You have just been part of a California Department of Tax and Fee Administration (“CDTFA”) audit and received a Notice of Determination. What does this mean?
The CDTFA is responsible for administering California’s sales and use, fuel, tobacco, alcohol, and cannabis taxes, as well as a variety of other taxes and fees. They were formerly known as the Board of Equalization. A Notice of Determination is usually sent when the CDTFA determines that you either (1) have underpaid taxes or fees or (2) that you owe further taxes or fees. The notice will state the following:
However, if you do not agree with a decision regarding your liability, then you can dispute the decision by filing a timely appeal, also called a petition for redetermination (“Petition”).
Generally, the appeal process begins after a Notice of Determination has been mailed. From the date of mailing the Notice of Determination, you generally have 30 days to file a Petition. The timing is important here because if you do not file the Petition before the filing deadline, then the liability will be final and due. However, if you miss the filing deadline for the petition then you may still be able to claim a refund by paying the tax and fee due and filing the appropriate refund form (i.e.- CDTFA-101, CDTFA-101-DMV) within certain timing limitations.
The petition for redetermination is where you illustrate the reasons you believe that you do not owe the tax or fee. The petition must include the following information: (1) tax or fee program account number, (2) be in writing, (3) state the amount you wish to dispute, (4) the specific grounds or reasons you believe you do not owe the tax or fee, and (5) be signed by you or your authorized representative. The petition may also include a request for an appeals conference. You may submit your petition by letter or use the form provided by the CDTFA, CDTFA-416, Petition for Redetermination.
After filing a Petition for redetermination, it is reviewed by the Business Tax and Fee Division (“BTFD”). The BTFD may ask for additional documentation that supports your position. After review, the BTFD will notify you of its conclusion. If the BTFD concludes that your petition should be denied, then it will give you an option to request an appeals conference (or confirm an appeals conference if you have requested one in your petition). If a timely request or confirmation is not timely made, then a Notice of Redetermination will be issued based on BTFD’s conclusion ending your appeal process. It is important to keep track of these time limitations during the appeals process.
If your decision was denied by the BTFD and you have timely requested or confirmed the request for an appeals conference, then the BTFD will mail you a letter with a Verification of Appeals Conference form and that it has referred your case to the Appeals Bureau. You are required to complete and return the letter within 15 days. The appeals conference is meant to be a discussion between you and the BTFD presenting your respective arguments and supporting evidence of the relevant facts and law to the Appeals Bureau.
After the conference, the Appeals Bureau will prepare a written decision that includes its analysis. The Appeals Bureau will then either: (1) grant your appeal in full, (2) deny your appeal in full, (3) grant in part and deny in part, or (4) the BTFD conducts a reaudit. At this point, if you do not agree with the decision made by the Appeals Bureau, then you have two options remaining: (1) Submit a written request for reconsideration, or (2) Appeal the decision to the Office of Tax Appeals. Both Requests must be made 30 days after the Appeals Bureau Decision. If the Appeals Bureau grants the written request for reconsideration, then the Bureau will administer a supplemental decision. You will then have the same two options as before. However, there is a 30-day timeline to appeal. If there is no timely request, then a notice of redetermination will be issued based on the decision and the appeal will end.
If you decide to appeal before the OTA, then the parties will have the opportunity to present their respective positions to a three-member panel of judges that will issue a written decision. After the OTA’s decision, the case is then returned to the CDTDA for issuing the notice of Redetermination in agreement with the OTA’s decision.
At this point, after a final decision is made on your appeal, the CDTFA will send you a notice of redetermination which you MUST pay even if you do not agree with the assessment. Once you pay, as stated above, you may be able to claim a refund. If you do not pay within the time allotted (30 days after the Notice of Redetermination was issued), then there will be an additional penalty of ten percent of the outstanding tax or fee due, and the interest will continue to accrue.
What if you didn’t file a timely petition for redetermination?
You may be able to file one if the CDTFA, in its discretion, accept a late appeal as an administrative protest. In order to for the CDTFA to do that there must be a reasonable basis to believe that there may be an error in the notice of Determination that was issued to you.
In certain circumstances, a taxpayer may receive a “Notice of Jeopardy Determination” for taxes plus any additional penalties and fees. The CDTFA may take immediate action to collect unless a proper and timely petition for redetermination is made which includes a security deposit for the amount specified in the notice. A taxpayer will be subject to penalty if a petition and security deposit is not timely filed. You may also submit a timely application for an administrative hearing within 30 days of the service of the Notice of Jeopardy determination.
It must be noted however that filing an application for an administrative hearing does not prevent the CDTFA from pursuing collection action unlike filing a Petition for redetermination.
While the appeal process is pending, either before or after you send in a notice for determination or while you are claiming a refund, you may request a settlement review. The process for settlement consideration ends when the OTA has issued a final decision. Thus, the settlement review request must be timely. The request for a settlement is made by submitting form CDTFA-393, Settlement Review Request for Sales and Use Tax and Special Taxes and Fee Cases.
After submitting the form to the CDTFA’s Settlement and Taxpayer Services Bureau, a representative will review the request and tell you whether it is suitable for settlement consideration. In order for your case to be considered, there must be a genuine factual or legal dispute. After the case has been reviewed, the Bureau will contact you with a proposed settlement and if you do not agree then you will continue with the appeal process. However, if an agreement is made then there will be a series of processes to approve the settlement. If the proposed settlement agreement is approved, then you are required to pay within 30 days of the approval. Be advised that if the proposed settlement agreement and the reduction of tax in the settlement exceeds $500, certain information will become a matter of public record.
The information provided on this page is for informational purposes only and not for the purposes of providing legal advice. You should contact your attorney to obtain advice with respect to any issue or problem.
Abajian Law, is a Los Angeles based tax law firm who has extensive experience working with the CDTFA at all levels, including the OTA. Tax Attorney Vic Abajian has successfully represented clients before the CDTFA in a broad range of industries including multiple cannabis retailers, gas stations, cigarette sales, restaurants and others.
1. California Department of Tax and Fee Administration Website. https://cdtfa.ca.gov/about.htm#:~:text=The%20California%20Department%20of%20Tax,that%20fund%20specific%20state%20programs. (April 13, 2021).
2. California Department of Tax and Fee Administration, Appeals Procedures, Publication 17, https://www.cdtfa.ca.gov/formspubs/pub17.pdf (pp. 4) (April 13, 2021).
Professional Tax Representative
October 4, 2022