On Oct. 1, Alabama taxpayers gained the ability to appeal final assessments issued by the Alabama Department of Revenue and most final assessment issued by substantially all the self-administered cities and counties in the state (or their contract auditing firms), to the newly-established Alabama Tax Tribunal, an independent executive branch agency created as part of the Alabama Taxpayer Fairness Act of 2014.
In addition, taxpayers can appeal to the ATT without first having to pay the disputed tax or post a bond or letter of credit, unlike appeals to circuit court where a taxpayer must "pay to play" in one form or another, unless their net worth falls below a designated threshold.
Gov. Robert Bentley wisely appointed the ADOR Administrative Law Division's longstanding Chief Administrative Law Judge, Bill Thompson, as the first Chief Judge of the ATT, thus assuring a smooth transition.
One of the most appealing features to businesses is the ability to appeal both state and local sales, use, rental and lodging tax disputes to the ATT. Although local taxing authorities are granted the annual right to opt-out of the ATT's jurisdiction, thankfully, the vast majority of the self-administered cities and counties did not, and therefore remain under the ATT's jurisdiction. As of Oct. 15, only the cities of Birmingham, Huntsville, Gulf Shores, Helena, Hoover, Leeds, Mountain Brook, Pelham, Ragland, and Tuscaloosa, and the counties of Bibb, Madison, Morgan, Shelby and St. Clair have opted out.
Doug Lindholm, president and executive director of the influential Council On State Taxation (COST), echoed the comments of lead bill sponsor Rep. Paul DeMarco in his recent BBJ op-ed regarding the importance of Alabama joining the majority of states that have adopted an independent tax appeals process.
"I'm already hearing that Alabama's new tax tribunal is solidifying the business community's perception of Alabama as a fair and customer-focused place to conduct business. More importantly, however, it sends a clear message to companies that Alabama is a prime location for future capital investment."
In addition to establishing the ATT, the Taxpayer Fairness Act also included several updates to the existing procedural protections for taxpayers, including the following:
- Date of mailing for preliminary and final assessments: A preliminary or final assessment must be appealed within 30 days from the date of actual mailing to the taxpayer (or date of personal service, whichever occurred earlier) instead of the date of its entry under prior law.
- Option to appeal net operating loss (NOL) adjustments to the ATT: This clarifies that taxpayers have the option, but are not required, to appeal to the ATT any proposed adjustments by the ADOR to their NOL deductions or carryovers, even though the proposed adjustment does not result in an assessment of tax or a denied refund claim.
- Dormant preliminary assessments: Taxpayers have the option of appealing a preliminary assessment to the ATT or the appropriate circuit court after five years from the date of entry if the assessment has not been made final or withdrawn by the taxing authority. Under current law, the issuance of a preliminary assessment suspends the statute of limitations indefinitely, during which a taxpayer has no appeal rights.
- Security exemption for appeals to circuit court: In cases in which a final assessment is appealed directly to circuit court (or from the ATT to circuit court), a taxpayer who has a net worth of less than $250,000 need not post an appeal bond or pay the disputed tax before filing the appeal.
- Innocent spouse relief broadened: The Act conforms Alabama's outdated version of innocent spouse relief to the federal rules, which is helpful in cases where the spouse perhaps suspected that her husband or ex-husband was cheating the IRS or ADOR on a joint tax return but she didn't personally benefit from the fraud.
A last-minute amendment affords self-administered cities and counties a narrow window of time to enter a preliminary assessment against a taxpayer who was audited by the ADOR and issued a final assessment for additional sales, use, rental or lodging tax.
The assessment is limited to the same disputed adjustment and tax periods. The taxpayer is encouraged to approach the locality and negotiate a voluntary compliance agreement before the final assessment is issued by the ADOR.
Bruce P. Ely and James E. Long Jr. are both attorneys at Bradley Arant Boult Cummings LLP. Members of the authors' firm were involved both in the drafting of the legislation and the lobbying effort.
Republished with permission. This article first appeared on the Birmingham Business Journal on October 23, 2014.