The U.S. Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo1 overturned the longstanding rule of agency deference first articulated in 1984 in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.2 This principle held that, when a statute is ambiguous, courts should defer to a federal agency’s reasonable interpretation of that statute. The Chevron test’s two-step framework—statutory ambiguity and reasonableness of agency interpretation—stood for 40 years. The decision in Loper Bright sparked review by the states of California and Missouri.
California
The California Attorney General’s Office opined on July 31, 2025, that the Office of Tax Appeals (OTA) has the authority to issue an opinion rejecting application of a particular tax regulation to a taxpayer on the basis that it conflicts with governing statutes. This is not the opinion that the OTA was anticipating; as explained below, the OTA does not believe it has such authority.3
Background
A taxpayer who disagrees with an assessment or denied refund claim determined by the Franchise Tax Board (FTB) or the California Department of Tax and Fee Administration (CDTFA) can challenge the determination in an OTA appeal.4 In creating OTA in 2007, the Legislature sought to establish “an independent, objective” appeals process before adjudicators with “a sole focus on tax issues.”5 Taxpayer appeals generally are decided by a three-member panel consisting of persons possessing “knowledge and experience” concerning state and federal tax and fee laws. Panel members must agree to abide by “ethics standards,” “including rules governing conflicts of interest and ex parte communication.”6 Panels must operate independently, deciding appeals free from involvement of the OTA Director.7
Both the taxpayer and the adverse tax agency—CDTFA or FTB—may file briefs explaining their view of the relevant law and facts. At the panel’s discretion, other parties may file amicus briefs as well. After briefing is complete, taxpayers are entitled to a hearing, which the OTA panel must generally conduct in accordance with the Administrative Procedure Act.8 Taxpayers may be represented by an attorney or a non-attorney, such as an accountant. After considering the issues, the OTA panel must issue a written opinion explaining its decision. OTA opinions, which can be deemed precedential, may include “findings of fact, a statement of the legal issue(s) presented, applicable law, analysis,” and the panel’s holding.9
Opinion No. 23-701
In requesting this Attorney General Opinion, the OTA asked whether its panels have the authority to hear challenges to regulations adopted by FTB or CDTFA. The request explains why, in OTA’s view, its panels do not have that authority. FTB and CDTFA have taken the same position in appeals before OTA panels.
In 2017, the Legislature transferred the Board of Equalization’s (“Board’s”) statutory authority to hear taxpayer appeals to the newly established OTA. The Legislature did not eliminate the authority to hear statutory challenges to regulations when it transferred the Board’s authority. The opinion states that there was no evidence that the Legislature intended to eliminate the authority to consider challenges to the application of tax regulations. In other words, the Board was authorized to hear challenges to tax regulations, and so is the OTA.10
In fact, the opinion continued, the evidence suggests that the Legislature sought to reaffirm the authority to adjudicate challenges to tax regulations. Although the Legislature left the Board’s (now the OTA’s) and FTB’s jurisdictional regulations in effect, it authorized OTA to “amend, repeal, or add to” their own regulations “as necessary or appropriate to govern” OTA appeals.11 But the Legislature required that any such amendment be “consistent with” a 2006 Model Act governing administrative tax tribunals. That Model Act allows taxpayers to challenge tax regulations during administrative appeals.12 As a result, an amendment to OTA’s jurisdictional regulations that prohibits challenges to tax regulations likely would be invalid and not “consistent with” the Model Act.13 The Legislature’s incorporation of the Model Act is further evidence of its intent for OTA panels, like the Board before them, to hear statutory challenges to tax regulations.
For these reasons, the opinion states, if an OTA panel determines that applying a tax regulation to the taxpayer’s circumstances would “conflict with” governing statutes, it may decline to enforce the regulation against the taxpayer.14
Opinion Conclusion
When adjudicating a taxpayer’s appeal, the OTA has the authority to issue a written opinion concluding that the application of a particular tax regulation to the facts of that particular case would conflict with governing statutes. In such instances, the OTA may decline to apply the regulation to the taxpayer on that basis. In making this determination, however, the OTA must afford appropriate deference to the agency that issued the regulation. The OTA has no authority to invalidate or remove a regulation from the California Code of Regulations, or to enforce its interpretation of a regulation’s validity or applicability outside the context of adjudicating a particular taxpayer appeal.
