Much to the recent surprise of many in the tax community, the California Department of Tax and Fee Administration (“CDTFA”) is able to adopt or amend regulations without the normal review process by the Office of Administrative Law (“OAL”) under the Administrative Procedures Act (“APA”).
SB 86, The Taxpayer Transparency and Fairness Act of 2017, established the CDTFA. Tucked away in Section 5, Part 8.7, Chapter 4 (Regulations) was section 15570.40 added to Division 3 of Title 2 of the Government Code, which provided in pertinent part:
(a) The department may adopt regulations as necessary or appropriate to carry out the purposes of this part.
(b) Chapter 3.5 (commencing with Section 11340) of Part 1 shall not apply to any standard, criterion, procedure, determination, rule, notice, or guideline established or issued by the department. (Emphasis added.)
“Regulation” means every rule, regulation, order, or standard of general application or the amendment, supplement, or revision of any rule, regulation, order, or standard adopted by any state agency to implement, interpret, or make specific the law enforced or administered by it, or to govern its procedure. (Government Code section 11342.600.)
The APA contains the statutes governing the rulemaking process. These statutes are found in Chapter 3.5 of the Government Code, section 11340 et seq. The APA establishes rulemaking procedures and standards for state agencies in California. The requirements set forth in the APA are designed to provide the public with a meaningful opportunity to participate in the adoption of state regulations and to ensure that regulations are clear, necessary and legally valid. State regulations must also be adopted in compliance with regulations adopted by OAL (see California Code of Regulations, Title 1, sections 1-280)
The exemption from these provisions for CDTFA largely went unnoticed because the agency, after its formation in 2017, continued to essentially follow the same procedures as its predecessor State Board of Equalization, which was not exempt in noticing and holding interested parties’ meetings. Unbeknownst to the participants attending CDTFA’s interested parties’ meetings and/or providing written comments was that CDTFA would only be submitting proposed regulatory changes to OAL under its “file and print” procedure. Under the “file and print” procedure, OAL does not conduct any substantive review regarding clarity, necessity and validity of the proposed regulation. Rather, OAL simply transmits the regulation to the Secretary of State and for publication in the California Code of Regulations.
The Legislature is currently considering SB 825 which proposes amending Government Code section 15570.40(b) to repeal the APA exemption for CDTFA beginning on January 1, 2022.