California Revenue and Taxation Code § 469

(a) The assessor shall 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 as required by this article. The assessor shall conduct an audit of those taxpayers as provided by subdivision (b). (1) For purposes of this section, “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 during 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. (2) 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. (3) If the board audits a taxpayer because the taxpayer’s assessment was selected in a sampling of assessments from the local assessment rolls pursuant to Section 15640 of the Government Code, that audit may be deemed an audit by the assessor for purposes of the requirements of this section. (b) Except as provided in subdivision (c), each year the audits required by subdivision (a) shall be conducted in the following manner: (1) Fifty percent of the audits required by subdivision (a) shall be performed on taxpayers selected from a pool of those taxpayers that have the largest assessments of locally assessable trade fixtures and business tangible personal property in the county. (A) This pool of taxpayers shall be determined as follows: (i) The assessor shall rank all of the taxpayers in the county in descending order by the total locally assessed value of both trade fixtures and business tangible personal property. (ii) The assessor shall select a qualified number of those taxpayers with the largest assessments for inclusion in the pool. The qualified number shall be that number equal to 50 percent of the audits required by subdivision (a) multiplied by four. (B) Taxpayers in the pool shall 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. 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. (2) The remaining 50 percent of the required audits, as determined by paragraph (1) of subdivision (a), shall be selected in a manner that is fair and equitable to all taxpayers and may be based on evidence of underreporting as determined by the assessor. (3) Nothing in this subdivision is intended to prohibit the audit of any taxpayer more frequently than once every four years. (c) In order to allow the assessor some discretion in the number of audits completed each fiscal year as long as the four-year total number of audits in each category are complete within a four-year period, as an alternative to the requirement in subdivision (b) the assessor may satisfy these requirements by auditing the four-year total of the significant number of audits at any time within that four-year period. For purposes of this subdivision, the first four-year period shall begin with the 2019–20 fiscal year. (d) With respect to any audit of the books of a profession, trade, or business, regardless of the full value of the trade fixtures and business tangible personal property owned, claimed, possessed, or controlled by the taxpayer, the following shall apply: (1) Upon completion of an audit of the taxpayer’s books and records, the taxpayer shall be given the assessor’s findings in writing with respect to data that would

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