Tax Analysts Blog

A Missed Opportunity in Texas

Posted on May 22, 2013

The importance of an independent tax tribunal is well documented in the pages of tax journals and even mainstream media outlets. My colleague, David Brunori, recently wrote an article urging the Alabama legislature to vote in favor of a bill that would create an independent tax tribunal. Independent tax tribunals are generally touted as being fairer than a tribunal housed within a taxing agency and they typically don’t have “pay to play” requirements. Currently, 32 states and the District of Columbia have some form of an independent tax tribunal. But that doesn’t mean the creation of an independent tax tribunal is a sure thing. Far from it.

Texas recently considered a bill that would have created an independent tax tribunal, but the bill died in committee. The bill, HB 2488, was proposed on March 5, 2013, by Rep. Van Taylor (R-Dist. 66) and reflected several features of the American Bar Association Model State Administrative Tax Tribunal Act. Notably, the Texas Comptroller of Public Accounts would not have the ability to reverse a decision of the independent tribunal and taxpayers would not have to pay an assessment before initiating a challenge in the tribunal.

But, the bill is lacking in certain areas. For example, the Governor would have the ability to appoint judges without obtaining the advice and consent of the Senate. In addition, although it is positive that the bill would have removed the ability of the comptroller to reverse a tribunal decision, a hearing before the tribunal would not set the record for appeal. That is, if a taxpayer chooses to appeal an adverse tribunal decision, a district court would be hearing the case de novo and the taxpayer at that point would have to pay the assessment before obtaining a district court hearing.

Admittedly, it was not a perfect bill, but it was a step in the right direction. Ultimately, though, the bill will not move this year. On April 29, 2013, the bill was left pending in committee. But I hope the state will revisit the idea of an independent tax tribunal because the state’s tax appeals system is in need of reform.

Tax appeals in Texas currently work something like this: Taxpayers can seek an administrative hearing from the Tax Administration Division, which is housed within the Comptroller’s Office. Taxpayers have the option of appealing an opinion of the division with the State Office of Administrative Hearings (SOAH). SOAH is arguably more independent than the division because it is structurally separate from the Comptroller’s Office. This separation occurred in 2007, when Comptroller Susan Combs moved the administrative law judges from the Comptroller’s Office to the SOAH. Still, although the ALJs have a new home, their decisions remain “proposed,” which gives the comptroller the ultimate authority to overrule an ALJ’s decision. ALJ decisions also are not published.

So why was this year not the year of the independent tax tribunal in Texas? The answer is, of course, politics. It’s not that businesses and practitioners are lobbying against an independent tax tribunal. They are aware of and interested in reforming the tax appeals system. The problem is that in the past the comptroller (whose office does the fiscal notes for bills) attached a high cost to the creation of an independent tax tribunal because it would eliminate the pay-to-play requirement.

Still, the true cost to the taxpayers in Texas of not having an independent tax tribunal may far exceed the cost of establishing an independent tax tribunal. A report from the AICPA suggests that the comptroller has the power to influence decisions of the SOAH creating doubts as to whether the SOAH is really independent. Taxpayers deserve a means of resolving tax disputes where they receive an impartial hearing, where the law is applied consistently, and where opinions are issued on the basis of the law and the facts of each case.

Read Comments (1)

tim l.May 22, 2013

Oklahoma just adopted a substitute. Taxpayer will have the option to appeal
Tax Commission Order to district court for a trial de novo. Otherwise, appeal
is to the Supreme Court which will not rehear or weigh the factual
determination of the Commission. Effective only for future tax years. Senate
Bill 864.

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