Source: https://www.thetaxadviser.com/issues/2013/sep/reichenberg-salt-sep2013.html
Timestamp: 2019-04-23 07:57:56+00:00

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The recent trend favoring the creation of independent tax tribunals as a means to resolve state tax issues prior to litigation is a significant development in the area of adjudicating state tax appeal controversies. The use of an impartial, independent forum outside the dominion and control of the state tax authority is often helpful in resolving state tax disputes in a more efficient, streamlined manner by judges possessing state tax expertise, without taxpayers having to prepay the disputed tax. This column examines the origins of the independent tax tribunal, surveys recent developments in this area, and assesses whether more states are likely to follow this trend.
Taxpayers (and their representatives) often find themselves frustrated in the late stages of an audit if it becomes clear to them that a material tax assessment, with associated interest and penalties, is inevitable. This is particularly true when the position the state tax authority is questioning is strong and the arguments the state tax authority is advancing are not. In those situations, taxpayers must consider their next move, which can vary from state to state. Often, once the assessment is issued, taxpayers may appeal the assessment to the administrative appeals unit within the state tax authority, at which point an informal or formal hearing may be held. In some cases, following the initial assessment, taxpayers can forgo the additional administrative appeal, pay the assessment, and then challenge the decision in court.
Both of these paths are fraught with problems. In the first instance, the administrative appeal is heard by a unit of the state tax authority that just issued the assessment. Typically, it is difficult for taxpayers to obtain relief when they are arguing their case in front of a decision-maker who is part of the same administrative entity as the one that issued the assessment. As for the second alternative, requiring taxpayers to pay the assessment before litigation may be unreasonable. The required payment may be significant, and the typically backlogged trial court, with judges who have no tax background and very little tax experience, means that the dispute may not be resolved in court for several years. That is especially true if the trial court decision is appealed. Compared with the choice of accepting an administrative decision that may merely reflect the position of a state tax authority or waiting a long time for a costly judicial response that may or may not vindicate the taxpayer, alternative methods of dispute resolution have become especially desirable in today’s state tax environment.
The Illinois tax tribunal relied on many of the Model Act provisions, though one major departure from the Model Act restricts representation at tax tribunal proceedings to the taxpayer itself or to an attorney admitted to practice in Illinois. 25 The Illinois tax tribunal was scheduled to begin operation on July 1, 2013, but has been delayed to Jan. 1, 2014. So far in 2013, eight states have considered creating a state tax tribunal, though none have adopted them to date. 26 The authors expect this trend of state legislatures considering state tax tribunals to continue into 2014 and future years.
With the advent of a new form of dispute resolution that straddles the line between an administrative hearing and a court proceeding, the question of who can represent taxpayers in this forum is important. It is particularly important for taxpayers, who need to know their representation options if they decide to appeal an assessment to a tax tribunal. In addition to the types of representatives who may practice at a tax tribunal, a question has arisen over out-of-state representatives. As described above, Section 16 of the Model Act provides that a tax tribunal may allow both out-of-state attorneys and accountants to appear and represent a taxpayer in proceedings before the tax tribunal in any matter. When adopting the Model Act, states have typically implemented the provision in a flexible manner, often allowing all out-of-state practitioners to practice in the tax tribunal as a matter of course, which benefits taxpayers who may feel more comfortable using the same representative in all multistate tax matters.
The AICPA has monitored this trend for several years and in 2012 released a paper to assist state CPA societies. 27 The Institute generally supports the creation of state tax tribunals and is working with state CPA societies on this issue. The AICPA believes that if a state is considering possible legislation on this issue, “Section 16. Representation” of the Model Act should be slightly revised to take into account state CPA mobility laws, which were far less prevalent when the act was adopted in 2006.
As the number of independent tax tribunals has proliferated in recent years, several state and national groups have publicly come out in favor of this concept. For example, before Georgia and Illinois adopted independent tax tribunals, the Georgia Chamber of Commerce 28 and the Illinois Chamber of Commerce 29 supported the creation of an independent tax tribunal for disposition of state tax disputes.
In addition, the American Legislative Exchange Council (ALEC) and the National Taxpayers Union (NTU) support the Model Act.
