United States: Alabama Enacts Legislation To Create Independent Tax Tribunal

Alabama has enacted legislation, the Taxpayer Fairness Act, to amend procedural provisions and create the Alabama Tax Tribunal to replace the Administrative Law Division of the Alabama Department of Revenue.¹ The Tax Tribunal, which will begin operating on October 1, 2014, is an independent executive branch agency created to hear appeals of tax and other matters administered by the Department and certain self-administered counties and municipalities that have elected to participate with the Tax Tribunal. The legislation is based on the Model State Administrative Tax Tribunal Act drafted by the American Bar Association, but there are some notable differences, as discussed below, between the Alabama legislation and the Model Act.

Establishment of Tribunal

The Tax Tribunal will commence on October 1, 2014, but the chief judge must be appointed by July 1, 2014.² At least one full-time judge will be appointed by the governor to serve on the Tax Tribunal, but no more than three judges may serve at any one time.³ In general, the Tax Tribunal will conduct hearings at its principal office in Montgomery, Alabama.⁴ If the appeal involves a tax levied by only one self-administered county or municipality, the Tax Tribunal may hold the hearing either in the county seat or in the appropriate Department taxpayer service center.⁵

Jurisdiction

The Tax Tribunal will have jurisdiction to hear appeals pending before the Administrative Law Division on October 1, 2014, and all subsequent appeals filed with the Tax Tribunal under the Taxpayers' Bill of Rights and Uniform Revenue Procedures Act, the Multistate Tax Compact, the Tax Enforcement and Compliance Act and various provisions relating to motor vehicles.⁶ Also, the Tax Tribunal will have jurisdiction over appeals relating toself-administered counties and municipalities⁷ that choose to participate with the Tax Tribunal. The jurisdiction does not apply to appeals filed directly with the circuit court from a final assessment entered by the Department or a denial of a refund claim. Also, the jurisdiction does not apply to the assessment of ad valorem taxes, except for appeals of final assessments of the property value of public utilities.

Unless a self-administered county or municipality elects to divest the Tax Tribunal of jurisdiction over appeals of final assessments or denied refunds of any local sales, use, rental or lodgings tax, a taxpayer may appeal to the Tax Tribunal.⁸ The legislation provides election-out procedures for self-administered counties or municipalities. Unlike the Model Act, the Alabama Tax Tribunal legislation does not provide an explicit procedure for resolving tax disputes informally prior to commencing a proceeding in the Tax Tribunal. However, under existing law, if a taxpayer disagrees with a preliminary assessment as entered by the Department, the taxpayer may file a written petition for review with the Department within 30 days from the date of mailing or personal service, whichever occurs earlier, of the preliminary assessment.⁹ A taxpayer also has the implicit right to informally negotiate settlements with the Department prior to the Tax Tribunal process.

In addition to the general ability to appeal a Department assessment or the denial of a refund claim, a taxpayer may elect to file a notice of appeal with the Tax Tribunal regarding a notice of proposed adjustment issued by the Department affecting the taxpayer's net operating loss (NOL) deductions or carryovers.¹⁰ The Tax Tribunal has jurisdiction to determine the amount of the taxpayer's NOL deductions or carryovers for the period in question.

Proceedings

The legislation includes many provisions concerning proceedings before the Tax Tribunal.

Pleadings

A taxpayer may appeal from any final assessment entered by the Department by filing a notice of appeal with the Tax Tribunal within 30 days from the date of mailing or personal service, whichever occurred earlier, of the final assessment.¹¹ If the appeal involves a tax levied by a self-administered county or municipality, the Tax Tribunal must promptly mail a copy of the notice of appeal to the local government.¹² Within 45 days of the date the notice of appeal was mailed, the local government must file a written answer with the Tax Tribunal. However, the judge may allow the county or municipality additional time, not to exceed 45 days, to file an answer. The Tax Tribunal must notify the Legal Division of the Department in writing that an appeal has been filed and mail a copy of the notification to the taxpayer.¹³ The Department must file its answer in the Tax Tribunal no later than 45 days after receiving the notification, but the Tax Tribunal may grant up to 45 additional days to file an answer. The taxpayer may file a reply in the Tax Tribunal within 30 days after receiving the answer.¹⁴ No filing fee will be imposed for any appeal filed with the Tax Tribunal.¹⁵

