Most organizations, whether private or public, would prefer to avoid transparency.  At best, allowing the public to review internal policies, procedures, and self-justification is tedious and time-consuming.  At worst (from the organization’s viewpoint), transparency can shine a light on incompetence, faulty reasoning, unjustifiable processes, and, occasionally, outright corruption.

The agencies administering California’s sales and use tax program have shown a particular distaste for transparency.  For decades the original agency, the California State Board of Equalization (BOE), refused to disclose the cases and documents underlying its regulatory interpretations, until it finally was forced to do so by a state appellate court.  (See State Board of Equalization, et al, v. Superior Court of Sacramento County, (hereafter abbreviated as BOE v. Superior Ct.) (1992) 10 Cal.App.4th 1177.)  The court held that the BOE was compelled under the California Public Records Act to release documents to the public and that “[t]here is a manifest public interest in the avoidance of secret law and a correlative interest in the disclosure of an agency’s working law.”

In 2017 the California legislature removed the sales and use tax program from the BOE’s jurisdiction and assigned it to the newly created California Department of Tax and Fee Administration (CDTFA).  The new agency retained substantially all of its predecessor’s policies and personnel, however, and true to form, managed to get itself exempted from review of its promulgated regulations by the state’s oversight agency, the Office of Administrative Law (OAL).   

New or amended state regulations generally must conform to rulemaking standards and procedures established by the Administrative Procedures Act, pursuant to California Government Code sections 11340 et seq. (APA).  The Act encourages public participation in the creation of agency regulations, to help ensure that those regulations are clear, necessary, and legally valid.  Once drafted, a regulation normally is subjected to further review by the Office of Administrative Law (OAL) before being finalized. 

When CDTFA first was created, however, the enabling legislation somehow permitted the agency to bypass the OAL’s review process.  Consequently, CDTFA was able to avoid OAL scrutiny for more than four years, until the legislature finally repealed its exemption through an amendment to Government Code section 15570.40.  Although the effective date of the repeal was January 1, 2022, it did not apply retroactively, so that CDTFA regulations issued before 2022 remain exempt from OAL review.  The exempted regulations include those that were pushed through just prior to 2022 which explain the policies and procedures followed by CDTFA to disclose records to the public.

Despite CDTFA’s pre-2022 exemption from OAL review, the California Public Records Act and the APA still give the public a right to examine, understand, and, where appropriate, challenge the agency’s rule making provisions.  Nonetheless, when our firm recently requested copies of CDTFA’s current rule making guidelines after we recognized some anomalies in their processes, CDTFA claimed they were confidential and refused to provide them.   Essentially, the agency will provide its proposed regulatory language and related correspondence underlying its regulations (simply because it must, under the legal authority set forth above), but it will not release documents that shed light on its guidelines for creating those regulations in the first place.  It is difficult to imagine why CDTFA considers its rule-making processes to be confidential or what it wishes to keep from the public eye.   

The California Public Records Act (PRA) is embodied within California Government Code sections 6250 et seq.  It establishes the public’s right to access “information concerning the conduct of the people’s business” (sec. 6250).  Government Code section 15570.42 requires CDTFA to adopt regulations that “establish procedures and guidelines to… facilitate maximum public accessibility to the department’s public records” and “specifically identify and describe the types of public records pertaining to the tax and the fee programs administered by the department.” These requirements clearly would include any documents describing how the agency goes about issuing its rules and regulations. 

The need for confidentiality is commonly cited by agencies attempting to avoid transparency.  It was the major argument against records disclosure made by the BOE In BOE v. Superior Ct. (cited above).  In rejecting the BOE’s position, the appellate court emphasized the following points:

  1. “There is a manifest public interest in the avoidance of secret law and a correlative interest in the disclosure of an agency’s working law.”
  2. Records that interpret regulations are part of the agency’s working law and, as such, are subject to the Public Records Act.
  3. Under the PRA, “the fact that a public record may contain some confidential information does not justify withholding the entire document.”

The BOE sought to withhold the documents requested in BOE v. Superior Ct. by claiming the primary entities whose confidentiality would have been violated by disclosing the agency’s internal deliberations were the businesses whose cases had given rise to the ensuing decisions.  In rejecting this argument, the court noted that these businesses would be protected if the BOE simply redacted their names and other identifying data from all documents released, and that such an effort could reasonably be required under the PRA.   

Such redaction (if even necessary) should be even simpler when releasing the rule-making guidelines and documentation requested by our own firm, since such data should generally relate to processes underlying CDTFA’s public rule-making activities rather than referring to specific cases with identifiable businesses.  Applying the criteria of the Public Records Act and BOE v. Superior Court, it is difficult to imagine whose confidentiality would be violated by such disclosure.  Unfortunately, it appears that CDTFA, like its predecessor agency, may be unwilling to abide by the PRA and additional litigation may be required to obtain the requested documents.

Jesse McClellan, Esq.

Jesse McClellan, Esq.

Jesse is a licensed attorney and former sales and use tax auditor. He is a principal at McClellan Davis, LLC, a firm that specializes in representing businesses for sales and use tax matters. Email Jesse

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