Tax Analysts Blog

The Benefits of Independent Tax Tribunals

Posted on Oct 30, 2013

States are increasingly turning to independent tax tribunals. Most states now have either a judicial-branch tax court or an administrative-level tax tribunal that is independent of the state's tax authority. Taxpayers and practitioners have pressed states for independent decision-making bodies for several reasons, including that the judges or administrative law judges who write decisions are impartial and knowledgeable in tax issues and that the opinions should more consistently and transparently apply the tax law because they will be published. All in all, independent tax tribunals have a positive impact on state tax systems.

A recent opinion by the newly created Georgia Tax Tribunal provides evidence as to why independent tax tribunals benefit taxpayers. Georgia is one of the most recent states to create an independent tax tribunal. Legislation was passed in April 2012 that established the tribunal, but taxpayers weren't able to begin filing petitions in the tax tribunal until January 1, 2013. The tax tribunal will function as an independent and autonomous body, housed within the executive branch.

In its first decision, issued October 1, the tribunal addressed whether taxpayers could obtain a three-year lookback period rather than a five-year lookback period. A lookback period is the number of years that a taxpayer could be required to amend her state income tax return and pay any tax and interest due.

In the case, the taxpayers discovered some questionable deductions and filing statuses on previous returns prepared by a now-deceased tax return preparer. The taxpayers notified the Department of Revenue of the errors on their previous years’ returns under the state’s voluntary disclosure program. To limit the amount of back taxes they were liable for, the taxpayers sought a three-year lookback. The department denied that request and asserted a five-year lookback period.

The tribunal ultimately dismissed the taxpayers’ action. It explained that although it has jurisdiction to review the case, the taxpayers were essentially seeking mandamus against the DOR. Mandamus permits a plaintiff to require action on the part of the government, but only, the tribunal correctly notes, “when the plaintiff has a clear legal right to the relief sought or the public official has committed a gross abuse of discretion.” Unless there are special circumstances, mandamus cannot be used to compel a discretionary act. Because the granting of a shorter lookback period would be at the discretion of the DOR, the tribunal was unwilling to use mandamus to compel the department to do so.

The legal issues at stake in the tribunal’s opinion admittedly aren’t that important. What is important is that the tribunal has begun to issue opinions, and its first opinion was rich with legal reasoning. It bodes well for the future.

The tribunal will also eliminate some of the bias that existed with all tax disputes in the state. Previously, tax disputes were appealed first to the DOR. Appeals could be taken to the Office of State Administrative Hearings (OSAH), but the DOR was able to overturn decisions by the OSAH, and opinions were hard to come by. Appeals could then be taken to a superior court, but only if taxpayers “paid to play” -- that is, they had to pay the amount in contest before proceeding. All in all, it was not a taxpayer-friendly system.

The establishment of an independent tax tribunal is a positive step for tax reform in Georgia. It will reduce the bias against taxpayers and improve transparency by providing clarity and consistency in the administration of the state’s tax laws. With any luck, other states will take notice.

Read Comments (1)

Jay Starkman CPA, Atlanta, GAOct 30, 2013

Just as important as creating an independent state tax tribunal is the need
for wise, competent and fair judges. Georgia was very fortunate in securing
the appointment of Charles “Chuck” Beaudrot, formerly a highly respected
partner in the tax practice of attorneys Morris, Manning & Martin, LLP. It
shows in the wisdom and rich reasoning of his first opinion described above.
My greatest fear in establishing an independent tribunal in Georgia was that it
might follow the example of other states such as Texas, and often the U.S. Tax
Court, to favor former tax department employees for appointment as tax tribunal
judges.

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