself had held that it could adjudicate statutory challenges to tax regulations and had

adjudicated such challenges for decades. 76 Yet the Legislature did nothing to displace or

repudiate any Board decisions. 77

In fact, the evidence suggests that the Legislature sought to reaffirm the authority

to adjudicate challenges to tax regulations. Although the Legislature left the Board’s

jurisdictional regulations in effect, it authorized OTA to “amend, repeal, or add to” those

regulations “as necessary or appropriate to govern” OTA appeals. 78 But the Legislature

required that any such amendment be “consistent with” a 2006 Model Act governing

administrative tax tribunals. 79 And that Model Act allows taxpayers to challenge tax

regulations during administrative appeals. 80 As a result, an amendment to OTA’s

75

Gov. Code, § 15679.5, subd. (a) (maintaining in effect “the regulations contained in

Division 2.1 of Title 18 of the California Code of Regulations,” unless “in conflict with

this part”); see former Cal. Code Regs., tit. 18, § 5510 et seq. (rules for administrative

appeals to the Board, contained in Chapter 5 of Division 2.1); id., § 5410 et seq. (rules

applicable to FTB appeals to the Board, contained in Chapter 4 of Division 2.1); e.g., id.,

§ 5412 (regulation discussed above defining Board’s jurisdiction in FTB appeals).

76

See ante, fns. 43-50.

77

Accord Cal. Code Regs., tit. 18, § 30504 (precedential Board opinions “may be cited as

precedential authority to OTA unless OTA removes . . . the precedential status of that

opinion”); cf. California Renters Legal Advoc. & Educ. Fund v. City of San Mateo (2021)

68 Cal.App.5th 820, 843 (“Lawmakers are presumed to be aware of long-standing

administrative practice and, thus, the failure to substantially modify a provision is a

strong indication the administrative practice was consistent with underlying legislative

intent,” internal quotation marks, alterations, and ellipses omitted).

78

Gov. Code, § 15679.5, subd. (b)(1).

79

Id., subd. (b)(3) (“To the extent applicable and not in conflict with this part, regulatory

actions adopted to carry out this subdivision shall be consistent with the Model State

Administrative Tax Tribunal Act dated August 2006 adopted by the American Bar

Association”). The Model Act provides a legislative template for States to “establish[] an

independent tax tribunal within the executive branch of government.” (Model State

Administrative Tax Tribunal Act (Aug. 2006) § 1,

https://www.americanbar.org/content/dam/aba/administrative/taxation/policy/aba-

official-modelact-reported-8706.pdf.)

80

The Model Act authorizes the appeals tribunal to adjudicate “questions of law and fact

arising under the tax laws of this State.” (Model State Administrative Tax Tribunal Act,

supra, § 7, subd. (a).) The validity of tax regulations would fall within this broad grant of

(continued…)

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jurisdictional regulations that prohibited challenges to tax regulations would likely be

invalid as not “consistent with” the Model Act. 81 The Legislature’s incorporation of the

Model Act is further evidence of its intent for OTA panels, like the Board before them, to

hear statutory challenges to tax regulations.

For these reasons, if an OTA panel determines that applying a tax regulation to the

taxpayer’s circumstances would “conflict with” governing statutes, it may decline to

enforce the regulation against that taxpayer. 82 In making that determination, panels must

afford appropriate deference to the view of the agency that promulgated the regulation,

just as a court would do on judicial review. 83 Panels have no authority to apply their

view of a regulation’s validity outside the context of adjudicating a taxpayer appeal.

The APA Does Not Bar OTA Panels from Adjudicating Challenges to Regulations.

Notwithstanding the above authorities, the requestor argues that if OTA panels

adjudicate challenges to tax regulations, it would conflict with the California

Administrative Procedure Act. A 2003 opinion of the Legislative Counsel of California

raised similar concerns as to the Board’s authority. 84 We see no conflict with the APA.

The APA’s requirements for agency rulemaking do not apply here.

The APA regulates two modes of agency action. First, it governs the quasi-

legislative process by which agencies promulgate regulations. 85 The statute requires an

agency to “give the public notice” of a regulatory proposal and “an opportunity to

comment.” 86 Second, the APA governs the quasi-judicial process by which agencies

authority. Indeed, the Act even authorizes the tribunal to “decide questions regarding . . .

the constitutionality of regulations.” (Id., § 7, subd. (e), italics added.)

81

See Gov. Code, § 15679.5, subd. (b)(3).

82

Gov. Code, § 11342.2.

