In Opinion No. 23-701, issued July 31, 2025, California’s Attorney General settled a fundamental question about the reach of California’s newest tax adjudicatory body: can the Office of Tax Appeals (“OTA”) refuse to apply a regulation promulgated by another tax agency if the OTA concludes that the regulation conflicts with governing statutes? The Attorney General’s answer is an unqualified yes—and, in doing so, the Opinion restores a long-standing administrative practice that had been in doubt since the 2017 reorganization of California’s tax agencies. 

A Short History of California’s Tax Appeals System

For decades the elected State Board of Equalization (“Board”) wore two very different hats: (1) administering certain business taxes and fees; and (2) adjudicating disputes arising under them. In 2017, concerns about that “operational culture” led the Legislature to transfer most of the Board’s functions to two new entities. The California Department of Tax and Fee Administration (“CDTFA”) assumed responsibility for administering sales, use, and other business taxes and fees, while the OTA—housed in the executive branch but structurally insulated from tax administrators—became an “independent and impartial appeals body.” The OTA now decides protests of assessments issued by the CDTFA and the Franchise Tax Board (“FTB”) (which administers the State’s income and franchise taxes).

Although the Board had long entertained statutory challenges to tax regulations, the OTA—urged on by CDTFA and FTB—began declining to do so. The OTA even proposed a regulation that would have barred such challenges outright before withdrawing the proposal amid substantial public criticism. The OTA’s director then requested an attorney general opinion.

The Opinion’s Core Holding

California’s Attorney General concluded that the OTA possesses the same adjudicatory authority the Board wielded: that is, when hearing a taxpayer’s appeal, the OTA may examine whether application of a CDTFA or FTB regulation would “conflict with applicable statutes” and, if so, may resolve the case as though the regulation did not exist. The OTA must give the promulgating agency “appropriate deference,” but it is not bound to enforce regulations that cannot be reconciled with the statute.

Importantly, the OTA’s reach stops there. An OTA decision does not repeal or amend the regulation, remove it from the California Code of Regulations, or control its application outside the case at hand. The Opinion stresses that any broader question about the regulation’s continued validity remains with the rulemaking agency, the Legislature, or the courts. 

The Opinion relies principally on Government Code Section 15672, which makes the OTA the “successor” to the Board for all duties “necessary or appropriate to conduct appeals hearings.” Because the Board had repeatedly entertained and sometimes sustained statutory attacks on both its own and FTB regulations, that power passed to the OTA unless the Legislature affirmatively withdrew it—and nothing in the 2017 reorganization statutes or subsequent amendments indicates such an intent.

The Opinion also cites Government Code Section 11342.2, the Administrative Procedure Act (“APA”) provision declaring that a regulation “in conflict with” its enabling statute is not “valid or effective.” In Woods v. Superior Court (28 Cal.3d 668, 671-672 (1981)) and numerous Board decisions, that language justified administrative refusal to apply an invalid rule. The OTA, the Attorney General reasoned, must perform the same analysis to “apply the appropriate law to the facts.”

APA Objections Rejected

Critics argued that an OTA ruling on a regulation’s validity is a quasi-legislative act subject to the APA’s notice-and-comment rulemaking requirements. The Opinion counters that the determination is quasi-adjudicative: the panel decides a discrete controversy between specific parties, using an adjudicative record, and issues a decision that is reviewable de novo. Because OTA opinions do not erase a regulation from the code or create rules of general application, the APA’s rulemaking procedures are irrelevant.

Constitutional Concerns Addressed

The Opinion further rejects separation-of-powers challenges. Article III, Section 3.5 of the California Constitution forbids agencies from refusing to enforce a statute on constitutional grounds absent an appellate decision, but it is silent about regulations. Declining to apply a regulation because it conflicts with a statute therefore does not implicate the provision. Nor does the analysis usurp judicial authority—courts retain the last word and allowing administrative scrutiny actually conserves judicial resources by narrowing disputes.

Practical Implications

The Opinion realigns OTA practice with the policy objectives that drove the 2017 reform—an appeals forum that is “independent, objective, expert, and fair.” Taxpayers may once again argue before the administrative tribunal that a regulation exceeds statutory authority, without the cost and delay of immediate resort to the courts. The CDTFA and FTB, in turn, must be prepared to defend their rules to the OTA.

In sum, the Opinion confirms that the OTA inherits the Board’s long-standing authority to disregard tax regulations that clash with a statute. The Opinion restores an important taxpayer safeguard, clarifies the respective roles of California’s tax agencies, and preserves a coherent separation between rulemaking and adjudication.