Limiting attorneys' fees at BOE and FTB

By CMTA Staff

Capitol Update, March 22, 2013 Share this on FacebookTweet thisEmail this to a friend

A proposed budget trailer bill would limit the award of attorneys’ fees when certain suits are brought before the Board of Equalization (BOE) and the Franchise Tax Board (FTB). The proposal was heard this week in both the Assembly and Senate Budget Subcommittees. It was rejected with a unanimous vote in the Assembly. The Senate subcommittee decided to leave the item open and make no decision at this time. 

CMTA testified in opposition. We believe that significant policy changes should be considered in legislative committees, not through the budget change process. 

This proposal would have serious negative impacts on California taxpayers. The Code of Civil Procedure section 1021.5 awards reasonable attorney’s fees to the prevailing party when the litigation pursued “has resulted in the enforcement of an important right affecting the public interest . . .” The proposal would effectively preclude such a prevailing party from obtaining their reasonable litigation costs. 

To recover such fees the prevailing party would have to prove that the FTB or BOE was not “substantially justified” in their position.  Since the California Constitution requires all state agencies, including the BOE and FTB, to enforce a statute until an appellate court determines the statute is unconstitutional, it is unlikely that a court would ever determine that the BOE or FTB was not “substantially justified” in their position. Accordingly, despite being successful and proving the invalidity of a tax statute, a taxpayer would not be able to recover their litigation costs. 

Finally, even if a taxpayer could prove the BOE or FTB lacked substantial justification in their position, this proposal imposes an attorney's fee cap of $160 per hour, a rate that is significantly lower than the rates most tax practitioners charge for litigation. This would likely harm the most vulnerable business owners from obtaining relief from invalid taxes or defending themselves against the BOE/FTB. 

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