83

See Yamaha Corp. of America v. State Board of Equalization, supra, 19 Cal.4th at

pp. 6-15; accord, e.g., In the Matter of the Appeal of Save Mart Supermarkets &

Subsidiary, supra, 2002 WL 245682, at p. *3 (Board decision applying Yamaha

framework to evaluate challenge to FTB regulation).

84

See In the Matter of the Appeal of: Safeway, Inc., supra, 2005 WL 3530181, at p. *3 &

fn. 3 (describing Legislative Counsel opinion and disagreeing with its analysis).

85

See Tidewater Marine W., Inc. v. Bradshaw (1996) 14 Cal.4th 557, 568; see Gov.

Code, § 11342.600 (defining “regulation” to include “every rule, regulation, order, or

standard of general application,” italics added).

86

Tidewater Marine W., Inc. v. Bradshaw, supra, 14 Cal.4th at p. 568; see Gov. Code,

(continued…)

13

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adjudicate the obligations of particular parties. 87 OTA panels engage in this type of

decision making—finding facts specific to the taxpayer, determining the relevant law,

and applying the law to the facts. 88 OTA panels are subject to the APA’s rules governing

agency adjudications; in addition, they are expressly exempted from the APA’s

rulemaking procedures, even if an OTA opinion is designated as precedential. 89

Because OTA panels engage in quasi-judicial decision making, the requestor

argues that they cannot adjudicate challenges to tax regulations. In the requestor’s view,

if an OTA panel determines that a regulation is invalid, it would effectively repeal the

regulation. And repealing a regulation is a quasi-legislative action subject to the APA’s

rulemaking requirements. 90 Given that OTA panels do not follow those requirements, the

requestor concludes that they cannot hear challenges to regulations.

But the California Supreme Court has rejected the premise of this argument. In

Woods, the Court held that an agency’s determination that a regulation is invalid during

an administrative appeal is a “quasi-adjudicative” action—not a “quasi-legislative” one. 91

As a result, the agency could determine a regulation’s validity, even though the appeal

did not follow the APA’s rulemaking requirements. 92 Likewise, here, OTA decisions

remain “adjudicatory in nature” even if they determine “the validity of [tax]

regulations.” 93 After all, if a court holds that a tax regulation may not lawfully be applied

§ 11340 et seq.; Asimow et al., Cal. Practice Guide: Administrative Law (The Rutter

Group 2024) ¶ 23:1 et seq.

87

See Asimow et al., Cal. Practice Guide: Administrative Law, supra, ¶ 4:1 et seq.

88

See Gov. Code, § 11405.50 (APA definition of an adjudicative decision as “an agency

action of specific application that determines a legal right, duty, privilege, immunity, or

other legal interest of a particular person,” italics added).

89

See Gov. Code, § 15674, subd. (a)(3); Cal. Code Regs., tit. 18, § 30216; Gov. Code,

§ 15679, subd. (b).

90

Gov. Code, § 11346, subd. (a) (APA rulemaking requirements apply to the “repeal of

administrative regulations” and “shall not be superseded or modified by any subsequent

legislation except to the extent that the legislation shall do so expressly”).

91

Woods v. Superior Ct., supra, 28 Cal.3d at p. 676; see ibid. (claims in such an appeal

“are predicated upon the existence of facts which are peculiar to” particular parties).

92

Id. at pp. 676-678. The Court evaluated the mode of agency decision making to

determine the appropriate method of judicial review. Given that the decision was

adjudicative, the Court held that it was reviewable by administrative mandamus—

typically used to review adjudicative agency decisions.

93

Id. at p. 676; see also Green v. Obledo, supra, 29 Cal.3d at p. 143, fn. 12 (regulations

can be challenged in an administrative hearing, which is adjudicatory in nature).

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to a litigant, it is clearly acting in a judicial capacity, not a legislative one. Where an

OTA panel makes an identical determination, it engages in adjudicative decision making

as well. The APA’s requirements for “quasi-legislative” rulemaking therefore do not

apply. 94

That conclusion is consistent with the legal effect of OTA opinions. Even if a

panel declines to apply a tax regulation in an individual appeal, it has no authority to

“repeal” the regulation, that is, remove it from the California Code of Regulations. 95 And

although an OTA opinion concerning a regulation’s application to a particular taxpayer

may have precedential effect in later OTA appeals, the same is true of many other OTA

decisions—for example, construing a statute or regulation. If an OTA decision interprets

an ambiguous regulation, for instance, that would not constitute an “amendment” for

purposes of the APA’s rulemaking requirements, even if the decision is deemed

precedential. Rather, as the Supreme Court has explained, agency “interpretations that

arise in the course of case-specific adjudication are not regulations, though they may be

persuasive as precedents in similar subsequent cases.” 96

The APA’s cause of action for declaratory relief does not affect the analysis.

