Tax Analysts Blog

Tax Appeal Reform May Be a Possibility in Washington State

Posted on Jan 28, 2015

I’ve written before about the benefits of having an independent tax tribunal at the state level. Generally, an independent tax tribunal (one that is independent of the state’s tax authority) is staffed by judges or administrative law judges who are knowledgeable on tax issues and write impartial opinions. It should lead to a more transparent tax system in which the state’s tax laws are more consistently applied and opinions are more readily published, providingaccountability in ensuring that similarly situated taxpayers are being treated the same.

I have also written several times about Washington state and the need for more transparency at the Washington Department of Revenue, particularly regarding a lack of published decisions from administrative-level adjudicatory bodies. For example, the Appeals Division is an administrative adjudicatory body that issues opinions on various tax matters, including appeals of assessments for the state's sales and use tax and its business and occupation tax. Appeals Division matters are considered by an ALJ. A hearing is typically held, although representatives for the department generally are not present. A written decision is issued; however, most decisions are not published.

While the Appeals Division is generally thought to be a rubber stamp for the department, the Board of Tax Appeals is an independent agency. The board was created in 1967 to hear property and excise tax appeals. Appeals can originate from either county boards of equalization or the department.

Practitioners have recently been pushing the Legislature to reform the tax appeal process. On January 21 a bill (SB 5449) was introduced that would establish an independent tax appeal forum within the state’s judicial branch. The tax appeal division would be part of the Washington Court of Appeals and would replace the board of tax appeals. The tax appeal division would include a main department with judges, and a more informal commissioners’ department.

While tax reform of any kind is often a long shot, at least one practitioner in Washington seems hopeful that a school funding case may make the political climate favorable for reform. In September 2014 the Legislature was held in contempt by the state supreme court in McCleary v. State of Washington for failing to uphold its “paramount duty . . . to make ample provision for the education of all children residing within its borders.” In 2012 the court had determined that the Legislature was underfunding the K-12 education system. The Legislature then failed to provide a complete plan for implementing a basic education program.

What does a school funding case have to do with tax appeal reform? The state will likely have to increase taxes or enact some sort of tax reform in order to adequately fund the K-12 education system. Taxpayers might be more receptive to tax reform if the administration of the tax system were improved at the same time. Maybe this is wishful thinking, but while the relationship between tax appeal reform and the McCleary case may be tangential, if the state is being forced to think about tax reform, it is conceivable that tax appeal reform could be included in the discussion.

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