Hearings

Unless otherwise precluded by law, the Tax Tribunal will take evidence, conduct hearings that are generally open to the public and issue final and preliminary orders.¹⁶ An appeal may be held in abeyance at the discretion of the judge or may be submitted for decision on a joint stipulation of facts without a hearing or as otherwise agreed by the parties. A Tax Tribunal judge, with or without a hearing, may dismiss any appeal or grant appropriate relief to any party, if a party refuses to comply with any regulation or statute concerning appeals before the Tax Tribunal or if a party refuses to comply with a preliminary order.¹⁷ The Tax Tribunal is not bound by the rules of evidence applicable to civil cases in Alabama circuit courts.¹⁸

Decisions

The Tax Tribunal will render its decision in writing, including a concise statement of the facts found and conclusions of law reached.¹⁹ A judge may enter a preliminary order directing a party to take such action as deemed appropriate or referring any issues in dispute to the Department's Taxpayer Advocate. After a hearing or a case is otherwise submitted for decision, a judge may issue an opinion and preliminary order, which includes findings of fact and conclusions of law. The opinion and preliminary order may direct the Department to recompute a taxpayer's liability or the amount of a refund due or for any party to take such action as specified in the preliminary order.

The Tax Tribunal must render its preliminary or final order no later than six months after submission of the last brief filed after the hearing or, if briefs are not submitted, than no later than six months after the hearing is completed.²⁰ However, the Tax Tribunal may extend the six-month period, for good cause, up to three additional months.

Any party may apply for rehearing from any final order or opinion and preliminary order of the Tax Tribunal.²¹ The application must be filed within 15 days from the date of theentry of the order and must specify the reasons and supporting arguments why the order is incorrect and should be reconsidered. The timely filing of an application for rehearing of a final order suspends the time period for filing an appeal with the circuit court. Unlike the Model Act, there are no provisions to establish a small claims division.

Appeals

Other than an application for rehearing, the exclusive remedy for review of any final or other appealable order issued by the Tax Tribunal is an appeal to the appropriate circuit court.²² A notice of appeal must be filed with the appropriate circuit court within 30 days from the date the final or other appealable order was entered.²³ Any appeal by the Department or a self-administered county or municipality whose tax is within the Tax Tribunal's jurisdiction must be filed with the circuit court of the county in which the taxpayer resides or has a principal place of business. Any appeal by the taxpayer must be filed with the Circuit Court of Montgomery County or with the circuit court of the county in which the taxpayer resides or has a principal place of business. The appeal to the circuit court is a trial de novo, except that the order will be presumed prima facie correct and the burden is on the appealing party to prove otherwise.²⁴

Representation

Similar to the Model Act, the Alabama legislation provides that appearances in proceedings conducted by the Tax Tribunal may be made by the taxpayer; by an attorney admitted to practice in Alabama, including an attorney who is a partner or member of, or is employed by, an accounting or other professional services firm; by an accountant licensed by Alabama; or by an authorized representative.²⁵ The Tax Tribunal may allow any attorney or accountant authorized to practice or licensed in any jurisdiction of the U.S. other than Alabama to appear and represent a taxpayer.

Existing Procedural Provisions Amended

The legislation amends existing procedural provisions related to the creation of the Tax Tribunal.

Preliminary Assessments

The three-year statute of limitations for the Department to enter a preliminary assessment is extended for the benefit of a self-administered county or municipality in certain situations.²⁶ In these cases, the statute of limitations does not expire until the earlier of sixmonths of the final assessment or 60 days following the mailing or electronic transmittal of the final assessment notice to the self-administered county or municipality.

If a preliminary assessment is not withdrawn or made final by the Department within five years from the date of entry, the taxpayer may appeal the preliminary assessment to the Tax Tribunal or the appropriate circuit court.²⁷

Taxpayer Advocate

The duties of the Taxpayer Advocate are expanded. At the request of the Tax Tribunal, the Taxpayer Advocate will review a final order issued by the Tax Tribunal that was not appealed if there is newly discovered evidence which by due diligence could not have been discovered in time to file an application for rehearing.²⁸ The Taxpayer Advocate may propose relief that must be approved by the Commissioner or Assistant Commissioner.