Nor do we believe that allowing OTA panels to hear challenges to tax regulations

would circumvent the APA’s declaratory relief mechanism. Government Code section

11350(a) provides that “[a]ny interested person may obtain a judicial declaration as to the

validity of any regulation . . . by bringing an action for declaratory relief in the superior

court in accordance with the Code of Civil Procedure.” 97 But although the section

provides one path to challenge a regulation in court, it does not state that it is the only

method to resist the application of a regulation. As the Court of Appeal has explained,

the “purpose of section 11350 is not to limit the available remedies in challenging a

94

Gov. Code, § 11346, subd. (a).

95

See generally Gov. Code, § 11346 et seq. (detailed procedural requirements for an

agency to remove a regulation from the California Code of Regulations); cf. Pidgeon v.

Turner (Tex. 2017) 538 S.W.3d 73, 88, fn. 21 (where a court determines that a law is

invalid and declines to apply it to a particular dispute, “the law remains in place unless

and until the body that enacted it repeals it”).

Tidewater Marine W., Inc. v. Bradshaw, supra, 14 Cal.4th at p. 571; see also In the

96

Matter of the Appeal of: Safeway, Inc., supra, 2005 WL 3530181, at p. *5.

97

Gov. Code, § 11350, subd. (a); see Code Civ. Proc., § 1060 (authorizing an action for

declaratory relief in superior court); see also Asimow et al., Cal. Practice Guide:

Administrative Law, supra, ¶¶ 22:6, 13:375; Woods v. Superior Ct., supra, 28 Cal.3d at

p. 682; see, e.g., California Dep’t of Tax & Fee Admin. v. Superior Ct. (2020)

48 Cal.App.5th 922, 928 (discussing plaintiff’s standing to challenge regulation).

15

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regulation, but rather to permit any interested person . . . to test [a regulation’s] validity”

without first violating it. 98

In fact, there are multiple ways to challenge a regulation. To challenge an

agency’s quasi-legislative act of promulgating a regulation outside the context of a

specific dispute, a party can either seek a declaratory judgment or proceed by ordinary

mandamus. 99 To challenge a regulation in the context of an agency adjudication, a party

can often proceed by administrative mandamus, as the Supreme Court recognized in

Woods. 100 In the tax context, taxpayers who wish to challenge administrative

assessments ordinarily proceed by paying the tax then suing for a refund; as part of a

refund suit, taxpayers can challenge the validity of relevant tax regulations. 101

In contrast, a taxpayer seeking to challenge a tax regulation via a declaratory relief

claim under section 11350 may face obstacles. If the taxpayer has outstanding tax

liabilities, a section 11350 claim may be barred by the “pay first, litigate second” rule,

which ordinarily requires a taxpayer to pay a disputed tax before seeking judicial

review. 102 Even after the tax is paid, a section 11350 claim may still be barred under the

98

Stoneham v. Rushen (1984) 156 Cal.App.3d 302, 310; see also Code Civ. Proc., § 1062

(“The remedies provided by this chapter [authorizing declaratory relief] are cumulative,

and shall not be construed as restricting any remedy, provisional or otherwise, provided

by law for the benefit of any party to such action”).

99

See Gov. Code, § 11350 (declaratory judgment); Code Civ. Proc., § 1085 (ordinary

mandamus); Woods v. Superior Ct., supra, 28 Cal.3d at p. 682; see also Asimow et al.,

Cal. Practice Guide: Administrative Law, supra, ¶ 13:3 (regulations can “be reviewed by

traditional mandamus, which appears to be interchangeable with declaratory relief”).

100

See Woods v. Superior Ct., supra, 28 Cal.3d at p. 682. Administrative mandamus is

generally available to challenge “any final administrative order or decision made as the

result of a proceeding in which by law a hearing is required to be given, evidence is

required to be taken, and discretion in the determination of facts is vested in the inferior

tribunal, corporation, board, or officer.” (Code Civ. Proc., § 1094.5, subd. (a).)

101

See California Dep’t of Tax & Fee Admin. v. Superior Ct., supra, 48 Cal.App.5th at

p. 934 (“[T]axpayers with outstanding tax assessments . . . have an administrative and

judicial forum for testing the validity of tax regulations through the tax refund

procedures”); e.g., Oliver & Williams Elevator Corp. v. State Bd. of Equalization (1975)

48 Cal.App.3d 890 (determining validity of tax regulation in refund suit).

102

See California Dep’t of Tax & Fee Admin. v. Superior Ct., supra, 48 Cal.App.5th at

pp. 930, 933 (where taxpayer had not yet paid disputed tax, section 11350(a) claim to

challenge validity of tax regulation was barred by Cal. Const., art. XIII, § 32); see also

Woosley v. State of California (1992) 3 Cal.4th 758, 785, fn. 20 (“Government Code

section 11350 . . . is strictly construed in tax cases and may not be used to prevent the

state from collecting taxes”).