It is clear that the independent tax tribunal is a forum that will continue to grow in importance as taxpayers and state tax authorities grapple with methods to resolve disputes in an impartial venue, without reaching the option of last resort—litigation. The overall success of the independent tax tribunal process in each state will ultimately be judged by the states’ ability to properly staff these forums with capable and experienced arbiters who truly are unbiased and can make decisions without unduly lengthening the process. Taxpayers need to be confident that the independent tax tribunal will properly protect their interests; affording them an unfettered choice of representation is an important component of this aim. State tax authorities should try to keep an open mind on the value of an independent tax tribunal as well. While the complexity of state and local tax laws guarantees that taxpayers and state tax authorities always will have something to dispute, the independent tax tribunal can make such controversies a little less painful on both sides and in the long run promote tax compliance and a pro-business reputation for the state.
1 ABA Model Act, §1; see also Allen and Fields, “The Model State Administrative Tax Tribunal Act: Fairness for all Taxpayers,” 10 The State and Local Tax Lawyer 83 (2005).
2 ABA Model Act, §2(b).
3 ABA Model Act, §5(c).
5 ABA Model Act, §2(a).
6 ABA Model Act, §7(a).
7 ABA Model Act, §7(e).
9 ABA Model Act, §8(b).
10 ABA Model Act, §14.
11 ABA Model Act, §11.
12 ABA Model Act, §12(a).
13 ABA Model Act, §12(b).
14 ABA Model Act, §12(c).
15 ABA Model Act, §§12(d) and (e).
16 ABA Model Act, §§13(a) and (b).
17 ABA Model Act, §15(a).
18 ABA Model Act, §16(a).
19 See Report of ABA Model Act, Explanation of Section 16.
20 In addition to the District of Columbia, the 25 states with executive branch tribunals are: Alaska, Delaware, Georgia, Idaho, Illinois (in 2014), Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, New York, North Carolina, Ohio, South Carolina, Washington, West Virginia, Wisconsin, and Wyoming. The six states with judicial branch tribunals are: Arizona, Connecticut, Hawaii, Indiana, New Jersey, and Oregon.
21 It should be noted that four jurisdictions (District of Columbia, Mississippi, Texas, and Wyoming) allow CPAs (in-state and out-of-state) full rights to represent taxpayers in all tax matters before an independent tax forum with no additional steps required. Ten states (Alaska, Arizona, Delaware, Georgia, Iowa, Michigan, New York, South Carolina, Washington, and West Virginia) allow CPAs (with limitations or additional steps required) to represent taxpayers in some fashion in a truly independent tax forum in some tax matters.
22 Ga. Act 609 (H.B. 100), Laws 2012.
24 See Georgia Department of Revenue website, gataxtribunal.georgia.gov.
25 Ill. H.B. 5192, §1-80.
26 The eight states that considered, but failed, to adopt legislation in 2013 to date are Alabama (H.B. 264, S.B. 223); Colorado (H.B. 13-1140); Iowa (H.B. 1446 and H.S.B. 228); Kansas (H.B. 2413) (would have established current tax tribunal as an independent agency); Louisiana (H.B. 585 and H.B. 515) (would have created tax court in place of current executive branch tribunal); Oklahoma (S.B. 392); Tennessee (S.B. 734, H.B. 961); and Texas (H.B. 2488).
27 For more information on the AICPA position and resources on the issue, see the AICPA State Tax Tribunals webpage. CPAs who want to become involved in this issue in their state should contact their state CPA society.
28 See Georgia Chamber of Commerce website.
29 See Illinois Chamber of Commerce website.
30 Council on State Taxation, Independent Tax Appeals Tribunals.
31 Tax Executives Institute, Policy Statement on Independent State Tax Tribunals.
Jamie Yesnowitz is a principal with Grant Thornton LLP in Washington, D.C., and is the firm’s State and Local Tax–National Tax Office practice leader. Mr. Yesnowitz also is chair of the AICPA State & Local Tax Technical Resource Panel. Eileen Reichenberg Sherr is an AICPA senior technical manager and staff liaison to the AICPA State & Local Tax Technical Resource Panel. For more information about this column, contact Mr. Yesnowitz at jamie.yesnowitz@us.gt.com or Ms. Sherr at esherr@aicpa.org. The authors wish to thank Bruce Ely, one of the originators of the ABA Model Tax Tribunal Act, for his help in providing input and review of the article.

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