Tax Analysts Blog

Yes, Tax Laws Should Be Fairly and Equitably Applied

Posted on Oct 24, 2016

Harsh words for the state commissioner of revenue from the Minnesota Tax Court in a recent opinion involving utility assessments. The case, CenterPoint Energy Resources Corp. v. Commissioner of Revenue, stemmed from CenterPoint’s appeal of the commissioner’s valuation of its gas transmission pipeline as a single economic unit. CenterPoint argued, based on a fee appraisal prepared by its expert, that the unit value of the property was approximately 20 percent lower than the commissioner’s valuation. 

It is not an atypical fact pattern. The valuation of a commissioner of revenue differs from the valuation of a property owner. But it was how counsel for the commissioner handled the case that drew the ire of the court.  

The court first chastised the commissioner by saying crucial evidence was “willfully withheld” from the taxpayer and that the commissioner was attempting to transform prima facie validity “into a bar locking the courtroom door against all taxpayers by deeming their evidence per se insubstantial.” This was based on the fact that the commissioner withheld a draft appraisal repeatedly requested by CenterPoint during discovery, and then argued that CenterPoint could not meet its burden of rebutting the prima facie validity of its assessment. 

The court rightly noted that CenterPoint had rebutted that prima facie validity of the assessment by producing a fee appraisal indicating that the commissioner’s assessment was excessive. How else would a taxpayer rebut a commissioner’s assessment other than by producing a report prepared by an expert? If the court had held differently, it would have created a situation in which no taxpayer could challenge such an assessment. 

The court also would not permit the commissioner to take a position in this case that was “directly contrary” to a position in a prior case. The Minnesota Supreme Court recently reminded the commissioner that administrative rules should be applied “in a consistent and equitable manner” because taxpayers need to trust that the state’s tax system is “fairly and equitably applied to all.” Taking contrary positions in consecutive case does nothing to advance the goals of transparency or consistency, the court said. 

I congratulate the court for demanding that the commissioner act in a fair, consistent, and transparent manner.  State tax authorities should make every effort to ensure that fair and standard procedures are in place. Revenue officials at the federal and state level need to remember that our nation’s tax system is based on voluntary compliance. It is in the tax authorities’ best interest to provide as much information as possible, to ensure that taxpayers understand the tax laws and how they will be applied, and then to consistently apply those laws so that taxpayers trust the system.

 

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