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rule that declaratory relief is sometimes unavailable where there is an adequate

alternative remedy—here, challenging the regulation through a refund suit. 103 And even

where a section 11350 claim is available, section 11350(d) typically limits the record on

judicial review to the materials before the agency during the rulemaking. 104 Given these

constraints, we do not believe the Legislature intended section 11350 to be the sole

means to challenge regulations in this context. And we do not see how an OTA panel’s

adjudication of such challenges would undercut the APA’s declaratory relief mechanism.

The California Constitution Does Not Bar OTA Panels from Adjudicating

Challenges to Tax Regulations.

The requestor also argues that if OTA panels hear challenges to regulations, it

would violate the California Constitution. The Legislative Counsel raised similar

concerns as to Board appeals. 105 We see no constitutional problems.

Article III, section 3.5 does not bar OTA panels from deciding whether tax

regulations are inconsistent with governing statutes.

In Southern Pacific Transportation Co. v. Public Utilities Commission, the

California Supreme Court held that in an administrative adjudication “the Public Utilities

Commission had the power to declare a state statute unconstitutional.” 106 In response, the

voters enacted Article III, section 3.5 of the California Constitution. It provides that an

“administrative agency . . . has no power” to “declare a statute unenforceable, or refuse to

enforce a statute, on the basis of it being unconstitutional unless an appellate court has

made a determination that such statute is unconstitutional.” 107 Section 3.5 similarly bars

an agency from “refus[ing] to enforce a statute on the basis that federal law or federal

regulations prohibit the [statute’s] enforcement,” unless applying an appellate court’s

103

See Honeywell, Inc. v. State Bd. of Equalization (1975) 48 Cal.App.3d 907, 914, citing

Code Civ. Proc., § 1061; Flying Dutchman Park, Inc. v. City & Cnty. of San Francisco

(2001) 93 Cal.App.4th 1129, 1138-1139 (declaratory relief unavailable given alternative

of local tax refund procedure); see also K. & W. Pharmacy, Inc. v. State Dep’t of Soc.

Welfare (1969) 275 Cal.App.2d 139, 140-142.

104

Gov. Code, § 11350, subd. (d); see Asimow et al., Cal. Practice Guide: Administrative

Law, supra, ¶ 20:20 (“When a rule adopted under the APA is challenged in court by an

action for declaratory judgment, the rulemaking file becomes the rulemaking record on

judicial review. . . . [N]o additional materials can be admitted,” citation omitted).

105

See In the Matter of the Appeal of: Safeway, Inc., supra, 2005 WL 3530181, at p. *3

& fn. 3 (describing 2003 Legislative Counsel opinion and disagreeing with its analysis).

106

Reese v. Kizer (1988) 46 Cal.3d 996, 1002; see S. Pac. Transportation Co. v. Pub.

Utilities Com. (1976) 18 Cal.3d 308.

107

Cal. Const., art. III, § 3.5, subd. (a); see also id., subd. (b).

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determination. 108 In light of section 3.5, it is clear that OTA panels (like the Board before

them) cannot “declare a [tax] statute unconstitutional” and “refuse to enforce” it on that

basis. 109

But section 3.5 does not affect our conclusion here. Although the provision limits

an agency’s ability to refuse to enforce a “statute,” it says nothing about an agency’s

power to decline to enforce a regulation. Both the California Supreme Court and the

Court of Appeal have therefore indicated that section 3.5 does not limit an agency’s

authority to determine that a regulation is invalid in particular circumstances. 110 Nor

would such a reading appear to further the provision’s purpose, which is “to prevent

agencies from using their own interpretation” of applicable law “to thwart the mandates

of the Legislature.” 111

In any event, section 3.5 would at most restrict OTA’s authority to hear challenges

to regulations in limited circumstances. As the Court of Appeal explained in Burlington

Northern and Santa Fe Railway Co. v. Public Utilities Commission, section 3.5 “only

restricts [an agency’s] use of two sources as justification for refusing to enforce a statute:

the constitution and federal law.” 112 As a result, section 3.5 does not bar an

administrative agency “from refusing to enforce a statute because it is inconsistent with

another statute.” 113 If an agency can decline to apply a statute as inconsistent with

another statute, then it can surely decline to apply a regulation on the same basis.