Ryan’s Take15
This opinion is undoubtedly a win for taxpayers and provides a refreshingly objective assessment of the purview of the OTA. The OTA’s previous decisions, which opined that the validity of regulations was outside OTA authority, unnecessarily limited taxpayer avenues to reprieve, as taxpayers had to show that the tax agencies misapplied their own regulations.16 The FTB and CDTFA have been given increasing deference to their rulemaking power, particularly given the deference allowed to an agency in rulings construing its own regulations. The OTA’s authority to review whether a regulation has been applied beyond the scope of its statutory authority gives taxpayers the opportunity to challenge such applications without enduring years of litigation.
Despite the AG’s opinion, there are still open questions on this issue. The OTA is not legally bound by this opinion, nor by its own prior decisions on this matter, particularly as those decisions were not deemed precedential. Further, while earlier cases may still be subject to judicial review, the OTA’s own determination regarding its lack of jurisdiction may not come under the purview of the court’s de novo review of the issues before them. Finally, if the OTA determines that a regulation is in conflict with the governing statute in an appeal before them and declines to apply the regulation in a decision, the FTB and CDTFA will not have the right to appeal and will have to decide whether to modify their application of the regulation to other taxpayers or continue to enforce their regulation to give the OTA the opportunity to clarify, limit, or overrule.
Missouri
On July 11, 2025, the Governor of Missouri signed into law SB 221, which takes effect on August 28, 2025. It repeals Missouri Revised Statute 536.140 and replaces it with a new Section 536.140 3, relating to judicial review of an agency determination. The legislation provides that if an agency has not specifically been given administrative discretion to interpret a statute, any party may ask a court to conduct a de novo review of an agency decision. Put simply, if an agency like a Department of Revenue is just giving its opinion on what a law means, the court doesn’t have to treat that opinion as more important than anyone else’s.
Susan Bittick, a principal in Ryan’s Advocacy Services practice, thinks that “one can anticipate that more states will begin to deny agency deference in matters where the agency was not given a specified broad ability to interpret a statute.”
Please contact our tax professionals for information about how these rulings impact your business.
1 Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
2 Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
3 California Attorney General Opinion No 23-701 (2025) https://oag.ca.gov/system/files/opinions/pdfs/23-701.pdf.
4 See Cal. Code Regs., tit. 18, § 30103, subd. (b).
5 Stats. 2017, Ch. 16 (AB 102) § 2, subd. (b).
6 Gov. Code, § 15670, subds. (c)(1), (d).
7 Gov. Code, § 15670, subd. (b)(2).
8 See Gov. Code, § 15674, subd. (a)(3); Cal. Code Regs., tit. 18, § 30216.
9 Cal. Code Regs., tit. 18, § 30501, subd. (b); see id., § 30502.
10 AB 102, Ch. 2017-16.
11 Gov. Code, § 15679.5, subd. (b)(1).
12 Model State Administrative Tax Tribunal Act (August 2006) § 7, subd. (a).
13 See Gov. Code, § 15679.5, subd. (b)(3).
14 Gov. Code, § 11342.2.
15 See The 2009 Metropoulos Family Trust, et al. v. Franchise Tax Bd., 79 Cal.App.5th 245, 266 (May 27, 2022).
16 In the Matter of the Appeal of: Bed Bath & Beyond Inc. (OTA 2022) No. 18011340, 2022 WL 1479162, In the Matter of the Appeal of: Janus Capital Group, Inc. and Subsidiaries (OTA 2023) No. 20096605, 2023 WL 5934944.
TECHNICAL INFORMATION CONTACTS:
Susan Bittick
Principal
Ryan
916.414.0400
susan.bittick@ryan.com
Josh Booth
Principal
Ryan
916.790.3772
josh.booth@ryan.com
Gina Rodriquez
Principal
Ryan
279.600.3261
gina.rodriquez@ryan.com
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