Commentary

States have increasingly turned to independent tax tribunals as a method to provide a post-assessment forum in which a taxpayer may obtain a hearing in front of an impartial arbiter.²⁹ Alabama has been attempting to enact Tax Tribunal legislation for several years. In 2012, the Alabama legislature passed legislation that would have created an independent Tax Tribunal, but the governor pocket-vetoed this legislation on procedural grounds.³⁰ The enacted legislation provides that the Tax Tribunal is created to "[t]o increase public confidence in the fairness of the [Alabama] tax system."³¹ Specifically, the legislation creates "an independent agency with tax expertise to resolve disputes between the Department of Revenue and taxpayers, prior to requiring the payment of the amounts in issue or the posting of a bond, but after the taxpayer has had the full opportunity to attempt settlement with the Department of Revenue based, among other things, on the hazards of litigation."³² The Tax Tribunal is intended to provide "taxpayers with a means of resolving controversies that insures both the appearance and the reality of due process and fundamental fairness."³³

Footnotes

1 Act 146 (H.B. 105), Laws 2014, generally effective October 1, 2014, but the provision for appointing a chief judge to the Tax Tribunal is effective July 1, 2014.

2ALA. CODE § 40-2B-1(b)(3).

3 ALA. CODE § 40-2B-1(c)(1), (2).

4 ALA. CODE § 40-2B-1(e)(1), (2). The legislation makes clear that the Tax Tribunal is to be located in a building separate and apart from the building in which the Department is located. ALA. CODE § 40-2B-1(e)(4).

5 ALA. CODE § 40-2B-1(e)(3).

6 ALA. CODE § 40-2B-1(g)(1).

7 A self-administered county or municipality is defined under existing law to mean a county or municipality that administers its own sales and use taxes or other local municipal or county taxes levied or authorized to be levied by a general or local act, or contracts out all or part of that function to a private audit or collecting firm. ALA. CODE § 40-2A-3(21).

8 ALA. CODE § 40-2B-1(g)(2).

9 ALA. CODE § 40-2A-7(b)(4)(a).

10 ALA. CODE § 40-2A-8(b).

11 ALA. CODE § 40-2A-7(b)(5)(a).

12 ALA. CODE § 40-2B-1(h)(2).

13 ALA. CODE § 40-2B-1(h)(3).

14 ALA. CODE § 40-2B-1(h)(4).

15 ALA. CODE § 40-2B-1(i).

16 ALA. CODE § 40-2B-1(k)(2), (3).

17 Id.

18 ALA. CODE § 40-2B-1(k)(4).

19 ALA. CODE § 40-2B-1(l)(1).

20 ALA. CODE § 40-2B-1(l)(2).

21 ALA. CODE § 40-2B-1(l)(5).

22 ALA. CODE § 40-2B-1(m)(1).

23 ALA. CODE § 40-2B-1(m)(2).

24 ALA. CODE § 40-2B-1(m)(4).

25 The term "authorized representative" is broadly defined as "[a]ny individual, including, but not limited to, an attorney or certified public accountant with written authority or power of attorney to represent a taxpayer before the department or the Alabama Tax Tribunal," with the caveat that the legislation does not entitle individuals who are not licensed attorneys to engage in the practice of law. ALA. CODE § 40-2A-3(2).

26 The statute of limitations may be extended where: (i) the Department has audited a taxpayer and has entered a final assessment for additional sales, use, rental or lodgings tax; (ii) the taxpayer owes the same type of tax to the self-administered county or municipality for the same tax period; and (iii) the taxpayer or its authorized representative has not contacted the county or municipality or its private auditing firm, pursuant to its voluntary disclosure program, prior to final assessment. ALA. CODE § 40-2A-7(b)(2)(k).

27 ALA. CODE § 40-2A-7(b)(4)(c).

28 ALA. CODE § 40-2A-4(b)(1)(d).

29 For example, Georgia enacted legislation that created a new Georgia Tax Tribunal that began on January 1, 2013. GA. CODE ANN. § 50-13A-4. Also, the Illinois Independent Tax Tribunal commenced operations on January 1, 2014. 35 ILL. COMP. STAT. 1010/1-15.

30 S.B. 549, pocket-vetoed, May 2012.

31 ALA. CODE § 40-2B-1(a).

32 Id.

33 Id.

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