Sam Brotman, JD, LLM, MBA December 17, 2021 7 min read

The Differences Between the Federal System and the State of California

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

As a small business owner, you are used to dealing with the IRS and the state. You file income taxes with the IRS every year and file returns with the state when they are due. Paying tax is paying tax, right? So, why is there such a difference between the way the IRS plays versus the state?

Why is it that you can go to a state tax office in one city and get one answer, then go to a different office and get the opposite answer?

When you look at the big picture, maybe the IRS is easier to deal with. Yes, I said it!

In this article, I will explain the differences so you will have a better understanding of the bureaucracy, how it functions and what you are up against.

Internal Revenue Service

The IRS tends to get a lot of flack, but the federal system for tax is actually pretty well developed. And here is why.

The IRS is an administrative agency. As such, it makes rules interpreting the way that it is going to enforce the tax law. It also makes rules to govern what will happen if you get into a dispute with them.

The IRS is essentially a rule-making authority, but in addition to the IRS, there is a tax court. The tax court is a judicial system with judges. In this court people from all 50 states litigate their tax issues. 

There is a series of judicial opinions that come out and those judicial opinions function as a check against the IRS. 

The IRS is not allowed to just ignore a judicial opinion. There is a system of rules that is created on the administrative level and a judicial check which functions against those rules. 

There is a really well-defined harmony between the administrative system and the judicial check system that operates and enforces the IRS roles.  Many of the procedures that have come out of the IRS are very well shaped by the courts. However, in California, the judicial system is not as well defined.

State of California

If you have ever been to court in California, you know how difficult it is to get a court date to begin with.

It is even more difficult to get in with a tax case. The California constitution has even created some barriers to getting tax cases into the superior court.

Not only do tax cases take a long time to get through the California system,  you also had to deal with a judicial body that didn't get many tax cases or have a great deal of experience in deciding them. 

Then in 2017 a couple of things happened:

  • The state replaced the Board of Equalization with the California Department of Tax and Fee Administration (CDTFA). The decisions that come out of there are largely pro-government and have not always served as a good check on the administrative agencies in California. 
  • California developed the Office of Tax Appeals to hear appeals from California taxpayers regarding various taxes and fees administered by the California Department of Tax and Fee Administration and the Franchise Tax Board. 

The administrative tax agencies and smart people in Sacramento who write the policy for tax law and tax procedure in California do a really good job.

They do their best to write well-defined laws and procedures that will impact the State of California and the people who live here. It is not a completely level playing field, but they try to be fairly even-handed.

The problems start once a policy comes out of Sacramento and hits the district offices located all over the state. Different people with their own pressures run those offices. Thus, the interpretation of the policy that is coming out of Sacramento gets interpreted in different ways. 

We have had cases at the firm when two clients run virtually the same sort of business and are dealing with an identical tax situation. It will go through two separate district offices and get two different results.

It is frustrating for our clients because most of them take the position “We just want to do the right thing. We just do not know what the right thing is.” That is what makes California and state tax law so challenging. 

For both practitioners and for clients it is also frustrating when the rules don't apply consistently across the board. This is one of the biggest differences between the federal system and the state tax system.

Representation You Can Count on

If you are facing big problems with the IRS or the State of California or both, you need help deciphering the rules. My firm, Brotman Law, has years of experience in dealing with both the IRS and the state. 

We specialize in small business tax issues and what sets us apart from other law firms is that we are familiar with the staff in offices across California as well as representatives of the IRS. 

These relationships give us a distinct advantage and we will help you build a strategy to reduce your risk and stack the deck towards a favorable outcome. We would be happy to schedule a consultation with you to discuss your circumstances.

Stop procrastinating as the penalties and interest add up on your tax debt! Give Brotman Law a call and set up a tax action plan today.

"Sam is a wonderful, results-oriented and extremely knowledgeable and talented attorney, who really has 'heart' in working on behalf of his clients, and explains options in a straightforward, respectful manner. He has assisted us with great outcomes which have added to our quality of life. I would not hesitate to recommend Sam for his services as he is an ethical, personable and expert attorney in his field. You will likely not be disappointed with Sam's work ethic, approach and his efforts."

-Aileen Dwight, Licensed Clinical Social Worker & Psychotherapist

Last updated: November 26, 2022

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Sam Brotman, JD, LLM, MBA

Owner and Director of Legal
Brotman Law

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