Alabama Receives Significant Upgrade from COST on State Tax Due Process Scorecard

State & Local Tax Alert: Alabama Edition

Client Alert

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On December 17, the Council On State Taxation (COST) announced that Alabama’s grade in their “Best and Worst of State Tax Administration” scorecard on Tax Appeals and Procedural Requirements, otherwise known as the “Due Process Scorecard,” improved from a “D” to a “B” as a result of the passage earlier this year of the Alabama Taxpayer Fairness Act (formerly known as the Alabama Taxpayers’ Bill of Rights II). Act No. 2014-146 (H.B. 105 Sub.) was passed nearly unanimously by the Alabama Legislature and signed into law by Governor Bentley on March 11. The newly established Alabama Tax Tribunal became fully operational on October 1.

Although the Act made several major changes to Alabama’s tax procedure rules, the most important by far was the creation of the independent Alabama Tax Tribunal and the abolition of the Alabama Department of Revenue’s Administrative Law Division. Thankfully, Governor Bentley appointed former Chief ALJ Bill Thompson to be the first Chief Tax Tribunal Judge, and as our readers may recall, Judge Thompson quickly got to work by drafting operating regulations for the Tribunal that also clarified some of the appeal procedures and requirements in the Act. COST was also kind enough to thank former Representative Paul DeMarco (R-Homewood), Bruce Ely and Jimmy Long of this firm, and the Business Council of Alabama (BCA) for their “tireless efforts” in passing the landmark bill. Although the BCA was singled out in the press release, thanks should also be given to the 31-member Business Associations’ Tax Coalition (BATC), chaired by Rick Brown of the Alabama Retail Association (ARA), and its chief lobbyist, Alison Wingate Hosp, also of the ARA.

COST removed Alabama’s 2-point demerit in the Scorecard’s “Independent Tax Tribunal” category, but noted that 13 self-administered counties and municipalities have opted out of the Tax Tribunal’s jurisdiction. COST indicated that it will revisit this issue in the next Scorecard, but hopes that “in the interim, these localities will find their decision burdensome, both for tax administration and taxpayers – and will revoke their election.”

The announcement added that the Act also makes it easier for certain taxpayers to appeal to the appropriate circuit court, either directly from a final assessment issued by the ADOR or a local taxing jurisdiction; or on appeal from the Tax Tribunal. Senator Paul Sanford (R-Huntsville) should be given much of the credit for this amendment, which allows taxpayers with a net worth of $250,000 or less to avoid posting an appeal bond or paying the tax before filing suit in circuit court.

COST also commended the Legislature for modifying the appeal period by triggering the 30-day appeal period from the date of mailing or date of personal service of the preliminary or final assessment, rather than its date of “entry,” which could be manipulated by the taxing authority. For example, the date of entry on the books of the taxing jurisdiction might be on day 1, but the actual date of mailing might be delayed by 7-10 days or, in some extreme cases, by as much as three weeks. Members of the firm’s SALT Practice Group have had many such experiences.

COST pointed out, however, that the original Alabama Taxpayers’ Bill of Rights II bill also would have extended the appeal period from 30 days to 60 days, while the final version of the bill did not make that change. Both the ADOR and several local taxing jurisdictions opposed that extension, but COST hopes that this issue will be revisited by the Legislature soon to bring the length of Alabama’s appeal periods in line with our neighboring states.

COST also expressed continuing concern regarding the use of outside counsel by the state in complex tax litigation (specifically, the franchise tax refund litigation which continues after over a decade) and with the use of private auditing firms by many local jurisdictions. The authors are hopeful that the latter issue will also be addressed in the upcoming legislative session.

The significant improvement in Alabama’s due process grade is important to the state’s pro-business representation and the authors thank COST for amending its Due Process Scorecard prior to the new edition, which is not expected until later in 2015.