There are no separation-of-powers concerns here.

We likewise conclude that authorizing OTA panels to adjudicate challenges to

regulations would not violate the separation of powers. We first consider the requestor’s

arguments that OTA panels sit in a different position than the Board for separation-of-

powers purposes. We then turn to the merits of the constitutional analysis.

108

Cal. Const., art. III, § 3.5, subd. (c).

109

Cal. Const., art. III, § 3.5, subds. (a), (b); see, e.g., 76 Ops.Cal.Atty.Gen. 98, 101-102

(1993) (under section 3.5, the Board must enforce a statute even if it concludes the statute

is unconstitutional); 64 Ops.Cal.Atty.Gen. 156, 162-164 (1981) (same).

110

See Goldin v. Pub. Utilities Comm’n (1979) 23 Cal.3d 638, 669, fn. 18 (section 3.5

“places certain restrictions on administrative agencies relative to their refusal to enforce

statutes . . . . It does not affect their enforcement of their own rules”); Lewis-Westco &

Co. v. Alcoholic Bev. Control Appeals Bd. (1982) 136 Cal.App.3d 829, 840, fn. 12.

Reese v. Kizer, supra, 46 Cal.3d at p. 1002, italics added; see also Lockyer v. City &

111

Cnty. of San Francisco (2004) 33 Cal.4th 1055, 1083-1084 (similar).

112

Burlington N. & Santa Fe Ry. Co. v. PUC, supra, 112 Cal.App.4th at p. 887.

113

Id. at pp. 887-888.

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Constitutional Status of the Board and OTA

At the outset, the requestor argues that, for two reasons, OTA panels have more

limited adjudicative authority than the Board did. We do not agree.

First, the requestor notes that the Board was created by the state Constitution,

whereas OTA was created by the Legislature. That distinction can be significant. Under

the “Constitution, the Legislature may not ordinarily confer judicial functions upon any

statewide administrative agency which the Legislature has created.” 114 Such agencies

cannot exercise judicial power in the constitutional sense (though they may still exercise

broad adjudicative authority, as explained below). 115 But “where the Constitution itself

has authorized the creation of an agency and has also authorized the Legislature to vest

judicial powers in that agency, the picture is different.” 116 Such an agency can be

delegated judicial authority within the scope of the constitutional authorization. 117 The

Public Utilities Commission is one example. 118

As the requestor observes, OTA cannot exercise judicial authority. But neither

could the Board of Equalization. Although the Constitution created the Board, it did not

authorize the Board to exercise judicial power in the constitutional sense. 119 For this

reason, the Supreme Court has long held that the Legislature cannot confer judicial

authority on the Board in adjudicating taxpayer appeals. 120 The Board thus stood in the

same position as OTA and other executive agencies in the separation-of-powers analysis.

114

Perry Farms, Inc. v. Agric. Lab. Rels. Bd. (1978) 86 Cal.App.3d 448, 460.

115

See post, fns. 127-150 (concluding that agencies created by the Legislature can

adjudicate challenges to regulations without exercising judicial power in the

constitutional sense).

116

Perry Farms, Inc. v. Agric. Lab. Rels. Bd., supra, 86 Cal.App.3d at p. 460.

117

See Lockyer v. City & Cnty. of San Francisco, supra, 33 Cal.4th at pp. 1089-1090.

118

See Perry Farms, Inc. v. Agric. Lab. Rels. Bd., supra, 86 Cal.App.3d at p. 460.

119

See Cal. Const., art. XIII, §§ 17-19, 28; id., art. XX, § 22; compare Perry Farms, Inc.

v. Agric. Lab. Rels. Bd., supra, 86 Cal.App.3d at p. 460 & fn. 6 (Constitution authorized

Legislature to “confer . . . judicial powers” on agency regulating employee welfare).

120

See Aronoff v. Franchise Tax Bd. (1963) 60 Cal.2d 177, 182 (“no judicial power has

been, or could constitutionally be, conferred upon” the Board), citing Standard Oil Co. v.

State Bd. of Equalization (1936) 6 Cal.2d 557, 565. Although the Board was once

authorized to exercise judicial power as to its former authority over alcohol licensing (see

Covert v. State Bd. of Equalization (1946) 29 Cal.2d 125, 131-132), that authority was

later transferred to a different agency (see Cal. Const., art. XX, § 22, subd. (d)).

