ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – REQUESTING AN ADMINISTRATIVE REHEARING – WHAT YOU NEED TO KNOW
By Robert S. Schriebman
Your hearing before an administrative law judge did not go well. You may have left out important evidence, failed to entirely tell your side, or you may have hired the wrong representative. Is it possible to get another bite at the apple – a rehearing? The same rules apply whether your hearing is before the CUIAB or the Office of Tax Appeals (OTA). The basic framework for a rehearing is based upon the provisions of the California Civil Code of Procedure (CCP) § 657. You must show that there was insufficient evidence to justify the judge’s opinion or the opinion was contrary to law.
The recent case of Martinez Steel Corporation, 2020-OTA-074P, sets forth the basic rules. Even though this is an OTA case, the same framework governs EDD hearings before the CUIAB. This article will examine the Martinez Steel matter and will also give you the key CUIAB regulations governing a reopening and a rehearing.
The Case of Martinez Steel Corporation
Martinez Steel Corporation is a contractor. It was assessed stiff sales taxes together with penalties and interest for failing to pay sales tax on materials that it consumed in its own operation. Martinez argued that it was a business that acquired materials for resale, and was exempt from having to pay sales tax. During the hearing the judge found substantial evidence that Martinez consumed 99.9 percent of the materials it purchased and resold only 0.1 percent. Martinez filed for a rehearing.
Legal Standards for an Administrative Rehearing
An administrative rehearing, such as EDD matters decided by the CUIAB, must be based upon good cause. Good cause for a new hearing may be shown where there was insufficient evidence to justify the opinion of the judge or the judge’s opinion was contrary to law, such that the substantial rights of the complaining party are materially affected. The question of whether the judge’s opinion is contrary to law is not one which involves a weighing of evidence, but instead, requires a finding that the opinion is not supported by any substantial evidence. That is to say, the written record of the hearing would justify a directed verdict against the prevailing party. See Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 906.
Contractors holding valid sellers’ permits may purchase materials for resale if they are in the business of selling those materials. Because Martinez Steel only sold only less than 1 percent of the materials, and consumed over 99 percent, the judge found that they were not in the business of selling those materials. Hence, they were required to pay sales tax on what they consumed together with stiff penalties and interest. Martinez’s request for a rehearing was not based upon good cause, so the rehearing was denied.
CUIAB Rehearing Regulations
CUIAB rehearing regulations can be found in Title 22 of the Code of Regulations and specifically sections 5066, 5067 and 5068. Regulation section 5068 (c) states, “If the reason specified by the applicant shows that there is no good cause for vacating the decision, or, if applicable, for the untimely application, an administrative law judge may order the application to vacate the decision denied.”
If you are seeking an administrative rehearing, your goal is to convince the CUIAB, or its Appeals Division, that you have good cause for a new hearing and that there was insufficient evidence to justify the judge’s opinion.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 40 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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