PBLM Logo

An Independent Tax Tribunal Comes to Alabama

by

Tom Zoebelein

 

Governor Robert Bentley signed into law HB105 creating the Alabama Tax Tribunal, making Alabama the thirty-third state (including the District of Columbia) to have a forum for taxpayers to appeal state and certain local tax assessment and other tax matters. Alabama’s move to an independent tax tribunal reduced the number of states without an independent tax tribunal to only sixteenand several of those states are making similar efforts. This bill leapfrogged Alabama over a number of other states to an elite
group of five states that grant full rights to CPAs to represent their clients
before the tax tribunal. We thank our friends and bill co-authors Bruce Ely and Jimmy Long for their assistance in preserving that right through many iterations of the bill.

Establishing an independent tax tribunal in Alabama has long been the dream of many business and professional groups and it took a lot of hard work bya coalition of those groups to finally get this legislation passed. You may be thinking “the present system was working fine; why fix what isn’tbroken?” Alabama’s move to an independent tax tribunal was, in my opinion, purely an economic move to keepAlabama competitive in attracting new business to our state. Like it or not, there is a perception that the taxpayer will never get a fair hearing when the hearings officer is an employee of the taxing authority, as has been the case in Alabama. Section Oneof  Alabama Act 2014-146 reiterates this theme by stating its purpose “to increase public confidence in the fairness of the state tax system, the  state shall provide an independent agency to be known as the Alabama Tax Tribunal to hear appeals of  tax and other  matters administrated by the Department of Revenue.”

The tax tribunal will have an expanded scope as it can entertain taxpayer appeals of both Department of Revenue cases as well as county and municipal sales, use, rental, and lodging tax cases. The local taxing authorities can opt out of the tribunal’s jurisdiction, however. Presently, a majority of local taxing authorities have expressed their desire to come under the Tribunal’s jurisdiction, including the local jurisdictions that are administrated by Revenue Discovery Systems, “RDS” or “AlaTax.” The new tax tribunal will consider taxpayer appeals of any retroactive revocation of a revenue ruling, challenges to the Department’s adjustments to a taxpayer’s NOLs, and finally, any preliminary assessment entered by the Department or a local jurisdiction that is not made final or withdrawn in five years from the date of entry. The tax tribunal will not consider appeals of property tax assessments (except utilities), appeals involving local jurisdictions after their opt-out date, Department personnel actions, or tax cases pending in other courts (federal or state).

The new tribunal will begin hearing cases October 1, 2014, and all cases pending before the Administrative Law Division will be transferred to and handled by the tribunal. Additional tribunal judges will be appointed by the Governor after meeting strict requirements and vetted by a nominating committee. Governor Bentley appointed Chief Administrative Law Judge Bill Thompson to be the first Chief Judge of the Alabama Tax Tribunal. This assured a smooth transition from the administrative law division. The new tax tribunal is a blending of both the former Administrative Law Division andthe  Alabama circuit courts but is an independent agency under the executive branch and cannot declare a taxing statute unconstitutional on its face.The new tribunal has been granted judicial powers similar to civil cases in circuit court, while preserving the broad access to the tribunal by non-attorney representatives (tax practitioners, taxpayers, and other authorized representatives), which was the keystone of the former administrative law division.

The Alabama Tax Tribunal, being a new quasi-court, required the issuanceof regulations to provide the rules and procedures for appeals to the tribunal. The daunting task of writing the tribunal regulations fell to Chief Judge Bill Thompson. Judge Thompson approached interested parties, including Alabama State Bar representatives, the Department of Revenue Legal Division and the ASCPA State Tax Committee, for help in reviewing the proposed regulations. The ASCPA Tax Committee discussed with Judge Thompson their concern that if the tribunal rules were not written with non-attorney taxpayers and their representatives in mind, their lack of knowledge about civil court procedures would limit their access to the tribunal, orat the very least put them at a distinct disadvantage to the legal training of the Department’s attorneys. The ASCPA Tax Committee felt non-attorneys were especially vulnerable because of their lack of knowledge of the rules of evidence in civilcourt proceedings. The ASCPA Tax
Committee consequently asked Judge Thompson to consider leveling the playing field for small business and individual taxpayers appealing to the tribunal.

Judge Thompson took to heart the ASCPA State Tax Committee’s concerns in the recently completed proposed regulations.This is clearly evident in proposed regulation 5, which begins “the tax tribunal is not bound by the rules of evidence applicable in civil cases in circuit court. The tax tribunal may, at the discretion of the tax tribunal judge, admit evidence, including hearsay, that is probative and relevant to a material fact at issue.” This language, in this author’s opinion, neutralizes what could have been a powerful weapon in the hands of the Department’s attorneys to exclude evidence supporting the taxpayer’s case on technical procedural issues instead of considering the probative weight of the evidence being excluded.

