California Code of Regulations
Title 18 - Public Revenues
Division 1 - State Board of Equalization-Property Tax (California Department of Tax and Fee Administration - Timber Yield Tax, See Chapter 11)
Chapter 2 - Assessment
Article 4 - Information from Taxpayers and Audits
Section 192 - Audit Selection

Universal Citation: 18 CA Code of Regs 192

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) Definitions. For purposes of this regulation:

(1) "Personal property" means all property except real property.

(2) "Business tangible personal property" means personal property used in a profession, trade, or business, and shall include vessels and/or aircraft if used in a profession, trade, or business.

(3) "Trade fixtures" means any fixtures that are used in connection with a trade or business.

(4) "Farming" is a business. When conducting an audit pursuant to this section of a farming or ranching operation, the assessor must determine whether any racehorses taxable to the same taxpayer pursuant to Part 12 of Division 1 of the Revenue and Taxation Code have been underreported or escaped assessment.

(5) "Significant number of audits" means at least 75 percent of the fiscal year average of the total number of audits the assessor was required to have conducted from the 2002-03 fiscal year to the 2005-06 fiscal year, inclusive, on those taxpayers in the county that had a full value of four hundred thousand dollars ($400,000) or more of locally assessable trade fixtures and business tangible personal property.

(6) "Taxpayers with largest assessments" means taxpayers that have the largest assessments of locally assessable trade fixtures and business tangible personal property in the county for the applicable year of audit selection.

(b) General Provisions. The assessor must annually conduct a significant number of audits of the books and records of taxpayers engaged in a profession, trade, or business who own, claim, possess, or control locally assessable trade fixtures and business tangible personal property in the county to encourage the accurate and proper reporting of property.

(c) Significant Number of Audits. If the computation of the significant number of audits, as defined in subdivision (a)(5), does not result in a whole number, the number must be rounded before calculating the number of audits that must be performed on taxpayers selected from the pool of taxpayers with the largest assessments and the number of audits that must be performed on taxpayers selected from the pool of all other taxpayers in the county.

(1) Fifty percent of the significant number of audits must be performed on taxpayers selected from the pool of taxpayers with the largest assessments.
(A) This pool of taxpayers must be selected from a list of taxpayers in the county, ranked in descending order by the total locally assessed value of both trade fixtures and business tangible personal property.

(B) The qualified number of those taxpayers for inclusion in the pool must be that number equal to 50 percent of the significant number of audits multiplied by four.

(C) All taxpayers in the pool must be audited at least once within each four-year period following the latest fiscal year covered by a preceding audit and the audit may combine multiple fiscal years.

(D) The assessor is relieved of the requirement to audit the taxpayer at least once every four years if the assessor determines that the taxpayer's assessments are no longer large enough for inclusion in the pool. If such is determined, then the next ranking taxpayer not currently within the pool of taxpayers with the largest assessments must be added to the pool.

(E) The assessor is not required to audit a taxpayer that is fully exempt from property taxation under other provisions of law for purposes of the requirements of this section. Therefore, a taxpayer fully exempt from property taxation must not be included in the pool of taxpayers with the largest assessments.

(2) The remaining 50 percent of the significant number of audits must be selected by the assessor from among the pool of all taxpayers.
(A) These audits must be selected in a fair and equitable manner.

(B) These audits may be based on evidence of underreporting as determined by the assessor.

(3) If the significant number of audits is an odd number, the assessor must determine how to split the odd number audit.

(d) Other Audits. Nothing herein shall be construed to prohibit an assessor from auditing the books and records of any taxpayer more frequently than once every four years.

(e) Examples. The following hypothetical examples illustrate the audit selection process.

Example 1: Prior to January 1, 2009, a county with a total number of mandatory audits of 800 during the 2002-2003 fiscal year to the 2005-2006 fiscal year was required to conduct 200 audits (800 / 4) per year. This county's significant number of audits that must be conducted annually is 150 (75% x 200). Of the 150 annual significant number of audits, 75 (50% x 150) must be from the pool of the taxpayers with the largest assessments, and 75 (50% x 150) must be selected from among the pool of all other taxpayers in the county. The number of taxpayers with the largest assessments that must be audited on a four year cycle is 300 (150 x 50% x 4).

Example 2: Prior to January 1, 2009, a county with a total number of mandatory audits of 61 during the 2002-2003 fiscal year to the 2005-2006 fiscal year was required to conduct 15 audits (61 / 4 = 15.25, rounded) per year. This county's significant number of audits that must be conducted annually is 11 (75% x 15.25 = 11.4375, rounded). Of the 11 annual significant number of audits, 5.5 (50% x 11) must be from the pool of the taxpayers with the largest assessments, and 5.5 (50% x 11) must be selected from among the pool of all other taxpayers in the county. The county assessor must determine how to split the odd number audit. The number of taxpayers with the largest assessments that must be audited on a four-year cycle is 22 (11 x 50% x 4). Therefore, during a four-year cycle, the county assessor would be required to audit five from the pool of taxpayers with the largest assessments in the county and six from among the pool of all other taxpayers in the county each year for two years; and six from the pool of taxpayers with the largest assessments in the county and five from among the pool of all other taxpayers in the county each year for the remaining two years.

1. Amendment of subsections (d) and (e) and new subsection (f) filed 10-26-73; effective thirtieth day thereafter (Register 73, No. 43). For prior history, see Register 71, No. 13.
2. Amendment of subsections (a), (b), and (c) filed 12-22-76; effective thirtieth day thereafter (Register 76, No. 52).
3. Amendment of NOTE filed 10-26-77; effective thirtieth day thereafter (Register 77, No. 44).
4. Amendment filed 10-20-80; effective thirtieth day thereafter (Register 80, No. 43).
5. Amendment filed 1-11-83; effective thirtieth day thereafter (Register 83, No. 3).
6. Change without regulatory effect amending subsections (a)-(c) filed 4-29-96 pursuant to section 100, title 1, California Code of Regulations (Register 96, No. 18).
7. Change without regulatory effect amending subsection (a)(2) filed 12-22-97 pursuant to section 100, title 1, California Code of Regulations (Register 97, No. 52).
8. Amendment of section heading, section and NOTE filed 4-14-2010; operative 5-14-2010 (Register 2010, No. 16).

Note: Authority cited: Section 15606, Government Code. Reference: Sections 106, 469 and 470, Revenue and Taxation Code.

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