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Second, the requestor cites Government Code section 15672(b), which states that

OTA “tax appeals panels and the appeals hearings conducted by the tax appeals panels

. . . shall not be construed to be, or to be conducted by, a tax court.” 121 Because OTA is

not a “court,” the requestor argues, its panels lack authority to make “judicial”

determinations concerning a regulation’s validity. But inasmuch as section 15672(b)

reiterates that OTA is not part of the judicial branch and cannot exercise judicial power, it

simply restates a background principle generally applicable to executive agencies—

including both OTA and the Board. In the words of the Supreme Court, “administrative

boards are not courts” and thus cannot “exercis[e] the judicial power of the state” in the

constitutional sense. 122

Moreover, the legislative record suggests that section 15672(b) was not intended

to alter OTA’s adjudicative authority. In an uncodified portion of the legislation, the

Legislature stated that because OTA panels are “administrative bod[ies] and are not part

of the judicial branch, it is the intent of the Legislature for taxpayers to choose by whom

they are represented, . . . as was previously the case” in appeals before the Board.” 123

Consistent with that intent, the Legislature amended a nearby statute to clarify that non-

attorneys, such as public accountants, can represent taxpayers in OTA appeals. 124 And it

directed OTA to “adopt regulations regarding the presentation of evidence and

preparation for hearings” that “do not require application of specialized knowledge.” 125

That legislative context clarifies the likely meaning of section 15672(b)’s

statement that OTA is not “a tax court.” By reaffirming that OTA panels “are not part of

the judicial branch,” the provision makes clear that taxpayer appeals cannot be subject to

“court” rules limiting participation to attorneys—such as bar registration requirements, or

specialized evidentiary procedures. 126 Rather, OTA must facilitate taxpayer

representation by non-attorneys, as the Board had done. And because the Legislature’s

objective to allow non-attorneys to practice does not suggest any intent to constrain OTA

panels’ adjudicative authority, we conclude that OTA panels possess the same authority

for these purposes as the Board and other executive agencies generally. As discussed

below, that authority includes the ability to adjudicate statutory challenges to regulations.

121

Gov. Code, § 15672, subd. (b).

McHugh v. Santa Monica Rent Control Bd. (1989) 49 Cal.3d 348, 361, internal

122

quotation marks omitted.

123

Stats. 2017, ch. 252 (AB 131) § 2, subd. (b); see id., subd. (c).

See Gov. Code, § 15676; see Stats. 2017, ch. 252 (AB 131) § 12 (amending section

124

15676).

125

Gov. Code, § 15679.5, subd. (b)(2).

126

Stats. 2017, ch. 252 (AB 131) § 2, subd. (b).

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Separation-of-Powers Analysis

The California Constitution provides that the “powers of state government are

legislative, executive, and judicial. Persons charged with the exercise of one power may

not exercise either of the others except as permitted by this Constitution.” 127 It further

provides that the “judicial power of this State is vested in” the courts. 128 Here, the

requestor argues that if an OTA panel determines that a tax regulation is inconsistent with

governing statutes, it would exercise the “judicial power” in violation of the Constitution.

We do not share the requestor’s concerns. As a general rule, the “separation of

powers doctrine is violated only when the actions of a branch of government defeat or

materially impair the inherent functions of another branch.” 129 Here, we see no reason

why allowing OTA panels to consider the validity of tax regulations would impair the

judiciary’s functions. To the contrary, as Woods explained, it is helpful to the judiciary

when an agency evaluates the validity of regulations in an administrative appeal. Such

administrative review avoids “burden[ing] [courts] with matters which can be adequately

resolved in administrative fori.” 130 And even if judicial review is necessary, “the task of

a reviewing court is simplified by a narrowing and clarification of the issues.” 131

To be sure, unlike OTA, the agency hearing the administrative appeal in Woods

also promulgated the challenged regulations. But we see no reason why the Legislature’s

decision to separate agency rulemaking and adjudicative functions into separate agencies

located within the same branch of government should alter the separation-of-powers

analysis, which is primarily concerned with policing the boundary lines between branches

of government. If anything, the Legislature’s decision to divide rulemaking and

adjudicative authority between different executive agencies advances the “primary

purpose” of the separation-of-powers doctrine: “to prevent the combination” of the

“fundamental powers of government” “in the hands of a single person or group.” 132

127

Cal. Const., art. III, § 3.

128

Cal. Const., art. VI, § 1.

129

Burlington N. & Santa Fe Ry. Co. v. PUC, supra, 112 Cal.App.4th at p. 888, quoting

In re Rosenkrantz (2002) 29 Cal.4th 616, 662; see also In re Att’y Discipline Sys. (1998)

19 Cal.4th 582, 602 (separation-of-powers jurisprudence is “pragmatic” and “does not

command a hermetic sealing off of the three branches of Government from one another,”

internal quotation marks omitted).