The appeals process begins by filing a notice of appeal to the tax tribunal within 30 days from the date of the following actions of the Department:

  1. Mailing or hand delivery of an assessment
  2. Issuance of notice of proposed action or refusal to act
  3. Adjustment to a taxpayers’ NOL carryover
  4. Denial of a refund claim
  5. 5 years have elapsed from the date a preliminary assessment was entered but never finalized or withdrawn.

The appeal must identify the matter being appealed, the position of the taxpayer, the relief sought, and finally, the legal position in support of the taxpayer’s appeal.Though not required, the taxpayer may file his or her appeal using the below forms:

  • Form ATT-1 can be used for assessments, denied refunds, adjustments to NOLs, and preliminary assessment never finalized or removed.
  • Form ATT-2 can be used for appeals of local jurisdictions
  • Form ATT-3 can be used for issues concerning motor vehicles license, registration, title disputes as well as any proposed act or refusal to act by the Department.

Timely appeals to the tax tribunal will be sent to the Department’s legal division for a response within 45 days, but subject to an extension of time to respond, up to 45 additional days, upon a written request for additional time. A notice to the legal division is deemed received 3 business days after the copy of the appeal was mailed by the tribunalto the division. Local jurisdiction will have similar rules, except that the copy of the appeal will be sent to the local jurisdiction by certified mail, receipt requested.

Failure to respond to the tax tribunal under these guidelines will usually cause a finding in favor of the taxpayer. After the Department or a local jurisdiction responds, the tax tribunal judge can do any of the following:

  1. Issue a preliminary or other order directing action by one or more parties to take action deemed appropriate by the tax tribunal judge, including referring the case to taxpayer advocate.
  2. Set a trial date and provide the taxpayer a copy of the Department’s response.
    1. Taxpayer may respond to the Department’s answer within 30 days.
  3. The tax tribunal judge may dismiss any appeal if they fail to comply with the regulations governing appeals before the tribunal.
  4. The tax tribunal judge may decide the case without a hearing based on the evidence presented.

The hearing will follow normal court proceedings, and will be open to the public. Each party will be permitted to testify under oath, and present documents and other evidence. The parties may also present witnesses, subject to direct and cross examination (this includes interrogating a witness where required). The parties will submit briefs.  A hearing can be continued (delayed) or reopened where the judge sees fit.

The tax tribunal judge may allow new evidence at the hearing involving an issue not addressed or raised in the original appeal that shows the taxpayer is entitled to and will be allowed additional relief.

The tax tribunal has additional powers that the Administration Law Division did not possess. They are important to know when forming your case before the tribunal, and can be a double edged sword, so be attentive to that fact. These new powers of the tribunal are similar to a circuit court, and read as follows:

  1. Discovery powers to obtain non-privileged information deemed relevant to the appeal are found in Regulation 14.
    1. Voluntary informal exchange preferred, including the submission of written question.
      1. Opposing parties are requested to respond to all questions that are relevant to the case.
    2. Tribunal petitioned and tax tribunal judge approved interrogatories after non voluntary actions fail.
      1. Parties have to identify information requested and why it could not be obtained voluntarily.
        1. Opposing party has 14 days to file an objection.
      2. Special procedures for discovery dealing with the taxpayer and/or his authorized representative who are not authorized to practice law in this state.
        1. They must clearly provide the deadline for responding, the form and the requirement that it is signed under penalty of perjury.
  2. Both parties are required to stipulate all relevant and non-privileged facts of the appeals case.
  3. Subpoena Powers of the tax tribunal judge under Regulation 15
    1. Can subpoena both witness to testify and evidence produced.
  4. Joinder of persons needed for just adjudication powers granted to the tax tribunal judge under Rule 16
    1. Judge can on his or her motion or a request of a party to the action join other parties to the appeal if
      1. Their absence will prevent equitable relief.
      2. They have an interest in the subject of the appeal and if not joined impedes the protection of the other parties interest or cause a substantial risk of incurring double or multiple or afford and inconsistent obligation by reason of his interest as claimed.
  5. Regulation 17 allow for submission of an amicus briefs

October 1, 2014 we take one major step forward for our state as we begin a new era for resolving Alabama taxpayers’ disputes, be it with the Department or a local jurisdiction. We now have an independent tribunal not limited to only attorneys, but open to all taxpayers and their representatives. We have expanded a more important role for the Office of Taxpayer Advocate, who will assist the tribunal in resolving tax disputes. To those local jurisdictions coming within the jurisdiction of the tax tribunal, gone will be the days of their winning by default.

We have a lot to be thankful for in this new regime as well as the many people who worked behind the scenes over the years to make this dream a reality. To Bruce Ely and all of you whose dedication and hard work made this dream a reality, I say thank you from the bottom of my heart. To Judge Thompson, how can I say thank you enough for your years of dedication to the taxpayers of Alabama by insuring the fair application of the tax code of Alabama? On a more personal note, I would like to thank Judge Thompson for listening to the concerns of the tax committee (and its chairman) in your writing of the proposed regulations.