The California Attorney General has confirmed the Office of Tax Appeals (OTA) may decline to apply a tax regulation in a taxpayer appeal if it conflicts with the relevant statute. OTA must afford appropriate deference to the issuing agency, but its authority extends to setting aside the regulation for that appeal. OTA lacks authority to invalidate or repeal the regulation more broadly or to apply its conclusions outside the specific appeal.
The opinion explains that OTA inherited its adjudicative authority from its predecessor, the State Board of Equalization, which properly allowed taxpayers to raise statutory – but not constitutional – challenges to tax regulations. While OTA panels have historically declined to entertain such challenges, the AG found that neither the Administrative Procedure Act nor the California Constitution precludes OTA from doing so, and that no separation-of-powers issues arise from the exercise of this authority. Interestingly, a footnote suggests OTA could amend its jurisdictional rules to allow constitutional challenges to tax regulations, potentially expanding its authority.
For taxpayers, the takeaway is twofold: OTA is now clearly a forum for challenging regulations that overstep statutes, and raising those arguments at the OTA appeal stage may be essential to preserve them for judicial review. The opinion reinforces OTA’s role in resolving disputes involving the intersection of tax statutes and regulations. Office of the California Attorney General, Opinion No. 23-701, July 31, 2025.
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