130

Woods v. Superior Ct., supra, 28 Cal.3d at p. 680.

131

Id. at p. 681; see Loeffler v. Target Corp., supra, 58 Cal.4th at p. 1127 (noting benefits

of administrative adjudication of tax claims).

132

Davis v. Mun. Ct. (1988) 46 Cal.3d 64, 76; see McHugh v. Santa Monica Rent Control

Bd., supra, 49 Cal.3d at pp. 361-362 (emphasizing the “principle of check”).

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Burlington Northern is again instructive. There, the Court of Appeal held that the

Public Utilities Commission could decline to enforce a statute based on the agency’s

conclusion that it conflicted with another statute. 133 In rejecting a separation-of-powers

challenge, the court reasoned that the agency’s decision would not “defeat” or “impair”

the judicial function. 134 The agency was “in a favorable position to decide whether two

statutes it is empowered and commanded to enforce can be consistently enforced.” 135

Similar reasoning applies here.

The requestor observes that, by analyzing a regulation’s validity, an OTA panel

would conduct the same type of analysis performed by courts. But the same is true of all

OTA panel functions: finding facts, determining the law, and applying the law to the

facts. Yet these types of “legislative delegations of adjudicatory power” to executive

agencies are now “routinely accepted.” 136 Moreover, while the judiciary may have the

final say as to a regulation’s validity, that too is true of all OTA decisions. OTA panels

interpret statutes and regulations, for instance, yet final authority over those issues “rests

with the courts.” 137 Accordingly, the fact that a court may ultimately determine a tax

regulation’s validity does not mean that OTA panels cannot consider the issue at the

administrative stage; indeed, under exhaustion rules, taxpayers ordinarily must raise

claims at the administrative stage to preserve them for judicial review. 138

Finally, the circumstances here are distinguishable from cases where executive

agencies exceeded constitutional bounds. First, the California Supreme Court has held

that an agency would exercise “judicial power” by determining that the “basic statute

under which it operates” is unconstitutional—an extraordinary question as to which the

133

Burlington N. & Santa Fe Ry. Co. v. PUC, supra, 112 Cal.App.4th at pp. 888-889.

134

Ibid.

135

Id. at p. 889. As discussed above, the Public Utilities Commission is authorized to

exercise judicial power in some circumstances. But the court’s separation-of-powers

analysis did not rely on that fact. (See id. at pp. 888-889.)

136

Asimow et al., Cal. Practice Guide: Administrative Law, supra, ¶ 2:125; see McHugh

v. Santa Monica Rent Control Bd., supra, 49 Cal.3d at p. 372 (modern decisions

recognize that “agencies do indeed exercise ‘judicial-like’ powers, and accept the need

for [such] powers in our increasingly complex government”).

137

Newco Leasing, Inc. v. State Bd. of Equalization, supra, 143 Cal.App.3d at p. 124.

138

See Loeffler v. Target Corp., supra, 58 Cal.4th at p. 1108, citing Rev. & Tax Code,

§ 6932; see also, e.g., Rev. & Tax Code, §§ 19382, 19385 (authorizing a tax refund suit

against FTB “upon the grounds set forth in [a] claim for refund”); Cal. Code Regs.,

tit. 18, § 30103, subd. (a)(3), (4) (OTA jurisdiction to hear appeal from FTB denial of

refund claim).

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agency could not be expected to provide “a dispassionate hearing.” 139 But here, a

challenge to an FTB or CDTFA regulation would not call into question OTA’s own

rulemaking, let alone its “very existence,” so taxpayers can “expect a dispassionate

hearing” on a question within the agency’s ordinary area of expertise. 140 And although

the Supreme Court later explained that an agency exercises judicial power by declaring

that any type of statute is unconstitutional, we are aware of no authority extending that

rule to administrative regulations. 141

Second, agency adjudications can sometimes exceed constitutional limits if there

is inadequate judicial review. 142 That is not an issue here as taxpayers who disagree with

an OTA panel decision can seek de novo review in superior court. 143 As to FTB and

CDTFA, their authority to seek judicial review is unsettled; neither agency has ever

sought to challenge an OTA decision. 144 But we are not aware of any authority holding

that judicial review is required when an adjudicative agency rules in a regulated party’s

favor. 145 Moreover, to the extent FTB and CDTFA lack authority to seek judicial review,

139

State of California v. Superior Ct. (1974) 12 Cal.3d 237, 251.

140

Ibid.; see Burlington N. & Santa Fe Ry. Co. v. PUC, supra, 112 Cal.App.4th at p. 889

(agency was well “position[ed] to decide whether two statutes it is empowered . . . to

enforce can be consistently enforced, more so than with constitutional law”).

141

Compare Lockyer v. City & Cnty. of San Francisco, supra, 33 Cal.4th at pp. 1092-

1093 (agencies cannot determine constitutional validity of statutes), with Woods v.

Superior Ct., supra, 28 Cal.3d at pp. 680-681 (agency could determine statutory validity

of regulations), Burlington N. & Santa Fe Ry. Co. v. PUC, supra, 112 Cal.App.4th at p.

889 (agency could determine whether statute conflicted with other statute). As described

above, the Board prohibited constitutional challenges to FTB regulations, (see ante, fn.

41 [describing jurisdictional regulations]), but we are aware of no authority requiring that

limitation on separation-of-powers grounds. In any event, the Board’s rules permitted

challenges to FTB regulations on statutory grounds. (See ibid.)

142

See McHugh v. Santa Monica Rent Control Bd., supra, 49 Cal.3d at pp. 372-373.

143

See Gov. Code, § 15677.

144

The statute authorizing taxpayer challenges to OTA decisions is silent as to FTB and

CDTFA’s authority to seek judicial review. (See Gov. Code, § 15677.) Whether those

agencies may nonetheless seek judicial review via traditional or administrative

mandamus, the default mechanisms to challenge agency action in the absence of express

statutory authorization (see Code Civ. Proc., §§ 1085, 1094.5; ante, fns. 99-100), or

through other means such as a declaratory-judgment action (see, e.g., Code Civ. Proc.,

§ 1060), is beyond the scope of our analysis.

145

To the contrary, most agency adjudicative decisions are never subject to judicial

review in this scenario: the regulated party has prevailed and thus has no reason to sue,

(continued…)

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it would be true as to all OTA decisions, not just those concerning challenges to

regulations. We have no reason to think that all such decisions, including those

performing routine interpretation of the Revenue and Tax Code, pose separation-of-

powers concerns. And FTB’s authority to challenge Board decisions was similarly

unsettled; FTB never attempted to seek judicial review in that context either. Yet we are

aware of no authority calling into question the Board’s decades of decisions, including

those adjudicating challenges to FTB regulations.

Third, an agency violates separation-of-powers principles by adjudicating disputes

that are not “reasonably necessary to effectuate” its “primary, legitimate regulatory

purposes.” 146 For example, the Supreme Court held that a rent control board cannot

adjudicate “a landlord’s common law counterclaims” against a tenant, which would be

“extraneous” to the Board’s purpose of regulating rent levels. 147 Here, in contrast,

adjudicating challenges to tax regulations is reasonably necessary to effectuate OTA’s

regulatory purpose: to provide “a fair and efficient appeals process.” 148 Allowing such

challenges “avoid[s] delay and unnecessary expense in vindication of legal rights,” while

promoting “the efficient use of governmental resources.” 149 An OTA panel’s

adjudication of such claims therefore raises no separation-of-powers concerns. 150

CONCLUSION

When adjudicating a taxpayer appeal, an OTA panel can evaluate whether

applying a particular tax regulation to that taxpayer’s circumstances would conflict with

governing statutes. If so, the panel can decline to apply the regulation in determining the

taxpayer’s liability.

while the agency typically cannot sue itself to challenge its own decisions. (See, e.g.,

Harris Transportation Co. v. Air Res. Bd., supra, 32 Cal.App.4th at pp. 1476-1479 [Air

Resources Board could declare its own regulations invalid in administrative appeal, even

though there would typically be no possibility of judicial review of that determination].)

146

McHugh v. Santa Monica Rent Control Bd., supra, 49 Cal.3d at p. 372, italics omitted.

147

Id. at pp. 374-375; see also Walnut Creek Manor v. Fair Emp. & Hous. Com. (1991)

54 Cal.3d 245, 265 (agency could not award emotional distress damages in housing

discrimination case).

148

Stats. 2017, ch. 16 (AB 102) § 2, subd. (b); id., subd. (a).

149

Woods v. Superior Ct., supra, 28 Cal.3d at pp. 680-681.

150

See also, e.g., McHugh v. Santa Monica Rent Control Bd., supra, 49 Cal.3d at p. 375

(agency could determine excessive rents charged by landlord to advance purpose of

regulating rent levels); Bradshaw v. Park (1994) 29 Cal.App.4th 1267, 1275-1277

(agency could adjudicate monetary penalties against employers who failed to secure

workers’ compensation insurance to advance purpose of funding injured workers).

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